UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

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

For the fiscal year ended December 31, 2014

OR

o		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)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.001 per share

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 o

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller Reporting Company x

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter: $53,993,665

The registrant had 33,741,872 shares of common stock outstanding on March 16, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2015 Annual Meeting of Stockholders of Celator Pharmaceuticals, Inc. (hereinafter referred to as “Proxy Statement”) are incorporated by reference in Part III of this report. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s year ended December 31, 2014.

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CELATOR PHARMACEUTICALS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

TABLE OF CONTENTS

		Page
PART I
Cautionary Note Regarding Forward Looking Statements			1
Item 1. Business			3
Item 1A. Risk Factors			31
Item 1B. Unresolved Staff Comments			50
Item 2. Properties			50
Item 3. Legal Proceedings			50
Item 4. Mine Safety Disclosure			50
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			51
Item 6. Selected Financial Data			51
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			60
Item 8. Financial Statements and Supplementary Data			60
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			60
Item 9A. Controls and Procedures			60
Item 9B. Other Information			N/A
PART III
Item 10. Directors, Executive Officers and Corporate Governance			62
Item 11. Executive Compensation			62
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			62
Item 13. Certain Relationships and Related Transactions, and Director Independence			62
Item 14. Principal Accountant Fees and Services			62
PART IV
Item 15. Exhibits, Financial Statement Schedules			63

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission, referred to herein as the SEC, encourages companies to disclose forward looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Certain statements that the Company, as defined in Item 1, may make from time to time, including, without limitation, statements contained in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements and the risks and uncertainties associated with them include, among other things:

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In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Form 10-K annual report might not occur. The reader is cautioned not to place undue reliance on forward-looking statements that speak only as of the date of this Form 10-K annual report. The Company is not under any obligation, and the Company expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent forward-looking statements attributable to the Company, or to any person authorized to act on the Company’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

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PART I

ITEM 1. BUSINESS

Overview

Celator Pharmaceuticals, Inc., with locations in Ewing, N.J., and Vancouver, B.C., is a clinical stage biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. Celator’s proprietary technology platform, CombiPlex®, enables the rational design and rapid evaluation of optimized combinations incorporating traditional chemotherapies as well as molecularly targeted agents to deliver enhanced anti-cancer activity. CombiPlex addresses several fundamental shortcomings of conventional combination regimens, as well as the challenges inherent in combination drug development, by identifying the most effective synergistic molar ratio of the drugs being combined in vitro, and fixing this ratio in a nano-scale drug delivery complex to maintain the optimized combination after administration and ensure its exposure to the tumor. Celator’s pipeline includes lead product, CPX-351 (a liposomal formulation of cytarabine:daunorubicin) for the treatment of acute myeloid leukemia; CPX-1 (a liposomal formulation of irinotecan:floxuridine) for the treatment of colorectal cancer; and a preclinical stage product candidate, CPX-8 (a hydrophobic docetaxel prodrug nanoparticle formulation), being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory. The Company is advancing the CombiPlex platform and broadening its application to include molecularly targeted therapies and epigenetic modulators. Areas of investigation include:

The majority of our current research and development funds will be spent on our lead product candidate, CPX-351. We may seek collaborative partners to advance our other programs.

We have spent research and development funds on clinical studies, research collaborations and intellectual property costs. The three major studies for CPX-351 are:

Study 204 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 30.3% (66.7% vs. 51.2%), the 60-day mortality was decreased by 67.8% (4.7% vs. 14.6%), median event-free survival increased by 225.0% (6.5 months vs. 2.0 months) and the median overall survival increased approximately 14.0% (14.7 months vs. 12.9 months). In sAML patients, as defined in the Phase 2 protocol, (approximately 41% of the overall population), the response rate increased by 82.0% (57.5% vs. 31.6%), the 60-day mortality decreased approximately 80.7% (6.1% vs. 31.6%), the median event-free survival increased approximately 3.5-fold (4.5 months vs. 1.3 months) and the median overall survival increased by 98.4% (12.1 months vs. 6.1 months).

Study 205 was a randomized Phase 2 clinical study designed to be a direct test of whether CPX-351 provides increased clinical efficacy over salvage therapies in first relapse AML patients age 18 – 65. This study is complete. In the overall population, CPX-351 resulted in a 20.8% relative increase in response rate (49.4% vs. 40.9%) compared to the control arm of salvage therapies, a 6.9% decrease in the 60-day mortality (14.8% vs. 15.9%), a 34.9% increase in median overall survival (8.5 months vs. 6.3 months) and an approximately 31.1% increase in 1-year survival rate (35.8% vs. 27.3%). For patients in the unfavorable risk

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category (68% of the overall population), CPX-351 resulted in a 42.4% relative increase in response rate (39.3% vs. 27.6%) compared to the control arm of salvage therapies, a 33.2% decrease in 60-day mortality (16.1% vs. 24.1%), a 57.1% increase in median overall survival (6.6 months vs. 4.2 months) and a higher 1-year survival rate of 177.7% (28.6% vs. 10.3%).

Study 301 is a randomized controlled Phase 3 study in patients with sAML, with overall survival as the primary endpoint. This Phase 3 study has been undertaken to confirm the Study 204 clinical observations where CPX-351 provided the largest efficacy improvements in sAML patients and to provide the necessary data for product registration. Study 301 enrolled the first patient in December 2012, and closed enrollment in November 2014. On October 24, 2014, the Company achieved the target enrollment, of 300 patients, in the Phase 3 study of CPX-351. The independent Data and Safety Monitoring Board review in December 2014, reviewed the first 225 patients randomized to the study, which review recommended that the study continue as planned without any modifications. Sites in the U.S. and Canada are participating in this study.

This Phase 3 study is a multicenter, randomized, open-label study testing CPX-351 versus the current standard of care, conventional cytarabine and daunorubicin therapy (7+3) in patients with untreated high-risk (secondary) AML. The Phase 3 clinical study is being conducted in patients, 60 – 75 years of age, with untreated, high risk (e.g., secondary AML or sAML) who can tolerate intensive chemotherapy. The Company expects the following milestones related to its Phase 3 clinical study:

AML accounts for 25 percent of all leukemias of adults in the Western world, with the highest incidence rates occurring in the United States, Australia and Europe. AML is generally a disease of older adults, and the median age at the time of diagnosis is about 66 years. AML has one of the lowest survival rates of all leukemias. In 2015, the American Cancer Society’s Cancer Facts & Figures estimates 20,830 new cases and 10,460 deaths in the U.S. In Europe, the incidence is reported to be approximately 18,000 new cases with a prevalence of more than 50,000.

The Company owns worldwide development and commercialization rights to CPX-351. In 2008, the Food and Drug Administration (“FDA”), granted orphan drug designation to CPX-351 for the treatment of AML. In 2012, the European Commission granted orphan drug status to CPX-351 for the treatment of AML. In January 2015, the FDA granted fast track designation to CPX-351 for the treatment of elderly patients with sAML. The Company has been granted, or notified of allowance of, a number of key patents for CPX-351, details of which are provided in the Intellectual Property section below.

All of our potential products are in research and development phases. We have not generated any revenues from the sale of any such products, and we do not expect to generate any such revenues for at least the next several years. We have earned revenue from collaborative research and development agreements and milestone revenue through an agreement with The Leukemia & Lymphoma Society® (“LLS”). All product candidates that are in clinical testing or that we advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. We may not be successful in our research and development efforts, and we may never generate sufficient product revenue to be profitable.

Celator’s CombiPlex Technology

Emerging evidence indicates that anti-cancer drug combinations can act synergistically, additively or antagonistically depending on the ratio of the agents being combined. While this relationship can be evaluated readily in vitro where drug ratios can be controlled, the translation of such information in vivo is complicated by the fact that the individual drugs administered as a conventional combination or drug “cocktail” may be distributed, metabolized and eliminated differently. This prevents control of the drug ratio following administration and may result in exposure of cancer cells to antagonistic drug ratios with a corresponding loss of therapeutic activity.

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The Company developed its CombiPlex technology platform because the standard of care rarely takes advantage of the critical role that drug ratios may play in combination chemotherapy treatment. The ability to identify the ratio of drugs that will produce a synergistic benefit, and a technology that makes it possible to maintain and deliver that ratio in the body, could have a profound impact on combination therapy efficacy.

A distinguishing feature of the Company’s CombiPlex technology is the proprietary delivery vehicles developed to encapsulate and maintain drug combinations at the desired ratio after in vivo administration. Drug combinations used to treat cancer are often comprised of agents with very different chemical compositions and physical properties. Consequently, formulating drug combinations with such disparate features into a single pharmaceutical product that can release both drugs at the same rate in the body represents a significant technical challenge. The Company has developed two distinct nano-scale drug delivery technology platforms based on liposomes and nanoparticles that together provide great versatility in controlling the encapsulation and retention properties for therapeutic agents from a wide range of drug classes.

The Company believes our scientists are experts in the development and assessment of lipid-based drug carriers. This expertise has been critical to the development of a novel liposome delivery technology capable of co-formulating multiple therapeutic agents. Specifically, cell-based screening assays have frequently identified synergistic drug combinations of agents with markedly different chemical attributes. In the simplest terms, one drug may be highly water soluble, while the other may exhibit low solubility in water but higher lipid solubility. In order to design a delivery system for such agents it is necessary to:

The Company’s formulation scientists have been able to achieve this through manipulations of existing liposomal carriers as well as the development of proprietary drug loading methods and low-cholesterol liposome compositions, where two chemically diverse agents encapsulated within the Company’s proprietary liposomes provides controlled and simultaneous release of both drugs in the blood.

Not all anti-cancer drugs of interest to the Company will be compatible with liposome formulation approaches. While liposomes typically can be utilized with agents that exhibit some degree of water solubility, highly hydrophobic agents, such as the taxanes, are not well retained by the liposomes once in the body. This precludes maintenance of desired drug ratios for combinations containing such agents. Thus, the Company has focused research on the development of polymer and polymer-lipid hybrid nanoparticle systems for co-formulation of hydrophobic drugs including most molecularly targeted agents. This approach is less sensitive to the physicochemical properties of the original drug and allows for the co-formulation and coordinated in vivo release of multiple drugs with widely different properties from the same particle.

Celator Pipeline Overview

Celator believes its CombiPlex technology, and the drugs that have been developed utilizing it, offer an attractive opportunity for the following reasons:

Celator’s pipeline includes: CPX-351 (a liposomal formulation of cytarabine:daunorubicin), which has completed two randomized, controlled, Phase 2 studies in patients with AML and has commenced a Phase 3 study in 300 patients with secondary AML, or sAML, a form of AML with a poor prognosis; CPX-1 (a liposomal formulation of irinotecan:floxuridine), which has completed a Phase 2 study in patients with colorectal cancer; and CPX-8, a hydrophobic docetaxel prodrug nanoparticle formulation that has been selected by the National Cancer Institute’s Nanoparticle Characterization Laboratory for in vitro and in vivo study.

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Celator is focusing its internal infrastructure efforts and expenditures initially on developing CPX-351 while exploring opportunities to partner/collaborate with pharmaceutical companies or secure additional financing to advance other product candidates. The Company plans to advance the CombiPlex platform and widen its application to include molecularly targeted therapies and epigenetic modulators. Areas of investigation include:

In addition to the development strategy described above, in order to enhance our future growth, we may seek, on an opportunistic basis, to pursue complementary or strategic acquisitions, licenses and investments to continue to drive growth.

Celator Product Candidates

CPX-351

Acute Myeloid Leukemia represents a group of clonal hematopoietic stem cell disorders in which both failure to differentiate and excessive proliferation in the stem cell compartment result in accumulation of non-functional cells termed myeloblasts. Untreated AML in all ages is rapidly fatal, with patients dying on average within a few months of diagnosis. Even with treatment, particular groups of AML patients continue to have a poor prognosis. In 2013, it was estimated that approximately 14,590 people in the U.S. would be diagnosed with AML and 10,370 AML patients were expected to die. This reflects the fact that most AML patients will ultimately succumb to their disease and fewer than 30% will be cured. Risk factors that decrease sensitivity of the leukemia to therapy or decrease patient tolerance to therapy include increasing age, poor performance status, co-morbid medical conditions, accumulated chromosomal abnormalities, and multidrug resistance. Given that the median age at diagnosis of AML is 66 years, it is not surprising that the majority of patients diagnosed with AML are at high risk and in need of improved treatment options. AML in older patients (age ≥60) is associated with increased risk of not responding to therapy and increased risk of dying from the treatment. There is broad overlap of the above risk factors with most older AML patients having one or more adverse features. The poor results of treatment in older patients with AML have led to reluctance to treat elderly patients with intensive regimens designed to induce aplasia and complete remission.

Clearing the marrow of leukemia has historically been the only means of obtaining prolonged survival in AML patients. This is usually accomplished by use of intensive cytotoxic/cytoreductive therapy. The intensity of treatment needed to induce aplasia and complete remission is associated with early mortality rates of 10 – 20% in older patients considered fit for intensive therapy and is higher in patients with co-morbidities and poor performance status.

Secondary AML (sAML) is a term that has been used to cover a heterogeneous group of poor prognosis AML arising in a setting of prior treatment with cytotoxic agents or radiation therapy and/or antecedent hematologic disorders (AHD). At the chromosomal level, specific karyotypic abnormalities have been identified and linked to sAML subtypes.

The 7+3 regimen, consisting of seven days of continuous infusion cytarabine combined with day 1, 2, and 3 bolus injections of an anthracycline, such as daunorubicin, has been the standard first-line treatment for AML for nearly 40 years. Better therapies are urgently needed in view of the relatively poor prognosis for most patients with AML. Efforts to improve these outcomes, including intensification of treatment via modification of dose levels and schedules and/or addition of new cytotoxic and targeted therapies to existing regimens, have had limited success.

Despite the widespread use of the 7+3 regimen for AML, there has been little research focused on understanding how these two drugs interact on a cellular level. The different treatment schedules used for cytarabine and daunorubicin in the 7+3 regimen result in leukemia cells being exposed to constantly changing ratios, which may limit the effectiveness of this chemotherapy combination when some of those ratios are antagonistic. In fact, drug ratio dependency was observed and superiority of the 5:1 molar (i.e., number of molecules) ratio was identified by Celator in pre-clinical studies, both in vitro and in vivo. Consequently, the

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CombiPlex technology platform was applied to this combination and nano-scale liposomes were engineered that co-encapsulated cytarabine and daunorubicin, to maintain the optimal synergistic drug ratio for extended periods of time after intravenous injection, with the aim of improving anti-leukemia activity.

Scientific Rationale for CPX-351

When tested in a panel of tumor cell lines, the combination of cytarabine plus daunorubicin consistently displayed synergy and avoided antagonism at a 5:1 molar ratio. Decreasing the drug ratio resulted in a loss of synergy and an increased occurrence of antagonism. Nano-scale liposomes were engineered that co-encapsulated the two agents and maintained the drug ratio for extended times after intravenous injection. The drug ratio dependency and superiority of the 5:1 molar ratio was also confirmed with these delivery systems in preclinical leukemia efficacy studies. CPX-351 exhibited superior therapeutic activity compared to the conventional administration of this drug cocktail in all leukemia models tested, with high proportions of cures, and evidence of in vivo synergy under conditions where the unencapsulated drug cocktail provided minimal anti-leukemic activity. Importantly, this increased activity was selective for leukemia cells.

Increased efficacy with CPX-351 was observed in mice bearing bone marrow-engrafted human leukemia. In the absence of treatment the bone marrow is completely overrun with human leukemia cells within 21 days of intravenous tumor inoculation. The drug cocktail of cytarabine:daunorubicin administered at its maximum tolerated dose, or MTD, caused a modest reduction of leukemia cells in the bone marrow as evidenced by bone marrow cross sections. These mice died from leukemia shortly after completion of conventional treatment terminated. In contrast, the bone marrows of mice treated with CPX-351 were completely cleared of tumor cells and survival of the mice was extended by months. Studies have also demonstrated that CPX-351 persists in the bone marrow for days and that the liposome encapsulated drugs are taken up more by leukemia cells than by normal bone marrow cells.

The Company believes that the research that has been performed, both preclinically and clinically, cannot by its nature provide conclusive evidence that the product provides a completely antagonism-free approach to AML treatment. The Company believes, however, that the product candidate should maximize the probability of an antagonism-free approach to AML treatment and that currently there is no evidence, from either preclinical experiments or clinical observations that is inconsistent with the hypothesis. Preclinical studies have suggested that in vivo delivery of the 5:1 molar ratio of cytarabine and daunorubicin could markedly improve efficacy of this drug combination. Also, the prolonged drug exposure in the bone marrow provided by CPX-351 over the unencapsulated drug cocktail may provide further efficacy enhancement. Taken together, these preclinical studies supported the testing of CPX-351 in a clinical setting.

Previous Clinical Studies with CPX-351

To date, three clinical studies have been completed with CPX-351: (1) a Phase 1 dose escalation study in 48 advanced leukemia patients, (2) a randomized Phase 2 study in 126 newly diagnosed AML patients age 60 – 75, and (3) a randomized Phase 2 study in 125 AML patients in first relapse age 18 – 65. Results from the completed clinical studies that provide the rationale for the Phase 3 registration study, as well as for the CPX-351 clinical development plan, in general, are provided below.

Phase 1 Study — Study 101

A Phase 1 dose escalation study was conducted at four centers in the U.S. in patients with relapsed/refractory leukemia or high-risk myelodysplastic syndrome, or MDS. CPX-351 was administered every other day for 3 doses by 90-minute infusion. The MTD was determined to be 101 U/m² (1 Unit = 1.0 mg cytarabine + 0.44 mg daunorubicin) with dose limiting toxicities of persistent (>56 days) neutropenia (abnormally low number of circulating neutrophils, the most important type of white blood cell) and thrombocytopenia (decrease of circulating platelets in blood), hypertensive crisis and congestive heart failure (in the setting of sepsis). Pharmacokinetic (“PK”) analysis confirmed maintenance of the 5:1 molar ratio for over 24 hours and prolonged circulation half-life. Complete response (“CR”: defined as a disappearance of leukemia from the bone marrow, with recovery of normal blood counts) was first observed at 43 U/m², roughly one-half of the MTD. At study completion, 48 patients had been entered. Among 43 AML patients, CR was achieved in nine patients and complete response with incomplete normal blood cell recovery, CRi (“CRi”: defined as a disappearance of leukemia from the bone marrow, with incomplete blood cell

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recovery) was observed in one patient at 32 U/m². The positive outcomes of this Phase 1 study supported evaluating the efficacy of CPX-351 in a Phase 2 setting.

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

The clinical anti-leukemic activity observed in the Phase 1 study was sufficient to allow initiation of a randomized study in newly diagnosed AML patients age 60 – 75, comparing CPX-351 (100 U/m²) against first-line therapy (7+3 regimen of cytarabine plus daunorubicin using 100 mg/m² cytarabine per day for 7 days as a continuous infusion, combined with 60 mg/m² daunorubicin per day for 3 days). This study was intended to be a direct test of whether delivery of a fixed, synergistic ratio of the two drugs (i.e., CPX-351) provided increased clinical efficacy over conventional administration of the same agents (i.e., 7+3 regimen). Patients were randomized 2:1 to receive CPX-351 or 7+3, respectively, and patients were stratified by risk group where patients classified as high risk had either older age (70 – 75) or sAML or complex cytogenetics (≥3 abnormalities). The primary endpoint of this study was response rate (CR + CRi: defined as the number of patients with CR and CRi divided by the number of patients receiving treatment, expressed as a percentage) and a successful Phase 2 study was prospectively defined as a difference in response rate favoring CPX — 351 with a p-value <0.1, which would support moving forward to a Phase 3 study.

The table below presents the efficacy and early mortality results from Study 204 for the overall patient population as well as for secondary AML (sAML) patients, a group that was prospectively identified for subset analysis in the protocol. Secondary AML is AML that arises from a pre-existing myelodysplastic syndrome or myeloproliferative disease, or treatment-related AML, which results after chemotherapy or radiation therapy for a previous malignancy. sAML is typically associated with a worse prognosis. In the overall population, patients treated with CPX-351 achieved relative improvements over the control arm; a 30% higher response rate (66.7% vs. 51.2%) and a 68% decrease in 60-day mortality rate (4.7% vs. 14.6%).

Table: Major efficacy parameter outcomes for CPX-351 and 7+3 treatment arms
in the overall and secondary AML populations

		All Patients								All Patients				sAML								sAML
		CPX-351 (n=85)				7+3 (n=41)				Relative Improvement Over Control				CPX-351 (n=33)				7+3 (n=19)				Relative Improvement Over Control
Response (CR+CRi) Rate (%)			66.7				51.2				30.3	%			57.5				31.6				82.0	%
60-Day Mortality (%)			4.7				14.6				67.8	%			6.1				31.6				80.7	%
Median Event-Free Survival (months)			6.5				2.0				225.0	%			4.5				1.3				246.2	%
Median Overall Survival (months)			14.7				12.9	*			14.0	%			12.1				6.1	*			98.4	%

One of the primary objectives of this randomized, controlled, Phase 2 clinical study was to identify a well-defined patient population exhibiting benefits from CPX-351 treatment that would be predictive of success in a Phase 3 setting. While improvements in leukemia clearance and response were observed for CPX-351 in all AML subgroups, the benefits were largest in high risk patients and sAML patients, in particular, which constitute approximately 41% of the older study population. In sAML patients, the response rate increased by 82% (57.5% vs. 31.6%), the 60-day mortality was decreased 81% (6.1% vs. 31.6%), and the median overall survival time increased approximately 98% (12.1 months vs. 6.1 months). Overall survival, or OS, results demonstrated improvements with CPX-351 that were statistically significant (p=0.01) with an approximate 54% decrease in the risk of death (hazard ratio=0.46) after 24 months of follow-up. It is important to note that patient demographics and risk factors were well balanced between the two study arms indicating that the improvements were not likely due to imbalances between the treatment arms favoring CPX-351. Moreover, the rate of bone marrow transplants following induction treatment was similar between

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the two study arms, suggesting that stem cell transplants did not bias study results. No other subgroup analyses were statistically significant, which is not unexpected given the small number of patients in each subgroup. The analyses do provide hypotheses for future studies in other patient populations.

An exploratory feature of this study design was that patients randomized to the control arm were allowed to cross over to receive CPX-351 if there was evidence of persistent AML after 7+3 treatment with little likelihood of achieving response. This design element provided important evidence that CPX-351 is active in patients who do not respond to the 7+3 regimen. Specifically, of the 10 non-responders to 7+3 who chose to cross over to CPX-351 treatment, four achieved complete response and all four were alive beyond one year. The efficacy of CPX-351 observed in these patients suggests that CPX-351 may be active in treating AML patients who fail front line treatment with the 7+3 regimen.

In terms of safety, a qualitatively similar profile of adverse events, or adverse events, was observed for both CPX-351 and the 7+3 regimen. The key difference in adverse events between CPX-351 and 7+3 was more prolonged myelosuppression (slower recovery of bone marrow activity) with longer median time to recovery from neutropenia requiring 4 additional days and median time to recover from thrombocytopenia requiring 9 additional days was observed in the CPX-351 arm. This difference can be considered the flip side of the same effect that potent activity in the bone marrow had on leukemia clearance. Associated with this greater myelosuppression were increased adverse events such as febrile neutropenia and infection. In spite of these increased adverse events, there was a decrease in the 60-day mortality rate associated with CPX-351 compared to 7+3 (4.7% vs. 14.6%), indicating that the adverse events associated with CPX-351 treatment were reversible and well managed.

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

Results from the Phase 1 study of CPX-351 also provided the rationale for a second randomized Phase 2 study (Study 205) for patients with first relapse AML, age 18 – 65. Eight patients age 65 or younger in the Phase 1 study had first relapse AML and all eight achieved leukemia-free status by day 14 – 21 leading to a complete response in four of the patients. Study 205 (supported through partnership with LLS) was structured similarly to the newly diagnosed AML clinical study. Patients were randomized 2:1 to receive either CPX-351 (81 patients) administered at the same dose and schedule as used in Study 204 or control arm therapy consisting of investigator selected salvage treatment (44 patients). Patients were stratified by a methodology known as the European Prognostic Index, or EPI, into three strata: favorable risk, intermediate risk, and poor risk based on a scoring system that evaluated duration of first remission, cytogenetics, age, and presence or absence of prior stem cell transplant. The risk factors used to calculate the EPI were well balanced between the CPX-351 and salvage treatment arms. The distributions across risk groups were similar to historical data with approximately 12%, 20% and 68% in favorable, intermediate and poor risk groups, respectively.

The primary endpoint of this study was survival at one year with secondary endpoints including response rate and 60-day mortality. Due to the lack of any established standard of care for first relapse AML, the choice of salvage treatment for the control arm was determined by the investigator. Historical data indicate that approximately 70% of patients with first relapse AML of this age will die of their leukemia within the first year, regardless of the salvage treatment used.

Table: Major efficacy parameter outcomes for CPX-351 and Salvage treatment arms
in the overall and poor risk first relapse AML populations

		All Patients								All Patients				Poor-risk EPI								Poor-Risk EPI
		CPX-351 (n=81)				Salvage (n=44)				Relative Improvement Over Control				CPX-351 (n=56)				Salvage (n=29)				Relative Improvement Over Control
Response (CR+CRi) Rate (%)			49.4				40.9				20.8	%			39.3				27.6				42.4	%
60-Day Mortality (%)			14.8				15.9				6.9	%			16.1				24.1				33.2	%
Median Event-Free Survival (months)			4.0				1.4				185.7	%			1.9				1.2				58.3	%
1-Year Survival (%)			35.8				27.3				31.1	%			28.6				10.3				177.7	%
Median Overall Survival (months)			8.5				6.3				34.9	%			6.6				4.2				57.1	%

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The results from the first relapse AML Phase 2 study, as shown in the table above closely mirrored those in newly diagnosed AML patients. CPX-351 exhibited higher response rate as well as improvements in OS and 1-year survival rate. Similar to the newly diagnosed AML study, the degree of benefit provided by CPX-351 was greater in patients with poor risk characteristics (by EPI criteria). For these patients, who constituted 68% of the patients in this study, CPX-351 outperformed control arm salvage treatment with a 42% relative increase in response rate (39.3% vs. 27.6%), a 33% decrease in 60-day mortality (16.1% vs. 24.1%), a 57% relative increase in median OS (6.6 months vs. 4.2 months) and a 172% increase in 1-year survival rate (28.0% vs. 10.3%). The overall survival curves for the poor risk first relapse AML patients revealed a statistically significant (p=0.02) improvement for CPX-351 with an approximate 45% decrease in the risk of death (hazard ratio=0.55). No other subgroup analyses were statistically significant, which is not unexpected given the small number of patients in each subgroup. The analyses do provide hypotheses for future studies in other patient populations.

The general safety profile was comparable for both study arms except for more prolonged neutropenia and thrombocytopenia following CPX-351 with median absolute neutrophil count recovery (>1000/μL) requiring additional days and median platelet recovery (>100,000/μL) requiring 10 additional days. More prolonged myelosuppression led to higher rates of severe infections (66.7% vs. 61.4%), fatal infections (12.3% vs. 6.8%) and hemorrhage events.

The encouraging results obtained with CPX-351 in the first relapse AML study not only identify an additional AML population that is likely to benefit from CPX-351 treatment, but corroborate the efficacy and safety outcomes observed with CPX-351 in newly diagnosed AML patients. The extent to which maintenance of the 5:1 molar ratio after injection, the prolonged drug circulation lifetimes or potential enhanced bone marrow exposure to drug, alone or in combination, contribute to the efficacy of CPX-351 is currently unknown. However, these features would be expected to function similarly for a wide range of AML patient populations.

To date, clinical studies using CPX-351 have demonstrated a toxicity profile that was deemed acceptable by the investigators performing such studies. In the prechemotherapy era, AML invariably led to death from infections or major bleeding events within weeks to months of diagnosis. Active AML leads to death by producing a general shut down of hematopoietic function with loss of functional neutrophils and marked reductions in platelets and red blood cells. Loss of neutrophil function inevitably leads to risk of severe infections and loss of platelets leads to risk of major bleeding events. In this setting, physicians have traditionally accepted the risk of high rates of adverse events, including severe or life threatening but reversible adverse events, provided there is evidence of greater benefit in the form of objective response and prolonged survival. The balancing of risk and benefit occurs at the start of every treatment course, and every investigator understands that the risk of withholding potentially toxic but useful treatment is death from progressive AML within a short period of time. The Company has found that the toxicity profile of CPX-351 is acceptable to investigators for the following reasons:

In summary, the adverse events profile is acceptable to investigators because unacceptable adverse events have not been encountered and because the risk of 60-day mortality is reduced. The benefits of treatment appear to outweigh the risks.

Adverse events experienced by 25% or more of patients receiving CPX-351 are as follows: rash, febrile neutropenia, nausea, diarrhea, pain, constipation, fatigue, bacteremia, pyrexia, chills, localized edema, decreased appetite, vomiting, cough, headache, dyspnea, epistaxis, stomatitis and hypokalemia.

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Future Clinical Development of CPX-351: Summary and Conclusion

Celator has completed three clinical studies involving 214 CPX-351-treated and 85 control arm patients and the consistency of the findings from these studies has been notable. Cumulative data from all three completed clinical studies demonstrate response at every stage of AML from previously untreated to multiple relapsed patients with consistent evidence that patients with high risk or poor prognosis AML have the greatest relative benefit. Coherent efficacy data with substantial improvements in CR+CRi rate, event free survival, or EFS, and OS provide the rationale for undertaking a Phase 3 study with the intent of regulatory approval and product commercialization. The relationship between risk and clinical outcome provides insight into the observations that treatment with CPX-351 leads to a greater benefit in high risk AML patients. As indicated above, CPX-351 provided evidence of improved anti-leukemic activity in all AML patient populations. In low risk patients, standard treatments are also effective and an improvement is therefore more difficult to demonstrate. However, in higher risk patients, the efficacy of standard treatments falls markedly. The activity of CPX-351 also decreases, but CPX-351 retains more therapeutic activity in these patients than conventional treatments resulting in a larger relative efficacy improvement as seen in the randomized, controlled, Phase 2 studies.

The rationale for selecting newly diagnosed sAML patients ages 60 – 75 as the population for a Phase 3 registration study is based on (1) the clear unmet need in this readily identifiable and accessible AML population, (2) the clinically meaningful benefit in all efficacy and 60-day mortality parameters observed in this population and (3) the ability to directly translate the results of the Phase 2 study into the design of the Phase 3 registration study. Consequently, the Phase 3 study is believed to have acceptable clinical and regulatory risk because the patient population is tightly defined using internationally accepted definitions and the primary endpoint is overall survival using log rank testing as recommended by the FDA. The Company has met with regulatory authorities to review and discuss the development of CPX-351. This includes seven meetings with the FDA on topics regarding (i) chemistry, manufacturing and controls, (ii) clinical pharmacology and (iii) clinical development. Based on the feedback the Company received from the FDA from these meetings, the Company believes it has sufficient input from the FDA and a special protocol assessment was not pursued. If approved, Celator believes that CPX-351 may ultimately replace 7+3 on the basis of improved efficacy and safety.

Design of the Randomized Phase 3 Study in Patients with sAML — Study 301

The design of the Phase 3 study is based upon the Phase 2 study in newly diagnosed AML patients with a small number of important modifications. Key elements that are direct extensions of the Phase 2 newly diagnosed AML study are the use of the 7+3 regimen (cytarabine and daunorubicin) as the control arm with doses of 100 mg/m² cytarabine and 60 mg/m² daunorubicin, the same dose of CPX-351 (100 U/m² days 1, 3 and 5) and the same number of courses (up to 2 inductions and 2 consolidations). The randomization has been changed from 2:1 to 1:1 and crossovers have been eliminated, avoiding interference with interpretation of survival data. The primary endpoint is overall survival. Patients age 60 – 75 with newly diagnosed previously untreated sAML defined according to published World Health Organization, or WHO, criteria are eligible. The study is designed to randomize and treat 300 patients, which provides greater than 90% power to detect an approximate 36.5% decrease in the risk of death (hazard ratio=0.635) with statistical significance (p ≤ 0.05).

The Phase 3 study is designed to address issues that have caused previous drugs to fail in registration attempts for AML. The design utilizes 1:1 randomization and allocates patients to receive either CPX-351 or the 7+3 regimen, which is the standard of care control arm. The control arm and the dose of daunorubicin within the control arm (60 mg/m²) were discussed with and accepted by the FDA, as was the use of overall survival with log rank statistical testing. Patient eligibility was also discussed and both the FDA and the European Medicines Agency, or EMA, accepted the protocol’s use of WHO criteria for confirmation of sAML (with certain exceptions). Finally, potential confounding factors have been anticipated by a patient stratification scheme that will balance age and AML subtype between the two study arms. These design features provide rigor for potential acceptance of study results by both the FDA and the EMA.

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The Company discussed the Phase 3 clinical trial design with regulatory authorities and clinical investigators and modified the patient eligibility from the definition of secondary AML used in the Phase 2 study. The definition used in the prospectively defined analysis of secondary AML patients in the Phase 2 study resulted in 52 patients (n=52) meeting the criteria. In the Phase 3 design, patients with certain myeloproliferative neoplasms (MPN), defined as a history of essential thrombocytosis, or polycythemia vera, or idiopathic myelofibrosis, or combined myelodysplastic syndrome (MDS)/MPN were excluded. Ten patients in the Phase 2 study had one of these conditions and were considered secondary AML per the Phase 2 protocol.

In addition, the Phase 3 study includes de novo AML with karyotypic abnormalities characteristic of MDS per the World Health Organization (WHO). Sixteen patients in the Phase 2 study met this criteria but were considered de novo AML per the Phase 2 protocol.

The Company assessed the impact the above-mentioned inclusion and exclusion changes had on the clinical data. The number of patients from the Phase 2 study that match the Phase 3 eligibility criteria is 58 (n=58). The clinical data for these patients is listed below:

		CPX-351 (n=39)(1)				7+3 (n=19)(2)
Response (CR+CRi) Rate (%)			73.7				42.1
Duration of Remission (Months)			6.2				4.3
60 Day Mortality (%)			2.6				26.3
Median Event-Free Survival (months)			8.9				1.4
1-Year Survival (%)			51.3				24.3	(2)
Median Overall Survival (months)			12.1				6.3	(2)

The clinical risks of not replicating the results observed in Phase 2 can never be eliminated but have been reduced. The study is based upon randomized Phase 2 data that demonstrated coherent improvements in efficacy. Moreover, the experience gained from conducting the randomized Phase 2 study has taught the Company’s clinical group invaluable lessons in how to conduct, monitor and collect data from a randomized study in this patient population. The Phase 3 study is being performed in the U.S. and Canada. A total of 43 centers were initiated for the Phase 3 study and the performance of the study at Canadian centers is not expected to impact FDA review or reduce the likelihood of regulatory approval because there is no meaningful difference in the practice of medicine in leukemia patients in the U.S. and Canada. Finally, the Phase 3 study is powered to reach statistical significance even with a level of efficacy (OS) that is approximately one-half of that observed in Phase 2.

Anticipated Timing and Milestones for the CPX-351 Phase 3 Clinical Study

The first patient was enrolled in December 2012 and the last patient was enrolled in November 2014, approximately six weeks ahead of schedule. The primary endpoint analysis of OS is estimated to occur in the first quarter of 2016. The protocol also has analyses of secondary endpoints built into the design. Assessment of induction response rate (CR+CRi) will occur after all patients have been randomized and completed all study treatments. No statistical comparison will be made until the primary endpoint is analyzed. The pre-determined secondary endpoint analysis of induction response rate is estimated to occur in the second quarter of 2015. In the CPX-351 Phase 2 studies, response rate correlated with survival outcome, and consequently the Company expects that a positive response rate outcome would reflect favorably on the likelihood of a positive OS endpoint in the Phase 3 study.

The Company has received funding under its agreement with LLS and has received proceeds from the private and public sales of securities which have enabled the Company to commence the Phase 3 study

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described above. The Company expects to finance its cash needs from time to time through a combination of equity offerings, debt financings, the sale of net operating loss carry forwards through the New Jersey Economic Development Authority, or NJEDA, Technology Business Tax Certificate Transfer Program, collaborations and strategic alliances.

The ability to meet the projected remaining study timelines and milestones will primarily depend on patient survival in the Phase 3 study and other factors that are delineated in the description of risks associated with the development of CPX-351. See “Risk Factors.”

Path to CPX-351 Registration and Expanded Patient Use

The results of the two randomized, controlled, Phase 2 studies demonstrate the potential clinical benefit of CPX-351 for AML patients. The consistency of the clinical data across both studies showed higher rates of leukemia clearance, higher response rates, reduced early mortality, and improvements in EFS and OS. Data from higher risk/poorer prognosis patient populations demonstrated statistically significant OS improvements in CPX-351 treated patients compared with control arm treatment in sAML patients (from the newly diagnosed AML study) and unfavorable/poor risk patients (per EPI criteria in the first relapse AML study). Based on these results, the initial registration strategy is to conduct a Phase 3 study in patients with untreated sAML. The proposed development of CPX-351 was presented and discussed with both FDA and EMA. In parallel with the Phase 3 study, additional clinical pharmacology characterization and Chemistry, Manufacturing, Control, or CMC, activities required for final NDA submission will be initiated such that their completion will be coordinated with the completion of the Phase 3 study.

Additional Opportunities for CPX-351

Celator’s primary focus in the near-term will be on the completion of the Phase 3 study to register CPX-351 for the treatment of patients with sAML. However, Celator’s clinical studies to date provide evidence that a clinically meaningful benefit may be achieved in other patient populations beyond sAML. Consequently, Celator will consider studying CPX-351 in other patient populations through investigator-initiated studies and/or oncology cooperative groups. Additional investigator-initiated studies are underway and supported by the Company including:

The development of CPX-351 in other AML patient populations will help establish the utility of the drug. The differentiation strategy being pursued is for CPX-351 to replace the standard of care, the 7+3 regimen, in AML. There has been interest among hematologists in extending the use of CPX-351 to other hematologic malignancies such as myelodysplastic syndrome and acute lymphoblastic leukemia based on data obtained in Celator’s clinical studies as well as in preclinical studies. The patent estate covering CPX-351 provides protection (into 2029 based on issued claims and potentially into 2032 based on pending claims) to justify the additional clinical studies necessary to expand the use of CPX-351 to other patient populations.

Commercial Opportunity for CPX-351

While the Company can provide no assurance, the Company believes that the results from the ongoing randomized, controlled, Phase 3 clinical study with CPX-351 have the potential to provide proof of efficacy and safety for use in patients aged 60 – 75 years with high risk, or secondary, acute myeloid leukemia. This Phase 3 trial, which will be the basis for seeking regulatory approval, is a controlled, randomized study

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comparing CPX-351 to the current standard of care, commonly referred to as the 7+3 regimen. This regimen has been the standard of care for nearly 40 years, and is comprised of two cytotoxic agents, cytarabine and daunorubicin. The 7+3 regimen is a 7-day continuous infusion of cytarabine, along with a bolus infusion of daunorubicin given on days 1, 2 and 3. CPX-351 combines the same two active ingredients, but at an established synergistic 5:1 molar ratio of cytarabine to daunorubicin, which are co-encapsulated in a proprietary, nano-scale liposome. This co-encapsulated, liposomal formulation allows for the preservation and maintenance of the synergistic 5:1 molar ratio. CPX-351 offers a more convenient dosing schedule compared to the standard of care, and is administered as a 90-minute infusion on days 1, 3, and 5. Data from the pivotal study, along with data from the completed Phase 2 studies and the ongoing and proposed clinical studies (investigator-initiated or possibly cooperative group studies) are critical to the Company’s strategy of establishing CPX-351 as a potential foundation of care in patients with AML and other hematologic malignancies. Positive data also serve as proof of concept for the Company’s CombiPlex® technology platform.

In recent years, a number of companies have attempted to gain regulatory approval for a variety of investigational agents as a treatment for AML patients. Unfortunately, they have either failed in clinical studies or received negative outcomes from the regulatory agencies, such as the FDA. Several products are currently in late-stage development, but none of the studies are being conducted in the patient population being studied in the on-going CPX-351 Phase 3 study. The Company selected sAML as the initial registration strategy because the Company believes this represents the fastest path to market, and a has a higher probability for success due to the demonstration of a statistically significant survival advantage in a randomized, controlled, Phase 2 study. This Phase 2 study also demonstrated a significant improvement in 60-day mortality for CPX-351 versus the standard of care in sAML patients. Additional parallel development of CPX-351 is warranted based on the current clinical data, and may provide proof of potential benefit in other AML populations and additional hematologic malignancies.

The Company estimates that CPX-351 could be available to patients as early as 2017, assuming the initial registration strategy is approved by the FDA. Following the completion of the Phase 3 study, it is expected that pharmaceutical companies focused in oncology with interests in hematologic malignancies may be interested in gaining access to CPX-351 and the enabling technology. This may result in licensing, merger or acquisition offers to the Company. The Company plans to commercialize CPX-351 in the U.S. subject to FDA approval and will seek industry partners in other major markets. A notable feature of the AML opportunity is that AML is an orphan disease with a very specialized and concentrated target audience that can be served with a modest, focused, commercial organization. This commercial model exists for other approved treatments for hematologic malignancies. Consequently, the Company will carefully weigh any such future commercialization offers against the time, costs and likelihood of success if the Company were to put a commercial infrastructure in place to support CPX-351 and future product candidates.

Competition

The Company operates in a highly competitive segment of the biopharmaceutical market. The Company faces competition from numerous sources including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. Many of the Company’s competitors may have significantly greater financial, product development, manufacturing and marketing resources. Additionally, many universities and private and public research institutes are active in cancer research, and some may be in direct competition with the Company. Celator may also compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The unmet medical need in cancer is such that anticancer drugs are, by far, the leading class of drugs in development. Of the nearly 3,400 drugs in development in the U.S., approximately 1,000 were in the anticancer category. Although many of these compounds are targeted agents, such as biologics that target cell surface proteins; signal transduction, cell cycle control, apoptosis metabolic pathways, and DNA replication, chemotherapeutics are likely to remain a cornerstone of cancer treatment, used in combination with targeted agents, in the foreseeable future.

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Furthermore, the unprecedented activity in the identification and pharmaceutical development of novel single agents provides an opportunity for the Company to access drugs that have undergone significant preclinical and clinical development, but are no longer being pursued because of insufficient activity to warrant development as a single agent, or require the Company’s CombiPlex technology to capture their full therapeutic potential.

Most large pharmaceutical companies are applying significant research and development resources to the identification of effective drug combination treatments for cancer therapy. To date, the focus of such investigations has been on evaluating combinations of novel targeted therapeutics, either with existing anticancer chemotherapeutics or with other targeted agents, in vitro, and subsequently testing selected combinations using each agent as a separate pharmaceutical in their conventional dosing format for in vivo testing. It is possible that such approaches will identify certain combinations that work effectively using this format. The Company has demonstrated in pre-clinical and clinical study settings that the ratios of two agents used in combination may further optimize the risk:benefit ratio.

The cancer indication for which the Company intends to develop its lead product, CPX-351, has a number of established therapies that may be considered competitive. A key consideration in the treatment of AML patients is the patient’s suitability for intensive therapy. The standard of care for the treatment of newly diagnosed AML patients who can tolerate intensive therapy is cytarabine in combination with an anthracycline (i.e., daunorubicin). For some patients, primarily those less than 60 years of age, a stem cell transplant could also be considered. The regimen of cytarabine plus an anthracycline has been the standard of care for nearly 40 years. A patient deemed unsuitable for intensive therapy may be offered the option for a low-intensity therapy, such as low-dose cytarabine, azacitidine or decitabine or possibly intermediate intensity therapy such as clofarabine. It should be noted that in the U.S., azacitidine, decitabine and clofarabine are not approved by the FDA for the treatment of AML patients. The initial focus for CPX-351 development is in patients who are deemed suitable to receive intensive therapy. There are several major pharmaceutical companies and biotechnology companies who are aggressively pursuing new cancer development programs for the treatment of AML, ALL, lymphomas and other hematological malignancies, including both therapies with established, as well as novel, emerging mechanisms of action.

To the Company’s knowledge, there are no new products in late stage clinical development that would compete with CPX-351 for the intended Phase 3 study population. Consequently, the current competition in this indication remains the 7+3 regimen, which has been in place for nearly 40 years. The 7+3 regimen, as noted earlier, is comprised of two agents that are available as generic therapies. Therefore, third-party payors and providers may encourage the use of generic products if CPX-351 does not adequately demonstrate a significant clinical improvement over 7+3. Whether CPX-351 is complementary or directly competitive with new agents in development for the treatment of other AML populations will depend on the safety/efficacy and mechanism of action of these new agents. See also “Risk Factors — If the Company’s competitors develop and market products that are more effective, safer or less expensive than CPX-351, the Company’s commercial opportunities may be negatively impacted.

Additional Product Opportunities

In addition to CPX-351, the Company has other product candidates, which include CPX-1 and CPX-8.

Additional capital, would be required should the Company elect to advance any of these candidates. The Company is exploring development both internally as well as through external partnering.

CPX-1

The combination of irinotecan plus a fluorinated pyrimidine, typically 5-FU, is a standard chemotherapy combination for the treatment of metastatic colorectal cancer, or CRC. In the FOLFIRI (folinic acid (leucovorin), 5-FU and irinotecan) regimen used today, irinotecan is administered bi-weekly as a 90-minute

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infusion of 180 mg/m² on day 1 and 5-FU is administered starting with a bolus loading dose of 400 mg/m² followed by a continuous infusion of 2.4 – 3 gm/m² over 96 hours starting on day 1. Consequently, irinotecan:fluoropyrimidine ratios are continuously changing during the course of therapy, with the possibility of tumor cells being exposed to antagonistic drug ratios should this combination exhibit drug ratio-dependent synergy. It should be noted that floxuridine rather than 5-FU was selected for evaluation of drug ratio dependent synergy because floxuridine displayed enhanced retention in liposomes as well as the fact that previous studies have demonstrated the clinical equivalency of floxuridine with 5-FU in comparative clinical studies.

Scientific Rationale of CPX-1

The combination of irinotecan and floxuridine was screened for drug ratio dependent synergy in vitro in a panel of tumor cell lines. The 1:1 molar ratio of irinotecan:floxuridine was frequently synergistic and avoided antagonism whereas other ratios exhibited a loss of synergy and in some cases the appearance of strong antagonism (e.g., 1:10 ratio). Consequently, engineering nano-scale liposomes to maintain the 1:1 molar ratio of these two drugs after intravenous injection was performed in order to increase efficacy by capturing the full synergy potential and avoiding antagonistic ratios.

A liposome formulation (CPX-1) was developed that co-encapsulated irinotecan and floxuridine and maintained the synergistic 1:1 molar ratio in the blood for approximately 24 hours after intravenous injection, selectively delivering the drugs to solid tumors. When tested in a range of preclinical solid tumor models, CPX-1 consistently provided improvements in therapeutic efficacy over the unencapsulated drug cocktail of irinotecan:floxuridine. For example, in a preclinical pancreatic tumor model, CPX-1 produced 100% tumor regression and long-term cures, whereas the drug cocktail provided only modest inhibition of tumor growth.

Phase 1 Clinical Study of CPX-1

Based on the promising preclinical results described above, CPX-1 was advanced into a Phase 1 dose escalation clinical study in patients with advanced solid tumors. The primary goal for this study was to establish the safety profile for CPX-1, recommend a safe dose for further study in a Phase 2 setting, determine the dose dependent PK of CPX-1 and gather evidence of antitumor activity.

The MTD of CPX-1 was identified as 210 U/m² (1 Unit = 1.0 mg irinotecan + 0.36 mg floxuridine) and once established, seven patients with CRC were enrolled at this dose (extension cohort) to obtain additional safety and efficacy data. Severe adverse events that were dose related included grade 3 or 4 diarrhea (24.2%) and neutropenia (12.1%). The target 1:1 molar ratio of irinotecan to floxuridine was maintained in the blood of all patients for 8 – 12 hours and in many cases up to 24 hours.

Complete response (“CR”: defined as disappearance of all clinical and radiological evidence of tumor), partial response (“PR”: defined as at least a 30% decrease in the sum of the longest diameter of target lesions by clinical and radiological evidence taking as reference the baseline sum of the longest diameters.), stable disease (“SD”: defined as a steady state of disease, i.e., neither sufficient shrinkage by clinical and radiological evidence to qualify for PR or sufficient increase to qualify for PD), and progressive disease (“PD”: defined as at least a 20% increase in the sum of the longest diameters of measured lesions by clinical and radiological evidence taking as references the smallest sum of longest diameters recorded since the treatment started; the appearance of new lesions will also constitute progressive disease) were evaluable in 30 of 33 patients. Three patients achieved a PR, 21 patients achieved SD and six patients had PD. Disease control (CR, PR or SD) was observed in 11 of 15 (73.3%) patients with CRC. Among the 18 subjects with other tumor types, one PR in non-small cell lung cancer, or NSCLC, and 11 SD were observed. Progression-free survival lasting greater than six months was observed in six patients with colorectal cancer and one patient each with pancreatic, ovarian and NSCLC. Colorectal cancer patients exhibited a favorable median progression free survival, or PFS, of 5.4 months. PFS is the length of time after initiation of treatment, during which the disease being treated (usually cancer), does not get worse.

Phase 2 Clinical Study of CPX-1

In view of the high level of disease control observed in the Phase 1 clinical study as well as the encouraging results obtained in colorectal patients regardless of prior irinotecan exposure, CPX-1 was evaluated in CRC patients in a Phase 2 setting. A dose of 210 U/m² was administered bi-weekly to patients

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that were either irinotecan naïve (Arm A, 26 patients) or irinotecan refractory (Arm B, 33 patients). The median PFS, response rate and overall disease control rate for CPX-1 were greater than documented for FOLFIRI in irinotecan-naïve CRC patients. Similar results were obtained in the irinotecan refractory arm. Although no confirmed PRs were achieved in this patient population, the proportion of patients benefiting from CPX-1 treatment and the PFS were similar to the documented benefit of Vectibix® (panitumomab), an approved drug for the treatment of irinotecan refractory patients.

The adverse event profile of CPX-1 was generally consistent with the combination of irinotecan and floxuridine. In this study, dose reductions and/or delays were frequently caused by: diarrhea, nausea and vomiting, or all three. Also observed were neutropenia, infections and fatigue. There was no severe stomatitis or rash. Based on the frequency of dose reductions and delays, the dose used in this study appears to be too high. The frequency of dose reductions and delays prevented an adequate assessment of efficacy for CPX-1.

The research relating to CPX-1 consists of only a single Phase 1 study, with 33 late stage patients (15 colorectal) and a single Phase 2 clinical study, with 59 colorectal patients (26 irinotecan-naïve and 33 irinotecan-refractory) and, because of the limited number of patients treated, cannot provide conclusive evidence that the product candidate is effective for the treatment of colorectal or other cancers. Additional clinical studies, utilizing different doses of CPX-1 and combining CPX-1 with other agents, will be needed before clinical investigators and practicing oncologists accept the efficacy of CPX-1. The Company believes that no controversy exists regarding CPX-1 because the data are not sufficient to either prove or disprove efficacy. Preclinical studies suggested that in vivo delivery of the 1:1 molar ratio of irinotecan:floxuridine could markedly improve efficacy of this drug combination. In addition, the prolonged drug exposure to solid tumors provided by CPX-1 over the drug cocktail may provide further efficacy enhancement.

Future Clinical Development of CPX-1

While recent clinical trials sponsored by the Company have focused on CPX-351, Celator has identified clinical development paths and a strategy that provides multiple avenues for potential clinical success and eventual registration of CPX-1. This strategy is based on the assumption that CPX-1, either by itself or in combination with other agents, will need to provide a meaningful and statistically significant improvement in a time-to-event endpoint (i.e., progression free survival) over current standard of care in order to be approved by the FDA. The clinical results obtained to date with CPX-1 suggest that it is more efficacious than conventional FOLFIRI in treating metastatic CRC, both in terms of response/disease control rate as well as duration of disease control. Consequently, if clinical studies confirm a benefit for CPX-1 over FOLFIRI, CPX-1 could substitute for FOLFIRI, initially in second line treatment of FOLFOX failures. The Company has no active studies underway with CPX-1.

The approvals of Avastin® and Epidermal Growth Factor Receptor (“EGFR”) inhibitors (i.e., Erbitux® and Vectibix®) for treatment of metastatic CRC have transformed the standard of care for the management of CRC patients, particularly in North America. The majority of these patients in North America now receive chemotherapy (e.g., FOLFIRI) in combination with a biological agent. In this context, it should be noted that preclinical studies suggest that CPX-1 combines favorably with both Avastin and EGFR inhibitors. Even as the utilization of biological agents evolves, FOLFIRI will continue to be a treatment regimen with which biologicals will be combined and consequently a potentially important role for CPX-1 in the treatment of CRC is expected if randomized clinical studies are able to demonstrate that the efficacy of CPX-1 is superior to FOLFIRI.

In addition to the opportunities for combining CPX-1 with approved biological agents, the demonstration that EGFR inhibitors are ineffective against CRC exhibiting K-Ras mutations has opened an additional window of opportunity for CPX-1 since clinical studies have shown that the response to FOLFIRI is not diminished in CRC patients exhibiting K-Ras mutations. Given the results from the Phase 1 and Phase 2 studies, Celator believes that CPX-1 could provide a significant benefit over FOLFIRI in CRC patients.

Taken together, Celator believes the scientific evidence in clinical and preclinical studies supports the investigation of CPX-1 in multiple CRC settings. In addition, Celator believes other indications in which FOLFIRI has demonstrated favorable response rates (e.g., gastric cancer), as well as those in which CPX-1 exhibited activity in the Phase 1 study represent additional opportunities for clinical development.

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Preclinical-Stage Pipeline

In addition to Celator’s two clinical-stage products, CPX-351 and CPX-1, research undertaken by the Company has identified a preclinical-stage product that has exhibited promising anticancer activity in animal models. CPX-8, a hydrophobic docetaxel prodrug nanoparticle, in this case a single drug formulation that utilizes the Company’s proprietary prodrug nanoparticle technology has demonstrated marked increases in tumor regression and tumor growth inhibition compared to the conventional formulation of this drug, Taxotere®. In addition, we have initiated research into applying the CombiPlex technology platform for novel combinations utilizing molecularly targeted therapeutic agents with the aim of identifying product candidates for internal development and generating interest in partnering/collaboration opportunities from other pharmaceutical companies.

CPX-8

The taxanes (e.g., Taxol® (paclitaxel) and Taxotere® (docetaxel) comprise a class of water-insoluble (hydrophobic) anticancer drugs that are used extensively to treat a range of cancers, including breast, ovarian and non-small cell lung. Whereas liposomes are well suited as nano-scale delivery systems for water soluble drugs such as those contained in CPX-351 and CPX-1, they typically are unable to retain hydrophobic agents such as the taxanes after administration in the body. The Company has developed nanoparticle formulations of both paclitaxel and docetaxel based on Celator’s proprietary hydrophobic prodrug technology platform (see below for full description) that are significantly more efficacious than the conventional commercially used formulations in preclinical tumor models.

Celator developed a library of taxane prodrugs that have demonstrated a wide range of plasma elimination rates and tested them for efficacy compared to their conventional drug counterparts in preclinical solid tumor models. Although conventional paclitaxel in the form of Taxol and docetaxel in the form of Taxotere were able to induce regression of established HT-29 solid tumors, only paclitaxel and docetaxel formulated as prodrug nanoparticles were able to achieve a significant proportion of complete tumor regression and prolonged delay of tumor re-growth. Interestingly, when CPX-8 was tested for efficacy, not only was the degree of therapeutic activity greater than Taxotere when the two agents were compared at their respective MTDs, but CPX-8 also exhibited increased antitumor potency compared to Taxotere when administered at equivalent drug doses. Consequently, CPX-8 has been identified as Celator’s lead nanoparticle-based formulation for development consideration and the National Cancer Institute’s Nanotechnology Characterization Laboratory has selected this product for extensive in vitro and in vivo evaluation with an interest in seeing it advance towards clinical studies.

Applying the CombiPlex Platform Technology to Combinations Utilizing Molecularly Targeted Agents

Through CPX-351 and Celator’s other pipeline candidates, the Company has studied how CombiPlex can be beneficial in combining chemotherapeutic regimens. However, the Company sees significant potential in using the technology platform in combining other types of drug therapies as well. At our Analyst Day in July 2014, we announced Celator’s plan to broaden CombiPlex using molecularly targeted therapies and epigenetic modulators. Our current plan is to advance the technology into three distinct areas of investigation. These combinations were chosen based on existing scientific evidence that the agents benefit from simultaneous exposure to optimize synergy, are considered important targets based on their prevalence in human cancer and for which the technical feasibility for applying the CombiPlex technology appeared promising.

The first type of combination we are studying is a combination of existing chemotherapy such as docetaxel or other taxanes, with a molecularly targeted agent against modulators that controls cell survival and apoptosis, such as a heat shock protein. This combination has been well-studied, but a number of clinical studies to date have not been successful. Consequently, we believe we have the potential to make a significant impact by creating a co-formulation offering simultaneous exposure of a taxane and heat shock protein inhibitor at optimized concentrations while minimizing toxicities. It should be noted that this combination utilizes our CPX-8 docetaxel prodrug nanoparticle as a foundation upon which a CombiPlex formulation can be generated by co-formulating it with a second agent, in this case an HSP90 inhibitor.

The second type of combination targets signaling pathways associated with major cancer indications. This includes inhibitors of the PI3K/AKT/mTOR pathway in combination with inhibitors of the Ras/Raf/MEK/ERK

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pathway. We believe these combinations are important to investigate because these two pathways impact the outcomes of a wide range of tumor types and previous attempts to combine these types of inhibitors have exhibited some toxicity issues that may be resolved with CombiPlex.

Finally, we expect to examine combinations of epigenetic modulators, such as histone deacetylase inhibitors, in combination with hypomethylating agents. There is a strong scientific rational for this combination and, again, one where we believe the CombiPlex approach could significantly impact and optimize efficacy outcomes.

Investigating combinations of these agents may lead to a promising internal candidate for development within Celator or lead to potential research and development collaborations with other pharmaceutical companies, if we are able to maximize the efficacy of drug combinations utilizing inhibitors of pathways that have broad interest within the pharmaceutical industry. Any such development program may require license(s) to products, or technology, the Company does not own. We project to have data packages demonstrating the formulation feasibility, pharmacokinetics, tolerability and efficacy of the above combinations before the end of the third quarter of 2015.

Pharmaceutical Development Overview

Celator’s drug product candidates are considered nano-scale drug delivery vehicles. This means that the active agents are incorporated into a delivery vehicle forming particles in the 10 – 200 nm size range that are suitable for intravenous administration. The complex features of these drug products require additional considerations for both manufacturing and testing beyond those needed for traditional small molecules in solution.

For the liposomal drug candidates, modified mixing and extrusion systems are needed to prepare the liposome carrier at the desired particle size. The active pharmaceutical ingredients, or APIs, are usually incorporated into these preformed liposomes. For nanoparticle drug candidates, special high speed mixing is used where the delivery system and active agents are combined and formed in a single step. Once the equipment is designed and in place, the manufacturing processes are optimized and batches of product from 1L to more than 200L can be reproduced. The composition of the drug products is complex and includes the APIs, delivery vehicle components, polymers and buffers depending on the particular drug product. Analysis requires the development of novel analytical methods to determine the identity, assay, purity, relevant physicochemical attributes and US Pharmacopeia, general chapter 1, expectations for an injectable drug. The Company has the expertise to develop manufacturing and analytical procedures for a variety of nano-scale drug products.

For example, the process to manufacture CPX-351 (cytarabine:daunorubicin) liposome injection has undergone process improvement measures and feasibility testing such that a scalable, reproducible, cost-effective manufacturing process is in place. The batch scale is suitable for further clinical development, as well as commercial supply. Testing methods have been developed and validated per FDA and the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) guidelines.

The Company does not currently own or operate manufacturing facilities for the production or testing of CPX-351 or other product candidates that it develops, nor does it have plans to develop its own manufacturing operations in the foreseeable future. The Company presently depends on third-party contract manufacturers for all of its required raw materials, APIs and finished products for its preclinical and clinical studies.

The Company has executed a non-exclusive manufacturing and supply agreement for clinical and commercial supply of CPX-351 with Baxter Oncology GmbH (“Baxter”), an established manufacturing firm with special facilities to manufacture and test cytotoxic agents. A quality agreement and product master plan have also been finalized. The Company expects that Baxter will be the sole source for CPX-351 drug product for the clinical studies and at the time of commercialization. The contract does not specify a minimum quantity of product for clinical purposes and the annual obligation for commercial use is in the low single digits, i.e., less than five batches per year, for the first four years and then as mutually agreed to by the parties. The product purchase price is subject to an annual adjustment not to exceed the percentage change of

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the German producer price index. In addition to normal contractual termination provisions for breach or in the event of bankruptcy or corporate dissolution, the agreement has no set term and may be terminated (i) on 24 months’ notice by either party, or (ii) 90 days after notice by either party if no regulatory approval occurs within 36 months after the initial NDA/Marketing Authorization Application filing.

APIs are purchased from commercial vendors that, preferably, hold active drug master files (“DMFs”) in the U.S., Canada and Europe. Membrane components for the liposome products are commercially available from suppliers with either DMFs (in the U.S.) or Certificate of Suitability (in the EU).

Intellectual Property

The Company’s goal is to obtain, maintain and enforce patent protection for its product candidates, formulations, processes, methods and any other proprietary technologies, preserve its trade secrets, and operate without infringing the proprietary rights of other parties, both in the U.S. and in other countries. The Company’s policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for its current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the U.S. and abroad. However, patent protection may not afford the Company with complete protection against competitors who seek to circumvent the Company’s patents.

The Company also depends upon the skills, knowledge, experience and know-how of its management and research and development personnel, as well as that of its advisors, consultants and other contractors. To help protect its proprietary know-how, which is not patentable, and for inventions for which patents may be difficult to enforce, the Company currently relies and will in the future rely on trade secret protection and confidentiality agreements to protect its interests. To this end, the Company requires all of its employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to it of the ideas, developments, discoveries and inventions important to its business.

The Company has entered into various arrangements with corporate, academic and government collaborators, licensors, licensees and others.

The Company has entered into a collaborative research agreement with the British Columbia Cancer Agency, or BCCA, dated May 2001, the purpose of which was to: (a) provide for the transfer from BCCA to the Company of all prior intellectual property developed by the Company’s founders, Dr. Lawrence Mayer and Dr. Marcel Bally, in their respective BCCA laboratories; (b) establish the terms and conditions on which BCCA will conduct for the Company a mutually agreed program of Company-sponsored research and development in the fields of research including lipid delivery systems and drug combination formulations, as well as license and conditionally assign to the Company all resulting Company-sponsored intellectual property; (c) provide for the issuance to BCCA of a number of shares being equivalent to mid-single digit percentage of the founders shares in the capital stock of the Company in consideration for the assignment of prior intellectual property by BCCA to the Company and the covenants and obligations contained in this Agreement; and (d) in consideration of the license and conditional assignment of all Company-sponsored intellectual property to the Company by BCCA, establish the terms on which 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 as of June 28, 2004. 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 of the notice. Obligations that remain include continued maintenance of issued patents with claims covering the Company’s current products in development and royalty obligations which would continue to be due until 2027 for the last expiring patent.

The Company has entered into a worldwide exclusive license agreement with Princeton University dated June 28, 2007 that remains in effect until the longer of the expiration of the last-to-expire patent licensed under the agreement or ten years from the date of first commercial sale of a licensed product in all countries of the world in which Princeton University and Celator have patent rights. The agreement provides the Company with exclusive rights to inventions arising from research sponsored by the Company between

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the years 2003 to 2007 generally characterized as particulate constructs for release of active agents as described in the application (PCT/US2005/025549) for medical applications. This PCT application is co-owned by the Company. All obligations for research conducted under the research agreement have been completed as of March 31, 2007.

The Company will have 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 Celator, that was generated under the exclusive licensing agreement. No royalty or other product/sub-license-related payments have been made to date. The duration of royalty obligations will be dictated by the final patent term adjustment made by the United States Patent and Trademark Office upon granting of claims. To date, no claims in this application have been granted and no products related to this agreement have been licensed. The minimum duration of valid claims and hence royalty obligations would be 2025 based on the original patent filing date of 2005.

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 the original intellectual property jointly developed by the Company and Princeton University.

The agreement remains in effect in each country of the territory until the longer of (i) expiration of the last-to-expire patent licensed under the agreement in such country or (ii) ten years from the date of first commercial sale of a licensed product in such country. Ongoing obligations of the Company under this agreement include delivery of an annual progress report to Princeton University describing the Company’s development of the licensed technology as well as a description of prosecution of the patents covering the technology and the use of commercially reasonable efforts to develop licensed products. The Company may terminate the agreement at any time by giving 90 days’ written notice to Princeton University. Princeton University may terminate the agreement if the Company breaches or fails to perform any of the covenants of the agreement by providing written notice of default to the Company and the Company’s failure to cure the default within 60 days of the notice. As the Company is co-owner of the patent applications, it can practice the technology even if the license is terminated.

Patents and Patent Applications

The Company’s multilayered approach to obtaining broad patent protection of its products started with the global CombiPlex patent followed by specific drug class combination applications as well as more focused “toolbox” patent applications which cover various drug loading and delivery methods and compositions.

Taking this approach, the Company has established a series of patents/patent applications that include 113 issued patents and 25 pending applications covering multiple drug candidates and the technology platform. The expiration dates for patents that cover CPX-351 and CPX-1 are shown below:

CPX-351 Patent Coverage
		US				EU				Japan
CombiPlex®			2027				2022				2022
Composition & Methods			2027				2025				2025
Clinical Use			2029				Pending (exp. 2028)				2028
Copper Loading			2024				2022				2022
Low Cholesterol PG Liposomes			2026				2022				2022
Lyophilized Liposomes			Pending (exp. 2032)				Pending (exp. 2032)				Pending (exp. 2032)

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CPX-1 Patent Coverage
		US				EU				Japan
CombiPlex®			2027				2022				2022
Copper Loading			2024				2022				2022
Low Cholesterol PG Liposomes			2026				2022				2022
Clinical Use			2029				Not applicable				2026
Lyophilized Liposomes			Pending (exp. 2032)				Pending (exp. 2032)				Pending (exp. 2032)

Trademarks

Celator and/or any of its subsidiaries own 12 registered trademarks and pending trademarks. The Company’s material trademarks are as follows: CELATOR®; CELATOR PHARMACEUTICALS®; and COMBIPLEX®, which relate to development of the Company’s CPX-351 and CPX-1 products.

The Company’s success for preserving market exclusivity for its product candidates relies on its ability to obtain and maintain effective patent coverage, regulatory period data exclusivity and/or orphan drug status if applicable. In addition, the Company also seeks to protect additional intellectual property rights such as trade secrets and know-how, including commercial manufacturing processes and proprietary business practices.

GOVERNMENT REGULATION AND PRODUCT APPROVAL

Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those the Company is developing. The pharmaceutical drug product candidates that the Company develops must be approved by the FDA before they may be legally marketed in the U.S.

U.S. Pharmaceutical Product Development Process

In the U.S., the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act, and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on the Company. The process required by the FDA before a non-biological pharmaceutical product may be marketed in the U.S. generally involves the following:

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The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals are inherently uncertain.

Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the pharmaceutical product candidate. These early proof-of-principle studies are done using sound scientific procedures and thorough documentation. The conduct of the single and repeat dose toxicology and toxicokinetic studies in animals must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA has concerns and notifies the sponsor. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. If resolution cannot be reached within the 30-day review period, either the FDA places the IND on clinical hold or the sponsor withdraws the application. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during clinical studies due to safety concerns or non-compliance. Accordingly, the Company cannot be sure that submission of an IND will result in the FDA allowing clinical studies to begin, or that, once begun, issues will not arise that suspend or terminate such clinical study.

Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical study sponsor’s control. Clinical studies are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, how the results will be analyzed and presented and the parameters to be used to monitor subject safety. Before initiation of the study, the each protocol must be submitted to the FDA as part of the IND. Clinical studies must be conducted in accordance with the GCP. Further, each clinical study must be reviewed and approved by an independent institutional review board, or IRB, at, or servicing, each institution at which the clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor the clinical study until completed.

Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:

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There is no specified regulatory timeframe in which Phase 1, Phase 2, and Phase 3 studies must be completed. The FDA, the sponsor, or its data and safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the pharmaceutical product has been associated with unexpected serious harm to patients.

Concurrent with clinical studies, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the pharmaceutical product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the pharmaceutical product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final pharmaceutical product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the pharmaceutical product candidate does not undergo unacceptable deterioration over its shelf life.

U.S. Review and Approval Processes

The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the pharmaceutical product, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances.

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the pharmaceutical product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any pharmaceutical product for an indication for which orphan designation has been granted.

During the first 60 days post NDA submission the FDA conducts a validation of the application to determine if it is complete before the Agency will accept it for filing. If the NDA is found incomplete, additional information may be requested. The FDA may allow the Company to submit the additional information within the 60 day preliminary review period, or the FDA may not accept it for filing and issue a

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Refuse to File Letter. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has 10 months after the 60-day filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months after the 60-day filing date for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs.

After the NDA submission is accepted for filing, the FDA reviews the NDA application to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel pharmaceutical products or pharmaceutical products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the pharmaceutical product approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the pharmaceutical product. If the FDA concludes that REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if required.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites as well as the site where the pharmaceutical product is manufactured to assure compliance with GCP and cGMP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable; it will outline the deficiencies in the submission and often will request additional testing or information. In addition, the FDA will review and approve the final product labeling.

The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are not always conclusive and the FDA may interpret data differently than the Company interprets the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical studies designed to further assess pharmaceutical product safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Expedited Development and Review Programs

The FDA has developed four distinct approaches to making drugs that meet certain criteria, available as rapidly as possible. These programs are: Fast Track, Breakthrough Therapy Designation, Accelerated Approval, and Priority Review. New pharmaceutical products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a Fast Track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, if the FDA agrees to accept sections of

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the NDA and determines that the schedule is acceptable and if the sponsor pays any required user fees upon submission of the first section of the NDA. Any product submitted to the FDA for market, including a Fast Track program, may also be eligible for other types of FDA programs intended to expedite development and review.

Breakthrough Therapy designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint(s).

Accelerated approval is granted to a pharmaceutical product intended to treat a serious or life-threatening illnesses and if the product provides a meaningful therapeutic benefit over existing treatments. Products may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. Accelerated approvals are typically granted at the end of Phase 2 clinical studies. As a condition of approval, the FDA may require that a sponsor of a pharmaceutical product receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could impact the timing of the commercial launch of the product.

Priority review may be granted to a product if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new pharmaceutical product designated for priority review in an effort to facilitate the review. Fast Track designation, breakthrough therapy designation, accelerated approval, and priority review do not change the standards for approval but may expedite the development or approval process.

In January 2015, the FDA granted fast track designation to CPX-351 for the treatment of elderly patients with sAML. We do not know whether CPX-351 or our future drug candidates, if any, will receive a priority review designation or, if a priority designation is received, whether that review or approval will be faster than conventional FDA procedures. We also cannot predict whether CPX-351 or our future drug candidates, if any, will obtain accelerated approval or priority review, or the ultimate impact, if any, of the fast track or the accelerated approval process on the timing or likelihood of FDA approval of CPX-351 or our future drug candidates, if any.

Post-Approval Requirements

Any pharmaceutical products for which the Company receives FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, prohibitions on promoting pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, actions by the U.S. Department of Justice and/or U.S. Department of Health and Human Services’ Office of Inspector General, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available pharmaceutical products for off-label uses, manufacturers may not directly or indirectly market or promote such off-label uses.

The Company relies, and expects to continue to rely, on third parties for the production of clinical and commercial quantities of the Company’s products. Manufacturers of the Company’s products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and distribution of approved pharmaceutical products are required to register their

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establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process and other types of changes to the approved product, such as adding new indications and additional labeling claims, generally require prior FDA approval before being implemented.

The FDA also may require post-marketing testing, known as Phase 4 testing; risk minimization action plans; surveillance to monitor the effects of an approved product; or place additional conditions on an approval that could restrict the distribution or use of the product.

Other Healthcare Laws and Compliance Requirements

In the U.S., the Company’s activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of the Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must comply with the federal Anti-kickback Statute, Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans Health Care Act, or VHCA, pharmaceutical product companies are required to offer certain pharmaceutical products at a reduced price to a number of federal agencies, including the U.S. Department of Veterans Affairs and the U.S. Department of Defense, the Public Health Service and certain private Public Health Service designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations.

In order to distribute products commercially, the Company must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical studies and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of the Company’s activities are potentially subject to federal and state consumer protection and unfair competition laws.

The Patient Protection and Affordable Care Act (the “Healthcare Reform Act”) requires most pharmaceutical manufacturers to publicly report most payments or other transfers of value to physicians. These relationships may come under increased scrutiny as a result of these provisions and publication of payments. The Healthcare Reform Act also includes civil penalties if a manufacturer fails to comply with the reporting requirements.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of the FDA approval of the use of the Company’s pharmaceutical product candidates, some of the Company’s products covered by U.S. patents may be eligible

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for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved pharmaceutical product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent unless an extension is obtained. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and renders a decision on the application for any patent term extension or restoration. In the future, the Company may be able to apply for extension of patent term for one of its currently owned or licensed patents to add patent life beyond its current expiration date, depending upon the expected length of the clinical studies and other factors involved in the filing of the relevant NDA.

Market exclusivity provisions under the U.S. Food, Drug, and Cosmetic Act can also delay the submission or the approval of certain applications of other companies seeking to reference another company’s NDA. Currently seven years of reference product exclusivity are available to pharmaceutical products designated as Orphan Drugs, during which the FDA may not approve generic products relying upon the reference product’s data. Pediatric exclusivity is another type of regulatory market exclusivity in the U.S. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of pediatric clinical studies in accordance with an FDA-issued “Written Request” for such a clinical study.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product candidates for which the Company obtains regulatory approval. In the U.S. and markets in other countries, sales of any products for which the Company receives regulatory approval for commercial sale will depend in part upon the availability of adequate reimbursement from third-party payors. Third-party payors include both government and private entities. The government payors include Medicare and Medicaid, which are federal and state programs, respectively, as well as the Veterans Affairs, Department of Defense and Public Health Services. The private payors include private health insurers and other organizations, such as hospitals, including those that are designated as 340B covered entities (entities designated by federal programs to receive drugs at discounted prices due to their disproportionate share of indigent patients). With any of the aforementioned entities, the process of determining whether a payor or provider organization will provide coverage for a pharmaceutical product may be separate from the process for setting the price or for setting the reimbursement rate that the payor will pay for the pharmaceutical product. Third-party payors may limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not include all of the FDA, approved pharmaceutical products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. The Company’s pharmaceutical product candidates may not be considered medically necessary or cost-effective by payors and provider institutions through existing or planned clinical studies. Therefore, the Company may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of its products, in addition to the costs required to obtain the FDA approvals. In the U.S. there is a growing emphasis on comparative effectiveness research, both by private payors and by government agencies. To the extent other drugs or therapies are found to be more effective than the Company’s products, payors may elect to cover such therapies in lieu of the Company’s products and/or reimburse the Company’s products at a lower rate, or implement utilization management tactics to control use of a product. A payor’s decision to provide coverage for a pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable the Company to maintain price levels sufficient to realize an appropriate return on the Company’s investment in product development.

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In 2003, the U.S. government enacted legislation providing a partial prescription drug benefit for Medicare recipients, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which the Company receives marketing approval. However, to obtain payments under this program, the Company would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. As part of their participation in the Medicare prescription drug program, these plans negotiate discounted prices for prescription drugs and will likely do so for the Company’s products. Federal, state and local governments in the U.S. continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation and regulations could limit payments for pharmaceuticals such as the drug candidates that the Company is developing.

Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical studies that compare the cost-effectiveness of a particular pharmaceutical product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control the Company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any pharmaceutical product candidates for which the Company receives regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the U.S. has increased and the Company expects this will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which the Company receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

International Regulation

In addition to regulations in the U.S., there are a variety of foreign regulations governing clinical studies and commercial sales and distribution of the Company’s future product candidates. Whether or not FDA approval is obtained for a product, approval of a product must be obtained by the comparable regulatory authorities of foreign countries before clinical studies or marketing of the product can commence in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from country to country. In addition, certain regulatory authorities in select countries may require the Company to repeat previously conducted preclinical and/or clinical studies under specific criteria for approval in their respective country which may delay and/or increase the cost of approval in certain markets targeted for approval by Celator.

Under European Union regulatory systems, marketing applications for pharmaceutical products to treat cancer must be submitted under a centralized procedure to the EMA. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The EMA also has designations for Orphan Drugs which, if applicable, can provide for faster review, lower fees and more access to advice during drug development. While the marketing authorization in the European Union is centralized, the system for clinical studies (application, review and requirements) is handled by each individual country. Approval to run a clinical study in one country does not guarantee approval in any other country.

The pharmaceutical industry in Canada is regulated by Health Canada. A New Drug Submission, or NDS, is the equivalent of a U.S. NDA and must be filed to obtain approval to market a pharmaceutical product in Canada. Marketing regulations and reimbursement are subject to national and provincial laws.

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In Japan, applications for approval to manufacture and market new drugs must be approved by the Ministry of Health, Labor and Welfare. Nonclinical and clinical studies must meet the requirements of Japanese laws. Results from clinical studies conducted outside of Japan must be supplemented with at least a bridging clinical study conducted in Japan. Non-Japanese companies must appoint a Market Authorization Holder or create a Japanese subsidiary and have it certified as a Market Authorization Holder that applies for approval of the drug. Further marketing regulations including manufacturing licenses and reimbursement are subject to other national laws.

In addition to regulations in Europe, Canada, Japan and the U.S., there are a variety of foreign regulations governing clinical studies, commercial distribution and reimbursement of future product candidates which the Company may be subject to as it pursues regulatory approval and commercialization of CPX-351 or any future product candidates internationally.

Corporate Information

The Company’s principal executive offices are located at 200 PrincetonSouth Corporate Center, Suite 180, Ewing, New Jersey, 08628. Celator's telephone number is (609) 243-0123. The Company is headquartered in Ewing, New Jersey, and its principal operations are located in Ewing, New Jersey and Vancouver, British Columbia, Canada.

The Company uses the name “Celator” and its logo as its trademarks. This Form 10-K annual report may contain the trademarks and trade names of other entities and those trademarks and trade names are the property of their respective owners.

Employees

As of December 31, 2014, Celator had 25 full-time employees, of whom nine hold Ph.D.’s or M.D.’s in their respective areas of expertise.

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ITEM 1A. RISK FACTORS

The following risks and uncertainties should be carefully considered. If any of the following occurs, the Company’s business, financial condition or operating results could be materially harmed. An investment in the Company’s securities is speculative in nature, involves a high degree of risk and should not be made by an investor who cannot bear the economic risk of its investment for an indefinite period of time and who cannot afford the loss of its entire investment.

RISKS RELATED TO THE COMPANY’S BUSINESS AND INDUSTRY

The Company believes it has sufficient funds to conduct its current plan of operations into the second half of 2016. The Company will need to raise additional funding to complete the potential registration and commercialization of CPX-351.

The Company believes that, with $32.4 million in cash and cash equivalents as of December 31, 2014, and cash available to the Company through the Hercules Technology Growth Capital, Inc. (“Hercules”) term loan, it currently has the resources to meet estimated working capital requirements and fund operations into the second half of 2016. However, the Company will need to raise additional capital to:

The Company’s future funding requirements and sources will depend on many factors, including but not limited to:

In the event the Company does not successfully raise funds in subsequent financing(s), its product development activities will necessarily be curtailed commensurate with the magnitude of the shortfall or may cease altogether. If the Company’s product development activities are slowed or stopped, the Company will be unable to meet the timelines and projections set forth in the Form 10-K annual report or its other filings with the SEC. Failure to progress its product candidates as anticipated will have a negative effect on the Company’s business, future prospects and ability to obtain further financing on acceptable terms (if at all), and the value of the enterprise.

The Company has incurred losses since its inception and anticipates that the Company will continue to incur losses for the foreseeable future. The Company may never achieve or sustain profitability.

The Company is not profitable and has incurred losses in each year since its inception in 1999. The Company’s net losses for the years ended December 31, 2014 and 2013 were $16.9 million and $20.8 million, respectively. As of December 31, 2014, the Company had an accumulated deficit of $149.4 million. Although the Company believes that it will have sufficient funds to meet estimated working capital requirements into

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the second half of 2016, there is substantial doubt about the Company’s ability to continue as a going concern beyond that time without additional financing.

To date, the Company has derived substantially all of its revenue from an agreement with The Leukemia & Lymphoma Society® (“LLS”) and participation in the federal government’s Qualifying Therapeutic Discovery Project and the New Jersey Economic Development Authority, or NJEDA’s Technology Business Tax Certificate Transfer Program. The Company cannot assure that it will enter into any new collaboration agreement(s) that will result in research revenue for the Company.

The Company does not currently have any products that have been approved for marketing, and it continues to incur substantial development and general and administrative expenses related to its operations. Therefore, for the foreseeable future, the Company will have to fund all of its operations and capital expenditures from cash on hand and amounts raised in offerings. The Company may not be able to raise capital when needed. The Company expects to continue to incur losses for the foreseeable future, and the Company expects these losses to increase significantly as the Phase 3 study of CPX-351 concludes, as the Company seeks regulatory approvals for CPX-351, assuming favorable results from the Phase 3 study, and as the Company commercializes CPX-351, if approved. The Company’s losses, among other things, have caused and will continue to cause its stockholders’ equity and working capital to decrease.

The Company does not anticipate that it will generate revenue from the sale of products until 2017, assuming the initial registration strategy of CPX-351 is approved by the FDA. The Company’s ability to become profitable depends upon its ability to generate significant continuing revenues.

In the absence of additional sources of capital, which may not be available to the Company on acceptable terms, or at all, the development of CPX-351 or future product candidates may be reduced in scope, delayed or terminated. If the Company’s product candidates or those of its collaborators fail in clinical studies or do not gain regulatory approval, or if its future products, if any, do not achieve market acceptance, the Company may never become profitable.

Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to the Company’s existing stockholders, restrict the Company’s operations or require it to relinquish proprietary rights.

The Company may raise additional funds through public or private equity offerings, debt financings or licensing arrangements. To the extent that the Company raises additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. Any future debt financing the Company enters into may involve covenants that restrict its operations, including limitations on its ability to incur liens or additional debt, pay dividends, redeem its stock, make certain investments and engage in certain merger, consolidation or asset sale transactions, among other restrictions. In addition, if the Company raises additional funds through licensing arrangements, it may be necessary to relinquish potentially valuable rights to its product candidates, or grant licenses on terms that are not favorable to the Company. If adequate funds are not available, the Company’s ability to achieve profitability or to respond to competitive pressures will be significantly limited and it may be required to delay, significantly curtail or eliminate the development of one or more of its product candidates.

The regulatory approval process is expensive, time-consuming and uncertain and may prevent the Company from obtaining approval for the commercialization of CPX-351 or future product candidates; the Company’s clinical studies for CPX-351 may not demonstrate safety or efficacy or lead to regulatory approval.

The research, testing, manufacturing, labeling, storage, record-keeping, import, export, marketing, selling and distribution of product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and other countries, which regulations differ from country to country. In order to develop and potentially submit an NDA to the FDA, it is necessary to submit all information on the clinical, non-clinical, chemistry, manufacturing, controls and quality aspects of the product candidate.

Neither the Company nor any potential collaboration partners are permitted to market CPX-351, or future products, if any, in the U.S. until the Company receives approval of an NDA from the FDA, or in any other

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country without the equivalent marketing approval from such country. The Company has not received marketing approval for CPX-351 in any jurisdiction. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject the Company to administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production, and refusal to approve pending NDAs, supplements to approved NDAs or their foreign equivalents.

CPX-351 is vulnerable to the risks of failure inherent in the drug development process. The Company needs to conduct clinical studies and additional activities in order to demonstrate that CPX-351 is safe and effective to the satisfaction of the FDA and other regulatory authorities. Failure can occur at any stage of the development process, and successful preclinical studies and early clinical studies do not ensure that later clinical studies will be successful. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical studies, even after obtaining promising results in earlier studies.

If the clinical studies result in unacceptable toxicity or lack of efficacy, the Company may have to terminate them. If clinical studies are halted, or if they do not show that CPX-351 is safe and effective in the indications for which the Company is seeking regulatory approval, future growth may be limited.

The Company does not know whether the Phase 3 clinical study, or any other future clinical studies with CPX-351 or any of its product candidates, will be completed on schedule, or at all, or whether its ongoing or planned clinical studies will begin or progress on the time schedule it anticipates. The commencement and completion of future clinical studies could be substantially delayed or prevented by several factors, including:

In addition, the Company’s clinical studies may be suspended or terminated at any time by the FDA, other regulatory authorities, or the Company itself. Any failure to complete or significant delay in completing clinical studies for the Company’s product candidates could harm the Company’s financial results and the commercial prospects for the product candidates.

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Regulatory approval of an NDA or an NDA supplement or a foreign equivalent is not guaranteed, and the approval process is expensive, uncertain and may take years. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. As in the U.S., the regulatory approval process in Europe and in other countries is a lengthy and challenging process. The FDA and other regulatory bodies can delay, limit or deny approval of a product candidate for many reasons, including:

In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by the FDA and other regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.

If third parties upon which the Company relies to manufacture its supplies fail to obtain approval of the FDA, or other regulatory authorities, fail to provide the Company with sufficient quantities of pharmaceutical product or fail to do so at acceptable quality levels or prices, the Company’s development and commercialization of any of its product candidates could be stopped, delayed or made less profitable.

The Company’s CombiPlex products represent formulations with increased manufacturing risks associated with the complexities of producing drug delivery vehicles encapsulating two or more drugs that are maintained at a fixed ratio and, in the case of CPX-351 the two drugs are co-encapsulated in a freeze-dried format.

CPX-351 is manufactured on behalf of the Company by a third party contract manufacturer. No assurance can be given that the Company’s manufacturers can continue to make clinical and commercial supplies of CPX-351, or future product candidates, at an appropriate scale and cost to make it commercially feasible. The Company’s contract manufacturer has successfully manufactured batches that are currently being used in the Phase 3 clinical study but has also experienced batch failures due to mechanical and component issues. No assurance can be given that the process and product will not experience future batch failures or other delays or setbacks. Any such failure, delay or setback could adversely affect the development and

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commercialization of CPX-351 by delaying its potential future product launch and could increase the Company’s manufacturing costs substantially.

The facilities used by contract manufacturers to manufacture the Company’s product candidates must be approved by the FDA pursuant to inspections that will be conducted only after the Company submits an NDA to the FDA, if at all. The Company does not control the manufacturing process of its product candidates and is completely dependent on its contract manufacturing partners for compliance with the FDA’s requirements for manufacture of finished pharmaceutical products. If the Company’s contract manufacturers cannot successfully manufacture material that conforms to its specifications and the FDA’s strict regulatory requirements of safety, purity and potency, the Company will not be able to secure and/or maintain FDA approval for its product candidates. In addition, the Company has no control over the ability of its contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the Company’s contract manufacturers cannot meet FDA or other regulatory authority standards, the Company may need to find alternative manufacturing facilities, which would significantly impact its ability to develop, obtain regulatory approval for or market its product candidates.

In addition, the Company does not have the capability to package finished products for distribution to hospitals and other customers. Prior to commercial launch, the Company will enter into agreements with one or more alternate fill/finish pharmaceutical product suppliers so that the Company can ensure proper supply chain management once the Company is authorized to make commercial sales of its product candidates. If the Company receives marketing approval from the FDA, it intends to sell pharmaceutical product finished and packaged by such suppliers. Although the Company has entered into agreements with its current contract manufacturers and fill/finish suppliers for clinical trial material, it may be unable to maintain an agreement on commercially reasonable terms, which could have a material adverse impact upon its business.

In most cases, the Company’s manufacturing partner is a single-source supplier. It is expected that the Company’s manufacturing partner will be a sole source supplier from a single site location for the foreseeable future. Given this, any disruption of supply from this partner could have a material, long-term impact on the Company’s ability to supply products for clinical studies or commercial sale. Additionally, while there are other contract manufacturers that may be able to produce CPX-351, the proprietary technology that supports the manufacture of CPX-351 is not easily transferrable. If the Company’s supplier does not deliver sufficient quantities of CPX-351 on a timely basis, or at all, and in accordance with applicable specifications, there could be a significant interruption of the Company’s supply of CPX-351, which would adversely affect commercialization of the product.

The Company’s products may be subject to technology risks that may restrict or prevent their development and commercialization.

Developing products based on the Company’s technology platform, known as CombiPlex, is subject to development risks. CPX-351 represents the first injectable fixed ratio, drug delivery combination product that the FDA will be considering for approval. While the Company has attempted to address potential issues that may be unique to such a combination product, it is possible that the FDA may consider the studies performed by the Company to be deficient, resulting in a delay of approval or possibly a refusal decision. Also, while the Company believes that it has a patent portfolio protecting the CombiPlex technology and the Company’s product candidates, it is possible that a technology unknown presently by the Company may be developed that is able to deliver drug combinations in a manner that provides the benefits of CombiPlex without contravening any of the Company’s patents.

The Company relies on third parties to conduct its clinical trials. If these third parties do not successfully carry out their contractual duties or fail to meet expected deadlines, the Company may be unable to obtain regulatory approval for, or commercialize its products.

The Company relies on third parties, such as contract research organizations, medical institutions and clinical investigators to conduct the Company’s planned clinical studies for CPX-351. If the third parties conducting the Company’s clinical studies do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the Company’s clinical study protocols or for any other reason,

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the Company may need to enter into new arrangements with alternative third parties and the clinical studies may be extended, delayed or terminated or may need to be repeated, and the Company may not be able to obtain regulatory approval for or commercialize the product candidate.

The failure to enroll patients in clinical studies may cause delays in developing CPX-351.

The Company will encounter delays if it is unable to enroll enough patients to complete clinical studies of CPX-351. Patient enrollment depends upon many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the number and nature of competing treatments and ongoing clinical studies of competing drugs for the same indication and the eligibility criteria for the study. Patients participating in the Company’s studies may elect to leave the studies and switch to alternative treatments that are available to the patients, either commercially or on an expanded access basis, or in other clinical studies. Competing treatments may include nucleoside analogs, anthracyclines, topoisomerase II inhibitors and hypomethylating agents.

Moreover, when a product candidate is evaluated in multiple clinical studies simultaneously; patient enrollment in ongoing studies can be adversely affected if negative results are reported from other studies.

Because the results of preclinical studies and early clinical studies are not necessarily predictive of future results, any product candidate the Company advances, in clinical studies may not have favorable results in later clinical studies or receive regulatory approval.

Pharmaceutical development has inherent risk. The Company will be required to demonstrate through adequate and well-controlled clinical studies that CPX-351 and future product candidates, if any, are effective with a favorable benefit-risk profile for use in diverse populations for their target indications before the Company can seek regulatory approval for their commercial sale. Success in early clinical studies does not mean that later clinical studies will be successful because product candidates in later-stage clinical studies may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing. Companies frequently suffer significant setbacks in advanced clinical studies, even after earlier clinical studies have shown promising results. In addition, there is a high rate of attrition from the failure of pharmaceutical candidates proceeding through clinical studies.

The Company believes that the research that has been performed, both pre-clinically and clinically, cannot by its nature provide conclusive evidence that the product provides a completely antagonism-free approach to AML treatment.

The Company plans to conduct additional clinical studies with CPX-351. If the results from the Phase 3 study are significantly different from those found in the completed Phase 1 and Phase 2 clinical studies of CPX-351, the Company will likely need to terminate or revise its clinical development plan, which could extend the time for conducting its development program and could have a material adverse effect on the Company.

The in vitro and in vivo preclinical models utilized by the Company to guide selection of drug ratios for encapsulation and delivery in vivo using liposomes or nanoparticles may not be representative of the response tumor cells have to drug ratios in patients.

The tumor cell lines used to test for drug ratio-dependent synergy in vitro are maintained under conditions that can change their response to anticancer drugs relative to how they behave in vivo. Similarly, the tumor cells growing in preclinical cancer models may not respond to anticancer drugs the way tumor cells respond in human patients. Accordingly, there is the risk that the drug ratios contained in the Company’s products may not be optimal for clinical activity.

Any product candidate the Company advances into clinical studies may cause unacceptable adverse events or have other properties that may delay or prevent the regulatory approval or commercialization of the product candidate or limit the commercial potential of the product candidate.

Unacceptable Adverse events caused by any of the Company’s product candidates could cause regulatory authorities to interrupt, delay or halt clinical studies and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications. This, in turn, could prevent the Company from commercializing the affected product candidate and generating revenues from its sale.

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To date, clinical studies using CPX-351 have demonstrated a toxicity profile that was deemed acceptable by the investigators performing such studies. In the pre-chemotherapy era, AML invariably led to death from infections or major bleeding events within weeks to months of diagnosis. Active AML leads to death by producing a general shut down of hematopoietic function with loss of functional neutrophils and marked reductions in platelets and red blood cells. Loss of neutrophil function inevitably leads to risk of severe infections and loss of platelets leads to risk of major bleeding events. In this setting, physicians have traditionally accepted the risk of high rates of adverse events, including severe or life threatening but reversible Adverse events, provided there is evidence of greater benefit in the form of objective response and prolonged survival. The balancing of risk and benefit occurs at the start of every treatment course, and every investigator understands that the risk of withholding potentially toxic but useful treatment is death from progressive AML within a short period of time. The Company has found that the toxicity profile of CPX-351 is acceptable to investigators for the following reasons:

In summary, the adverse event profile is acceptable to investigators because unacceptable adverse events have not been encountered and because the risk of 60-day mortality is reduced. The benefits of treatment appear to outweigh the risks.

Adverse events experienced by 25% or more of patients receiving CPX-351 are as follows: rash, febrile neutropenia, nausea, diarrhea, pain, constipation, fatigue, bacteremia, pyrexia, chills, localized edema, decreased appetite, vomiting, cough, headache, dyspnea, epistaxis, stomatitis and hypokalemia. Such interpretation may not be shared by future investigators or by the FDA and, even if deemed acceptable for specific oncology applications, such as the completed clinical studies, it may not be acceptable for diseases in other oncology settings. Additionally, the severity, duration and incidence of Adverse events may differ in larger study populations. The toxicity of CPX-351 manufactured under different conditions is not known, and it is possible that additional and/or different Adverse events may appear upon the human use of those formulations and those Adverse events may arise with greater frequency, intensity and duration than in the current formulation. If any of the Company’s product candidates cause unacceptable Adverse events in clinical studies, the Company may not be able to obtain marketing approval and generate revenues from its sale.

If any of the Company’s product candidates receive marketing approval and the Company or others later identify unacceptable Adverse events caused by the product, a number of significant negative consequences could result, including:

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Any one or a combination of these events could prevent the Company from obtaining regulatory approval and achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the affected product, which in turn could delay or prevent the Company from generating any revenues from the sale of the affected product.

The Company may experience delays in the commencement of its clinical studies with CPX-351 or future product candidates, or in the receipt of data from preclinical and clinical studies conducted by third parties, which could result in increased costs and delay its ability to pursue regulatory approval.

Delays in the commencement of clinical studies and delays in the receipt of data from preclinical or clinical studies conducted by third parties could significantly impact the Company’s product development costs. Before the Company can initiate clinical studies in the U.S. for future product candidates, it must submit the results of preclinical testing, usually in animals, to the FDA as part of an Investigational New Drug (“IND”) submission, along with other information including information about product chemistry, manufacturing and controls and its proposed clinical study protocol for its product candidates. With CPX-351, a single Phase 1 clinical study was conducted and two randomized, controlled Phase 2 clinical studies were conducted in patients with AML. The rationale for the Phase 3 study is based on clinical study results from these studies, but results from earlier phase clinical studies do not guarantee the outcomes of later clinical studies.

The Company currently plans to rely on third parties for the Phase 3 study of CPX-351. If receipt of data from these third parties is delayed for any reason, including reasons outside of the Company’s control, it will delay the Company’s plans for the Phase 3 study and other clinical study plans. This, in turn, will delay the Company’s ability to make regulatory filings and ultimately, to commercialize its products (if regulatory approval is obtained).

Potential conflicts of interest arising from relationships and any related compensation with respect to clinical studies could adversely affect the process.

Principal investigators for the Company’s clinical studies may serve as scientific advisors or consultants to the Company from time to time and receive cash compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical study site may be questioned or jeopardized.

The Company may be subject to costly claims related to its clinical studies and may not be able to obtain adequate insurance.

Because the Company conducts clinical studies in humans, the Company faces the risk that the use of CPX-351 or future product candidates, if any, will result in adverse side effects. The Company cannot predict the possible harms or side effects that may result from its clinical studies. Although the Company has clinical study liability insurance for up to $10.0 million in aggregate, the Company’s insurance may be insufficient to cover any such events. There is also a risk that the Company may not be able to continue to obtain clinical study coverage on acceptable terms. In addition, the Company may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, the Company’s insurance coverage. There is also a risk that third parties that the Company has agreed to indemnify could incur liability.

Any litigation arising from its clinical studies, even if the Company is ultimately successful, would consume substantial amounts of the Company’s financial and managerial resources and may create adverse publicity.

If the Company’s competitors develop and market products that are more effective, safer or less expensive than CPX-351, the Company’s commercial opportunities may be negatively impacted.

The life sciences industry is highly competitive, and the Company faces significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies and possibly from academic

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institutions, government agencies and private and public research institutions that are researching, developing and marketing products designed to address the treatment of cancer, including AML. Many of the Company’s competitors have significantly greater financial, manufacturing, marketing and drug development resources than the Company. Large pharmaceutical companies, in particular, have extensive experience in the clinical testing of, obtaining regulatory approvals for, and marketing of, drugs. New developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace.

These developments may render the Company’s product candidates obsolete or noncompetitive. Compared to the Company, potential competitors may have substantially greater:

As a result of these factors, the Company’s competitors may obtain regulatory approval of their products more rapidly than the Company or may obtain patent protection or other intellectual property rights that limit the Company’s ability to develop or commercialize its product candidates. The Company’s competitors may also develop products for the treatment of AML that are more effective, better tolerated, more useful and less costly than the Company’s products and may also be more successful in manufacturing and marketing their products. Potential competitors may succeed in obtaining approvals from the FDA and foreign regulatory authorities for their product candidates sooner than the Company does for its products.

A key consideration when treating AML patients is whether the patient is suitable for intensive therapy. The standard of care for the treatment of newly diagnosed AML patients who can tolerate intensive therapy is cytarabine in combination with an anthracycline (i.e., daunorubicin) — for some patients, primarily those less than 60 years of age, a stem cell transplant could also be considered. The regimen of cytarabine in combination with an anthracycline has been the standard of care for decades. A patient not suitable for intensive therapy may be offered the option for low-intensity therapy such as low-dose cytarabine, azacitidine or decitabine or possibly intermediate intensity therapy such as clofarabine. It should be noted that, in the U.S., azacitidine, decitabine and clofarabine are not approved by the FDA for the treatment of AML patients. The initial focus for CPX-351 development is in patients who can tolerate intensive therapy.

The Company is aware of products in development being studied for use as treatment options for AML patients. However, most of the products are being studied in different patient populations (i.e., relapsed or refractory patients, patients who are deemed unsuitable for intensive chemotherapy) than the Phase 3 study population with CPX-351. The list below shows some of the products of which the Company is aware of in late-stage development:

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The Company may also face competition from these organizations in recruiting and retaining qualified personnel, establishing clinical study sites and enrolling patients for clinical studies.

The Company believes that its ability to successfully compete in the marketplace with CPX-351 and any future product candidates will depend on, among other things:

CPX-351 is a small molecule therapeutic that will compete with other drugs and therapies currently used for AML, such as nucleoside analogs, anthracyclines, hypomethylating agents, inhibitors of topoisomerase II and other novel agents. Additionally, other products currently in development could become potential competitors of CPX-351 if the products are approved for marketing.

The Company expects competition for CPX-351 for the treatment of AML to increase as additional products are developed and approved in various patient populations. If the competitors’ market products that are more effective, safer or less expensive than CPX-351 or its other future products, if any, or that reach the market sooner, the Company may not achieve substantial market penetration or commercial success.

If any product candidate that the Company successfully develops does not achieve broad market acceptance among physicians, patients, healthcare payors and the medical community, the revenues that it generates from its sales will be limited.

Even if CPX-351 or any other product candidates receive regulatory approval, the products may not gain market acceptance among physicians, patients, healthcare payors and the medical community. Coverage and reimbursement of the Company’s product candidates by third-party payors, including government payors, generally is also necessary for commercial success. The degree of market acceptance of any of the Company’s approved products will depend upon a number of factors, including:

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If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, the Company may not generate sufficient revenue from these products and the Company may not become or remain profitable.

Even if the Company receives regulatory approval for CPX-351, the Company will be subject to ongoing FDA and other regulatory obligations and continued regulatory review, which may result in significant additional expense and limit the Company’s ability to commercialize CPX-351.

Any regulatory approvals that the Company or potential collaboration partners receive for CPX-351 or future product candidates, if any, may also be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing studies. In addition, even if approved, the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for any product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market.

Regulatory policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of the Company’s product candidates. The Company cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If the Company is not able to maintain regulatory compliance, the Company might not be permitted to market CPX-351 or future products, if any, and the Company may not achieve or sustain profitability.

If product liability lawsuits are brought against it, the Company may incur substantial liabilities and may be required to limit commercialization of its product candidates.

The Company faces an inherent risk of product liability exposure related to the testing of its product candidates in human clinical studies, and will face an even greater risk if it sells its product candidates commercially. An individual may bring a liability claim against the Company if one of its product candidates causes, or merely appears to have caused, an injury. If the Company cannot successfully defend itself against product liability claims, it will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

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The Company carries product liability insurance for its clinical studies. Further, the Company intends to expand its insurance coverage to include the sale of commercial products if marketing approval is obtained for any of its product candidates. However, the Company may be unable to obtain this product liability insurance on commercially reasonable terms and with insurance coverage that will be adequate to satisfy any liability that may arise. On occasion, large judgments have been awarded in class action or individual lawsuits relating to marketed pharmaceuticals. A successful product liability claim or series of claims brought against the Company could cause its stock price to decline and, if judgments exceed its insurance coverage, could decrease its cash and adversely affect its business.

Reimbursement may be limited or unavailable in certain market segments for the Company’s product candidates, which could make it difficult for the Company to sell its products profitably.

The Company intends to seek approval to market its future products in both the U.S. and in countries outside the U.S. If the Company obtains approval in one or more foreign countries, it will be subject to rules and regulations in those countries relating to its product. In some foreign countries, particularly in the European Union, the pricing of pharmaceuticals is subject to government control. In these countries, pricing negotiations with government authorities can take considerable time after the receipt of marketing approval for a product candidate. In addition, market acceptance and sales of the Company’s product candidates will depend significantly upon the availability of adequate coverage and reimbursement from third-party payors for any of its product candidates and may be affected by existing and future healthcare reform measures.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which pharmaceuticals they will cover and reimburse and establish reimbursement levels. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require the Company to provide supporting scientific, clinical and cost-effectiveness data for the use of its products to the payor. The Company may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of the Company’s future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the Company may be unable to achieve or sustain profitability.

In both the U.S. and certain foreign countries, there have been a number of legislative and regulatory changes to the healthcare system that could impact the Company’s ability to sell its products profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products reimbursed by Medicare, resulting in lower rates of reimbursement for many types of drugs, and added a prescription drug benefit to the Medicare program that involves commercial plans negotiating drug prices for their members. Since 2003, there have been a number of other legislative and regulatory changes to the coverage and reimbursement landscape for pharmaceuticals. Most recently, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, the “Affordable Care Act,” was enacted. The Affordable Care Act contains a number of provisions, including

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those governing enrollment in federal healthcare programs, the increased use of comparative effectiveness research on healthcare products, reimbursement and fraud and abuse changes, all of which will impact existing government healthcare programs and will result in the development of new programs. An expansion in the government’s role in the U.S. healthcare industry may further lower rates of reimbursement for pharmaceutical products.

There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare products and services. The Company cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

In addition, governments may impose price controls, which may adversely affect profitability if products are sold in those countries.

The Company expects to expand its development capabilities, and any difficulties hiring or retaining key personnel or managing this growth could disrupt the Company’s operations.

The Company is highly dependent on the principal members of its development staff. Future growth will require the Company to continue to implement and improve its managerial, operational and financial systems and continue to retain, recruit and train additional qualified personnel, which may impose a strain on its administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. As of December 31, 2014, the Company had 25 full-time employees. The Company may need to expand its managerial, operational, financial and other resources in order to manage and fund its operations and clinical studies, continue its research and development activities, and commercialize its product candidates. The Company is highly dependent on the continued ability to attract, retain and motivate highly qualified management and specialized personnel required for the manufacture of its products, the clinical development of the product candidates and the potential commercialization of the product candidates. Due to limited resources, the Company may not be able to effectively manage any expansion of its operations or recruit and train additional qualified personnel. If the Company is unable to retain key personnel or manage its growth effectively, the Company may not be able to implement its business plan.

The Company has, in the past, implemented workforce reductions. Depending on the Company’s need for additional funding and expense control, the Company may be required to implement further workforce and expense reductions in the future. Further workforce and expense reductions could result in reduced progress of the Company’s programs. In addition, the implementation of expense reduction programs may result in the diversion of efforts of the Company’s executive management team and other key employees, which could adversely affect the Company’s business.

The Company currently has no commercial organization (i.e., marketing, sales, and distribution). If the Company is unable to develop a commercial infrastructure on its own or through collaborations with partners, the Company will not be successful in commercializing CPX-351.

The Company currently has a Chief Business Officer but no other commercial infrastructure (i.e., marketing, sales or distribution capabilities) for its product candidates and must build this infrastructure or make arrangements with third-parties to perform these functions in order to commercialize its products. If the Company needs to establish this capability it will be expensive and time consuming. Any failure or delay in the development of this capability would adversely impact the commercialization of CPX-351 or future product candidates, if any.

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If the Company fails to comply with healthcare regulations, it could face substantial penalties and its business, operations and financial condition could be adversely affected.

In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical and medical device industries in recent years, as well as consulting or other service agreements with physicians or other potential referral sources. These laws include anti-kickback statutes and false claims statutes that prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or, in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally-financed healthcare programs, and knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and any practices the Company adopts may not, in all cases, meet all of the criteria for safe harbor protection from anti-kickback liability. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Any challenge to its business practices under these laws could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company uses hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time-consuming or costly.

The Company uses hazardous materials, which could be dangerous to human health and safety or to the environment. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair the Company’s pharmaceutical development efforts.

In addition, the Company cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. If one of the Company’s employees were to be accidentally injured from the use, storage, handling or disposal of these materials or wastes, the medical costs related to the employee’s treatment may be covered by its workers’ compensation insurance policy. However, the Company does not carry specific hazardous waste insurance coverage and its property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, the Company could be held liable for damages or penalized with fines in an amount exceeding its resources, and its operations could be adversely affected.

The Company is an “emerging growth company” and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make the Company’s common stock less attractive to investors.

The Company is an “emerging growth company,” as defined in the JOBS Act enacted in April 2012. For as long as the Company continues to be an “emerging growth company,” the Company may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to,

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The Company can be an “emerging growth company” for up to five years after the first sale of its common equity securities pursuant to an effective registration statement under the Securities Act, which occurred on June 10, 2013 when the SEC declared effective the Company’s Form S-1 registration statement. However, if certain events occur prior to the end of such five year period, including if the Company becomes a “large accelerated filer,” its annual gross revenues exceed $1 billion or it issues more than $1 billion of non-convertible debt in any three-year period, the Company will cease to be an “emerging growth company” prior to the end of such five-year period. The Company cannot predict whether investors will find the Company’s common stock less attractive if it chooses to rely on these exemptions. If some investors find the Company’s common stock less attractive as a result of any choice the Company makes to reduce future disclosure, there may be a less active trading market for the Company’s common stock and its common stock price may be more volatile. The Company also qualifies at this time as a “smaller reporting company.” Many of the reduced disclosure obligations applicable to emerging growth companies apply to smaller reporting companies.

Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies, which is not available for smaller reporting companies. However, the Company has irrevocably elected not to avail itself of this extended transition period for complying with new or revised accounting standards and, therefore, the Company will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

The Company has and will continue to incur increased costs as a result of operating as a public company, particularly once the Company ceases to be an “emerging growth company,” and the Company’s management will be required to devote substantial time to new compliance initiatives.

As a public reporting company, the Company will incur significant legal, accounting and other expenses that it did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and NASDAQ, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. The Company’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase the Company’s legal and financial compliance costs and will make some activities more time consuming and costly. For example, the Company expects that these rules and regulations may make it more difficult and more expensive for the Company to obtain director and officer liability insurance, and the Company may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, the Company is required to furnish a report by its management on the Company’s internal control over financial reporting. Once the Company ceases to be an “emerging growth company,” an attestation report on internal control over financial reporting will be required to be issued by the Company’s independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed time period, the Company has engaged in a process to document and evaluate the Company’s internal control over financial reporting, which is both costly and challenging. In this regard, the Company will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite the Company’s efforts, there is a risk that neither the Company nor, when required, its independent registered public accounting firm will be able to conclude within the prescribed timeframe that the Company’s internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Company’s financial statements.

The Company expects that the additional reporting and other obligations imposed on the Company by these rules and regulations and compliance with evolving interpretations of new or changed legal requirements may cause the Company to incur higher costs as the Company revises current practices, policies and procedures, and may divert management time and attention from potential revenue-generating activities to compliance matters. If the Company’s efforts to comply with new or changed laws, regulations and standards

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differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, the Company’s reputation may also be harmed. Further, the Company’s board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, the Company may have difficulty attracting and retaining qualified board members and executive officers, which could harm the Company’s business.

Changing economic conditions may make it costly and difficult to raise additional capital.

The Company’s results of operations could be materially affected by economic conditions generally, both in the U.S. and around the world. Economic conditions are cyclical, and, in recent years, there has been turmoil in the world economy, which has led to volatility on the U.S. stock market. If economic conditions worsen and affect the capital markets, the Company’s ability to raise capital may be adversely affected.

The Company is exposed to risks related to foreign currency exchange rates.

Some of the Company’s costs and expenses are denominated in foreign currencies. Most of the Company’s foreign expenses are associated with activities related to the Phase 3 study of CPX-351 that occur outside of the U.S. When the U.S. dollar weakens against foreign currency, the U.S. dollar value of the foreign currency denominated expense increases, and when the U.S. dollar strengthens against the foreign currency, the U.S. dollar value of the foreign currency denominated expense decreases. Consequently, changes in exchange rates, and in particular a weakening of the U.S. dollar, may adversely affect the Company’s results of operations.

The Company may not be able to recover from any catastrophic event affecting its suppliers or facilities.

While the Company’s suppliers have measures in place to minimize and recover from catastrophic events that may substantially destroy their capability to meet customer needs, these measures may not be adequate to recover production processes quickly enough to support critical timelines or market demands. These catastrophic events may include weather events such as tornadoes, earthquakes, floods or fires. In addition, these catastrophic events may render some or all of the products at the affected facilities unusable.

RISKS RELATING TO THE COMPANY’S INTELLECTUAL PROPERTY

The Company’s success depends upon its ability to protect and enforce its proprietary technologies and its intellectual property, and third party intellectual property may limit or interfere with, or eliminate its ability to make, use and sell the Company’s potential products.

The Company’s commercial success depends on obtaining and maintaining patent protection and trade secret protection for its product candidates and their formulations and uses, as well as successfully defending these patents against third-party challenges. If the Company fails to appropriately prosecute and maintain patent protection for these product candidates, its ability to develop and commercialize these product candidates may be adversely affected and the Company may not be able to prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual property rights relating to these product candidates could have a material adverse effect on the Company’s financial condition and results of operations.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that the Company or its partners will be successful in protecting its product candidates by obtaining and defending patents. These risks and uncertainties include the following:

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In addition to patents and trademarks, the Company also relies on trade secrets and proprietary know-how. Although the Company has taken steps to protect its trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, third parties may still obtain this information or the Company may be unable to protect its rights. If any of these events occurs, or the Company otherwise loses protection for its trade secrets or proprietary know-how, the value of this information may be greatly reduced.

Patent protection and other intellectual property protection are crucial to the success of the Company’s business and prospects, and there is a risk that such protections will prove inadequate.

If the Company is sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation would have a material adverse effect on its business.

The Company’s commercial success also depends upon its ability and the ability of any of its future collaborators to develop, manufacture, market and sell its product candidates without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which the Company is developing products.

In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to the Company, which may later result in issued patents that its product candidates or proprietary technologies may infringe. Similarly, there may be issued patents relevant to its product candidates of which the Company is not aware.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that the Company or any collaborators of the Company infringe the third party’s intellectual property rights, the Company may have to:

Other product candidates that the Company may in-license or acquire could be subject to similar risks and uncertainties.

The Company may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe the Company’s patents or the patents of the Company’s licensors. To counter infringement or unauthorized use, the Company may be required to file infringement claims, which typically are very expensive, time-consuming and disruptive of day-to-day business operations. In addition, in an infringement proceeding, a court may decide that one or more of the Company’s patents or patents of the

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Company’s licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the Company’s patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of the Company’s patents at risk of being invalidated, held unenforceable, or interpreted narrowly. The adverse result could also put related patent applications at risk of not issuing. Interference proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to the Company’s patents or patent applications or those of its collaborators or licensors. An unfavorable outcome could require the Company to cease using the related technology or to attempt to license rights to it from the prevailing party. The Company’s business could be harmed if the prevailing party does not offer it a license on commercially reasonable terms. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract the Company’s management and other employees. The Company may not be able to prevent, alone or with its licensors, misappropriation of its trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the U.S.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of its confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the Company’s common stock.

The Company may be subject to claims that its consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to the Company.

As is common in the biotechnology and pharmaceutical industry, the Company engages the services of consultants to assist it in the development of its product candidates. Many of these consultants were previously employed at, may have previously been, or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including the Company’s competitors or potential competitors. Although no claims against the Company are currently pending, the Company may be subject to claims that these consultants or the Company has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if the Company is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and day-to-day business operations.

RISKS RELATED TO THE COMPANY’S COMMON STOCK

The price of the Company’s common stock may continue to be volatile, and the value of an investment in the Company’s common stock may decline.

The Company’s common stock was initially listed and traded on the OTC Bulletin Board from September 12, 2013 until November 8, 2013. While the common stock was on the OTC Bulletin Board, it was thinly traded and the stock price was volatile. On November 11, 2013 the Company’s common stock was listed on the NASDAQ Capital Market. Since listing on NASDAQ, the Company’s common stock has traded as low as $1.58 and as high as $4.67. Factors that could cause continued volatility in the market price of the Company’s common stock include, but are not limited to:

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Provisions of Delaware law could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to the Company’s stockholders, and could make it more difficult to change management.

Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns or within the last three years has owned 15% of the Company’s voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the Company.

These provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of the Company’s common stock.

The ownership of the Company’s capital stock by the Company’s directors, executive officers and holders of more than 5% of the Company’s capital stock is highly concentrated and will result in the Company’s non-affiliate stockholders having limited or no ability to influence corporate actions.

The Company’s directors and executive officers and holders of more than 5% of the Company’s capital stock beneficially own approximately 33.4% of the Company’s outstanding capital stock including shares purchasable upon exercise of stock options and warrants as of February 28, 2015. Accordingly, these stockholders, acting as a group, could have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the Company’s assets or any other significant corporate transaction. Also, the Company’s non-affiliate stockholders will have limited or no ability to influence corporate actions. The significant concentration of stock ownership may adversely affect the trading price of the Company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

The Company has never paid dividends on its capital stock and the Company does not anticipate paying any cash dividends in the foreseeable future.

The Company has never declared or paid cash dividends on its capital stock. The Company does not anticipate paying any cash dividends on its capital stock in the foreseeable future. The Company currently

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intends to retain all available funds and any future earnings to fund the development and growth of the Company’s business. As a result, capital appreciation, if any, of the Company’s common stock will be stockholders’ sole source of gain.

The Company is at risk of securities class action litigation.

Biotechnology companies have experienced greater than average stock price volatility in recent years. These broad market fluctuations may adversely affect the trading price or liquidity of the Company’s common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of the Company’s stockholders were to bring such a lawsuit against the Company, the Company could incur substantial costs defending the lawsuit and the attention of management would be diverted from the operation of the Company’s business.

Stockholders may experience future dilution as a result of future equity offerings.

In order to raise additional capital, the Company may in the future offer additional shares of its common stock or other securities convertible into or exchangeable for its common stock at prices that may not be the same as the price per share in prior offerings. The Company may sell shares or other securities in any offering at a price per share that is less than the price per share paid by investors in prior offerings, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which the Company sells additional shares of its common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by investors in prior offerings.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the staff of the SEC.

ITEM 2. PROPERTIES

The Company’s corporate and executive office is located in Ewing, New Jersey. The Company also has an office in Vancouver, British Columbia. The Company does not own any real property. In March 2013, the Company entered into an office lease agreement for 4,785 square feet of office space in Ewing, New Jersey, which commenced in June 2013 with a term of sixty months, expiring June 2018. In February 2013, the Company renewed its office lease agreement for office space in Vancouver, British Columbia, effective April 1, 2013 which expires in June 2016. In August 2014, the Company entered into a sublease agreement for 776 square feet of laboratory space in Vancouver, British Columba, commencing September 2014 with a term of one year, expiring September 2015.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of its business. The Company believes there is no litigation pending that could, individually or in the aggregate, have a material adverse effect on the Company’s results of operations or financial statements.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock has been listed on the NASDAQ Capital Market since November 11, 2013 under the symbol “CPXX”. From September 12, 2013 until November 8, 2013, the Company’s common stock was listed on the OTC Bulletin Board under the symbol “CLPM”. On March 16, 2015, the last sale price reported on the NASDAQ Capital Market for the Company’s common stock was $2.37.

Year-Ended December 31, 2013		High				Low
Third Quarter		$	6.00			$	4.75
Fourth Quarter		$	5.75			$	3.00

Year-Ended December 31, 2014		High				Low
First Quarter		$	4.67			$	2.92
Second Quarter		$	3.26			$	2.04
Third Quarter		$	3.02			$	2.45
Fourth Quarter		$	3.13			$	1.58

As of February 28, 2015 there were approximately 256 holders of record of the Company’s common stock. In addition, the Company believes that a significant number of beneficial owners of its common stock hold their shares in nominee or in “street name” accounts through brokers.

The Company has never declared or paid any cash dividends on the Company’s common stock. The Company currently intends to retain any future earnings to finance the growth and development of its business. Therefore, the Company does not anticipate declaring any cash dividends in the foreseeable future. Any future determination as to the payment of dividends, if any, will be at the discretion of the Company’s board of directors and will depend on then existing conditions, including the Company’s financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors the Company’s board of directors may deem relevant.

The following table sets forth information regarding the Company’s equity compensation plans:

Plan category		Number of securities (by class) to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities (by class) remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			3,005,287			$	3.02				1,200,560
Equity compensation plans not approved by security holders			—				—				—
Total			3,005,287			$	3.02				1,200,560

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the year ended December 31, 2014.

The Company did not repurchase any securities during the year ended December 31, 2014.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable to the Company, which is a smaller reporting company.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with the Company’s financial statements and the related notes set forth under “Item 8, Financial Statements and Supplementary Data” and included in Item 15 of this Form 10-K annual report. This discussion contains forward-looking statements reflecting the Company’s current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in the Company’s forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Form 10-K annual report.

Overview

Celator Pharmaceuticals, Inc., is a clinical stage biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. Celator’s proprietary technology platform, CombiPlex®, enables the rational design and rapid evaluation of optimized combinations incorporating traditional chemotherapies as well as molecularly targeted agents to deliver enhanced anti-cancer activity. CombiPlex addresses several fundamental shortcomings of conventional combination regimens, as well as the challenges inherent in combination drug development, by identifying the most effective synergistic molar ratio of the drugs being combined in vitro, and fixing this ratio in a nano-scale drug delivery complex to maintain the optimized combination after administration and ensure its exposure to the tumor. Celator’s pipeline includes lead product, CPX-351 (a liposomal formulation of cytarabine:daunorubicin) for the treatment of acute myeloid leukemia; CPX-1 (a liposomal formulation of irinotecan:floxuridine) for the treatment of colorectal cancer; a preclinical stage product candidate, CPX-8 (a hydrophobic docetaxel prodrug nanoparticle formulation), being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory. The Company is advancing the CombiPlex platform and broadening its application to include molecularly targeted therapies and epigenetic modulators. Areas of investigation include:

The majority of our current research and development funds will be spent on our lead product candidate, CPX-351. We may seek collaborative partners to advance our other programs.

Celator has spent research and development funds on clinical studies, research collaborations and intellectual property costs. For the years 2010 through 2014, over 90% of total research and development costs has been on clinical studies. The three major studies are:

Study 204 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 30.3% (66.7% vs. 51.2%), the 60-day mortality was decreased by 67.8% (4.7% vs. 14.6%), median event-free survival increased by 225.0% (6.5 months vs. 2.0 months) and the median overall survival increased approximately 14.0% (14.7 months vs. 12.9 months). In sAML patients (approximately 41% of the overall population), the response rate increased by 82.0% (57.5% vs. 31.6%), the

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60-day mortality decreased approximately 80.7% (6.1% vs. 31.6%), the median event-free survival increased approximately 246.2% (4.5 months vs. 1.3 months) and the median overall survival increased by 98.4% (12.1 months vs. 6.1 months).

Study 205 was a randomized Phase 2 clinical study designed to be a direct test of whether CPX-351 provides increased clinical efficacy over salvage therapies in first relapse AML patients age 18 – 65. This study is complete. In the overall population, CPX-351 resulted in a 20.8% relative increase in response rate (49.4% vs. 40.9%) compared to the control arm of salvage therapies, a 6.9% decrease in the 60-day mortality (14.8% vs. 15.9%), a 34.9% increase in median overall survival (8.5 months vs. 6.3 months) and an approximately 31.1% 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 42.4% relative increase in response rate (39.3% vs. 27.6%) compared to the control arm of salvage therapies, a 33.2% decrease in 60-day mortality (16.1% vs. 24.1%), a 57.1% increase in median overall survival (6.6 months vs. 4.2 months) and a higher 1-year survival rate of 177.7% (28.6% vs. 10.3%).

Study 301 is a randomized controlled Phase 3 study in patients with sAML, with overall survival as the primary endpoint. This Phase 3 study has been undertaken to confirm the Study 204 clinical observations where CPX-351 provided the largest efficacy improvements in sAML patients and to provide the necessary data for product registration. Study 301 enrolled the first patient in December 2012 and closed enrollment in November 2014. On October 24, 2014, the Company achieved the target enrollment, of 300 patients, in the Phase 3 study of CPX-351. The independent Data and Safety Monitoring Board review in December 2014 reviewed the first 225 patients randomized to the which review recommended that the study continue as planned without any modifications. Sites in the U.S. and Canada are participating in this study.

This Phase 3 study is a multicenter, randomized, open-label study testing CPX-351 versus the current standard of care, conventional cytarabine and daunorubicin therapy (7+3) in patients with untreated high-risk (secondary) AML. The Phase 3 clinical study is being conducted in patients 60 – 75 years of age, with untreated, high risk sAML. The Company expects the following milestones related to its Phase 3 clinical study:

The Phase 3 clinical study is being conducted in patients, 60 – 75 years of age, with untreated, high risk sAML who can tolerate intensive chemotherapy. This patient population is intended to be the first indication for which the Company is seeking regulatory approval. The Company estimates global peak year sales of approximately $250M in this patient population. The Company believes CPX-351 could exceed $750M in peak year sales, based on potential label expansion and generation of positive clinical data in other AML patient populations and hematologic malignancies. Exploratory studies are underway in some of these additional patient groups.

The following table summarizes research and development spending by project:

		2014				2013
CombiPlex Platform Technology Advancement		$	305,945			$	—
Randomized Phase 2 Study 205			—				4,841
Randomized Phase 3 Study 301			10,989,738				8,850,434
Intellectual Property (legal and patent costs)			337,312				355,119
General Research (professional development, recruitment, etc.)			259,373				212,662
Totals		$	11,892,368			$	9,423,056

In June 2012, the Company entered into an agreement with LLS pursuant to which 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 the Company, 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

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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. During the years ended December 31, 2014 and 2013, the Company recognized $542,986 and $561,086, respectively related to amortization of the upfront payment. The estimated performance period is expected to be complete in January 2016. As of December 31, 2014, $0.6 million was deferred. In 2014, the Company received two payments of $500,000 each from LLS for achieving the 50% overall enrollment milestone in January 2014 and the full enrollment in November 2014. 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 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.

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 $7,473,108. Upon the final 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.

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-eight months including an initial interest-only period of eighteen months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time until March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate with interest only period until December 1, 2015. It is the Company’s intention to draw the remaining $5 million of the term loan on or before March 31, 2015. 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 $138,709 for the year ended December 31, 2014 and the remaining unamortized debt issuance costs of $539,296 are 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 becomes 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 $121,217 of this fee during the year ended December 31, 2014.

On October 28, 2014, the Company completed a public offering of 7,602,823 shares of common stock and warrants to purchase up to 760,282 shares of its common stock, including the exercise in full of the

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underwriters’ overallotment option to purchase up to an additional 991,673 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a warrant to purchase 0.10 of a share of common stock at a price of $1.95 per unit. The Company received approximately $13.6 million in net proceeds from the public offering after payment of fees, expenses and underwriting expenses. The shares of common stock and the warrants were immediately separable and were issued separately. The warrants have an exercise price of $3.58 per share and have a term of five years. In addition, the Company issued to the underwriters, underwriter warrants to purchase 114,042 shares of common stock at an exercise price of $3.58 per share.

Results of Operations

Year ended December 31, 2014 compared to the Year ended December 31, 2013

Expenses

Research and Development:  Research and development for year ended December 31, 2014 increased due to higher CPX-351 Phase 3 clinical trial costs. The Company charges research and development costs to operations as incurred.

The Company’s research and development expenses were $11,892,000 for the year ended December 31, 2014 compared to $9,423,000 for the year ended December 31, 2013, reflecting an increase of $2,469,000. The increase was primarily attributable to $919,000 increase in outsourced clinical trial and regulatory activities related to the Phase 3 trial of CPX-351, $722,000 increase in compensation and stock option expenses, $316,000 for a metabolism study which began in 2013 and ended in 2014 for CPX-351, $199,000 increase in manufacturing and drug and lipid costs, $198,000 increase due to costs associated with the advancement of the CombiPlex combination work initiated in 2014 and $75,000 increase in drug storage and shipping costs to sites.

LLS Funding:  The LLS revenue recognized for the year ended December 31, 2014 was $1,543,000 as compared to $561,000 for 2013, reflecting an increase of $982,000. The amount recognized during the year ended December 31, 2014 represents two $500,000 payments from LLS for achieving 50% overall enrollment milestone in January 2014 and full enrollment in November 2014 and amortization of an upfront payment received in 2012 of $543,000. The year ended December 31, 2013 amount represents the amortization of an upfront payment received in 2012 of $561,000.

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, lease expense for the facilities, public company related costs and external consulting costs associated with investor relations, commercial operations and strategic planning.

General and administrative expenses were $7,292,000 for the year ended December 31, 2014 compared to $5,428,000 for the year ended December 31, 2013, reflecting an increase of $1,864,000. The increase was primarily attributable to $1,017,000 increase in compensation and stock option expense, $730,000 increase in commercial operations, which included market research, corporate communication, and branding activities, $292,000 increase in investor relations and strategic consulting, $87,000 increase in professional fees, $58,000 for increased board of directors’ fees, and $42,000 increase in insurance. These increases were offset by reductions in leases and building related operating costs of $131,000, recruitment expenses of $92,000, public company related costs of $75,000, and franchise taxes of $57,000.

Loss on Disposal of Property and Equipment:  In 2014, the Company recorded an impairment loss of $78,000 that arose primarily from a write off of scientific equipment from the Vancouver laboratory that had previously been placed on consignment to be sold. In 2013, the Company recorded a loss of $127,000 from the sale of its scientific equipment from the Vancouver laboratory.

Amortization and Depreciation: Amortization and depreciation expenses were $195,000 for the year ended December 31, 2014 compared to $198,000 for the year ended December 31, 2013, a decrease of $3,000.

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Other Income and Expenses

Non-cash derivative instrument charge:  Non-cash derivative instrument charge was $7,473,000 for the year ended December 31, 2013. The charge resulted from the obligation to issue additional shares of common stock and warrants by the Company, at the April 29, 2013 closing, to certain existing stockholders who participated in early closings of this financing.

Interest Expense:  Interest expense was $904,000 and $147,000 for the year ended December 31, 2014 and 2013 respectively. Interest expense of $904,000 for year ended December 31, 2014 related to interest on a Hercules term loan entered into in May 2014. It includes $260,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge. Interest expense of $147,000 for the year ended December 31, 2013 consisted of $72,000 of interest on a bank loan and $75,000 of non-cash financing costs for a previous bank loan, which was repaid in June 2013.

Income Tax Benefit

In 2014 and 2013, the Company was approved to sell New Jersey net operating loss carryforwards under the New Jersey Technology Business Tax Certificate Transfer Program, which resulted in the recognition of an income tax benefit of $1,937,000 and $1,412,000, respectively.

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, private and public placements of common stock, convertible debt and debt financings. However, the Company may pursue additional financing options, including entering into agreements with collaborative partners in order to provide milestone payments, license fees and equity investments. The Company believes that, with $32.4 million in cash and cash equivalents as of December 31, 2014, and cash available to the Company through the Hercules term loan, it has the resources to meet estimated working capital requirements to fund operations into the second half of 2016. The Company expects to continue to incur losses as it funds research and development activities and commercial launch activities, and the Company does not expect material revenues for at least the next few years.

On October 28, 2014, the Company completed a public offering of 7,602,823 shares of common stock and warrants to purchase up to 760,282 shares of its common stock, including the exercise in full of the underwriters’ overallotment option to purchase 991,673 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a warrant to purchase 0.10 of a share of common stock at a price of $1.95 per unit. The Company received approximately $13.6 million in net proceeds from the public offering after payment of fees, expenses and underwriting expenses. The shares of common stock and the warrants were immediately separable and were issued separately. The warrants have an exercise price of $3.58 per share and have a term of five years. In addition, the Company issued to the underwriters, underwriter warrants to purchase 114,042 shares of common stock at an exercise price of $3.58 per share.

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-eight months including an initial interest-only period of eighteen 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 until March 31, 2015. It is the Company’s intention to draw the remaining $5 million of the term loan on or before March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate with interest only period until December 1, 2015. 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.

The Company believes it has sufficient funds to conduct its proposed plan of operations into the second half of 2016. The Company will need to raise additional funding to complete the potential registration and commercialization of CPX-351. The Company’s future capital requirements will depend on many factors,

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including those factors described in Item 1A. “Risk Factors” of this 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 $14,412,000 for the year ended December 31, 2014. The year ended December 31, 2014 amount reflected the Company’s net loss of $16,903,000, offset by $1,883,000 in net non-cash charges including amortization and depreciation of $195,000, stock-based compensation expense of $1,350,000, loss on disposal of property and equipment of $78,000 and non-cash financing costs of $260,000 related to the Hercules loan. In addition, the Company generated $608,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the year ended December 31, 2014. The changes in operating assets and liabilities were decreases in other receivables of $1,392,000, restricted cash of $90,000, prepaid expenses, deposits and other assets of $18,000 and an increase in accrued liabilities of $120,000; offset by decreases in accounts payable of $462,000, deferred revenue of $543,000 and deferred rent of $8,000.

Net cash used in operating activities was $12,460,000 for the year ended December 31, 2013. The year ended December 31, 2013 amount reflected the Company’s net loss of $20,844,000, offset by $8,411,000 in net non-cash charges including amortization and depreciation of $198,000, stock-based compensation expense of $539,000, loss on disposal of property and equipment of $127,000, non-cash charge relating to 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 used $26,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the year ended December 31, 2013. The changes in operating assets and liabilities were decreases in other receivables of $587,000 and other assets of $25,000, increases in accounts payable of $492,000, accrued liabilities of $439,000, and deferred rent liability of $53,000 offset by increases in prepaid expenses and deposits $343,000, restricted cash of $250,000, and other current assets of $468,000 and decrease in deferred revenue of $561,000.

Cash used in investing activities for the year ended December 31, 2014 was $65,000 for property and equipment expenditures. Cash used in investing activities was $41,000 for the year ended December 31, 2013, reflecting $93,000 of property and equipment expenditures and $52,000 of proceeds from the sale of property and equipment.

Cash provided by financing activities for the year ended December 31, 2014 was $23,319,000. The cash inflow was from the net proceeds from issuance of common stock and exercise of stock options of $13,676,000 and the net proceeds from the issuance of debt of $9,643,000. Cash provided by financing activities for the year ended December 31, 2013 was $26,441,000. The cash inflow was from the net proceeds of $29,420,000 from the April 2013 final round of a private placement and stock options exercise proceeds of $21,000 offset by $3,000,000 for the repayment of the Bank Loan.

Off-Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements.

Contractual Arrangements

The table below summarizes the Company’s material contractual obligations and commitments as of December 31, 2014:

		Total				Less than 1 year				1 – 3 years				3 – 5 years
Loans payable including interest		$	12,875,371			$	1,273,503			$	8,789,066			$	2,812,802
Operating lease obligations			627,792				232,932				322,488				72,372
		$	13,503,163			$	1,506,435			$	9,111,554			$	2,885,174

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Hercules Technology Growth Capital Loan

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-eight months including an initial interest-only period of eighteen months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time until March 31, 2015. It is the Company’s intention to draw down the remaining $5 million of the term loan on or before 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 until December 1, 2015. The funds will be used to provide general working capital.

Operating lease obligations

The Company has two operating leases related to office space the Company occupies in Ewing, New Jersey and Vancouver, BC, and an operating lease for laboratory space the Company occupies in Vancouver, British Columbia.

In September 2014, the Company entered into a lease agreement for a laboratory space in Vancouver, British Columbia, which expires in September 2015. The remaining minimum lease payments as of December 31, 2014 were $25,087.

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 December 31, 2014 were $495,840. 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 December 1, 2014, 2015, and 2016; and by $60,000 on December 1, 2017.

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 December 31, 2014 were $93,292.

The Company has other operating lease arrangements for office equipment expiring between 2016 and 2017. The remaining minimum lease payments as of December 31, 2014 were $13,574.

Critical Accounting Policies

The preparation of the Company’s consolidated financial statements requires management to make estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the fiscal year-end and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews its estimates and judgments, including the accounting for convertible notes and warrants, recognition of research and development funding and milestones and proper cut-off of third party research and development services. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following are critical accounting policies and estimates. These policies and estimates were considered “critical” because:

Accounting for warrants

The Company issued warrants to purchase shares of common stock related to equity and debt transactions in 2013 and 2014. The Company accounts for its warrants issued in accordance with Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging, guidance applicable to derivative instruments,

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which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings for liability classified warrants. Based on this guidance, the Company determined that the Company’s warrants meet the criteria for classification as equity. Accordingly, the warrants were classified as equity and are not subject to remeasurement at each balance sheet date. The fair value was estimated using the Black-Scholes option pricing model, based on the market value of the underlying common stock at the measurement date, the contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

Recognition of research and development milestones

In June 2012, the Company entered into an agreement with LLS pursuant to which LLS is providing funding for CPX-351 Phase 3 study. The funding consists of an initial upfront payment on inception of the agreement and subsequent milestone payments contingent on the achievement of certain clinical milestones.

The initial upfront payment received with regards to the agreement was not substantive and has been recorded as deferred revenue and is being recognized on a straight line basis over the estimated performance period of the research and development services to be provided under the agreement.

The Company also received milestone payments from LLS for achieving certain clinical milestones. These milestones payments are considered substantive and based upon ASC 605-28-25-2 Milestone Method-Recognition, the amounts are recognized upon achieving the clinical event.

Stock-based compensation

Stock based compensation transactions are recognized as compensation expense in the consolidated statement of loss based on their fair values on the date of the grant, with the compensation expense recognized over the period in which a grantee is required to provide service in exchange for the award. The Company estimates the fair value of options granted using the Black-Scholes option valuation model. This estimate uses assumptions regarding a number of inputs that require the Company to make significant estimates and judgments. Because the Company is a relatively new publicly traded common stock the expected volatility assumption was based on industry peer information.

Income taxes

The Company accounts for income taxes using ASC 740 Income Taxes. ASC 740 Income Taxes is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, ASC 740 generally considers all expected future events other than enactments of and changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Valuation allowances are provided if, considering available evidence, it is more likely than not that the deferred tax assets will not be realized. ASC 740 clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. ASC 740 provides a benefit recognition model with a two-step approach consisting of “more-likely-than-not” recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. ASC 740 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements.

Investment tax credits relating to scientific research and experimental development are accounted for in operations. To the extent there is reasonable assurance the credits will be realized, they are recorded in the period the related expenditure is made as a reduction of current operating expenses (tax recovery).

Recent accounting standards

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

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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.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The ASU provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

In March 2013, FASB issued an amendment to the accounting guidance on foreign currency matters in order to clarify the guidance for the release of cumulative translation adjustments. The guidance is effective for interim and annual periods beginning on or after December 15, 2013. The adoption of this amended accounting guidance did not have any impact on the Company’s consolidated financial position and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable to the Company, which is a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are set forth beginning in Item 15 of this report and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with our independent registered public accountants on accounting or financial disclosure matters during our two most recent fiscal years.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

As of December 31, 2014, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that the Company filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Management’s report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in the 2013 Internal Control — Integrated Framework (the COSO criteria). Based on our assessment we believe that, as of December 31, 2014, our internal control over financial reporting is effective based on those criteria.

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 Securities Exchange Act of 1934) 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.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Pursuant to General Instruction G (3) of Form 10-K, the information required by Item 10 of the Form 10-K is hereby incorporated by reference from discussion responsive thereto under the captions “Election of Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2015 annual meeting of stockholders to be filed with the SEC.

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G(3) of Form 10-K, the information required by Item 11 of the Form 10-K is hereby incorporated by reference from discussion responsive thereto under the captions “Executive Compensation,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation” and “Directors Compensation” in our definitive proxy statement for our 2015 annual meeting of stockholders to be filed with the SEC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Pursuant to General Instruction G(3) of Form 10-K, the information required by Item 12 of the Form 10-K is hereby incorporated by reference from discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Management” in our definitive proxy statement for our 2015 annual meeting of stockholders to be filed with the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Pursuant to General Instruction G(3) of Form 10-K, the information required by Item 13 of the Form 10-K is hereby incorporated by reference from discussion responsive thereto under the captions “Certain Relationships and Related Transactions” in our definitive proxy statement for our 2015 annual meeting of stockholders to be filed with the SEC.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Pursuant to General Instruction G(3) of Form 10-K, the information required by Item 14 of the Form 10-K is hereby incorporated by reference from discussion responsive thereto under the captions “Ratification of Independent Public Accountants” in our definitive proxy statement for our 2015 annual meeting of stockholders to be filed with the SEC.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

The following consolidated financial statements and notes thereto which are attached hereto beginning on page F-1 have been included by reference into Item 8 of this part of the annual report on Form 10-K:

		Page
Report of Independent Registered Public Accounting Firm			F-1
Consolidated Balance Sheets as of December 31, 2014 and 2013			F-2
Consolidated Statements of Loss for the years ended December 31, 2014 and 2013			F-3
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2014 and 2013			F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013			F-5
Notes to the Consolidated Financial Statements			F-6

All schedules are omitted because they are inapplicable or not required or the required information is shown in the financial statements or notes thereto.

The information required by this Item is set forth in the Exhibit Index that follows the signature page of this Annual Report.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Celator Pharmaceuticals, Inc.:

We have audited the accompanying consolidated balance sheets of Celator Pharmaceuticals, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of loss, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Celator Pharmaceuticals, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP
 
Philadelphia, Pennsylvania
March 17, 2015

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Consolidated Balance Sheets

		December 31,
		2014				2013
Assets
Current assets:
Cash and cash equivalents		$	32,413,777			$	23,589,516
Restricted cash			194,561				287,657
Other receivables			21,102				1,417,313
Prepaid expenses and deposits			482,472				491,465
Assets held for sale			—				74,086
Other current assets			458,278				468,389
Total current assets			33,570,190				26,328,426
Property and equipment, net			1,004,412				1,138,579
Other assets			544,501				5,745
Total assets		$	35,119,103			$	27,472,750
Liabilities
Current liabilities:
Current portion of debt		$	284,961			$	—
Accounts payable			723,765				1,193,148
Accrued liabilities			1,735,420				1,630,809
Current portion of deferred revenue			542,986				542,986
Total current liabilities			3,287,132				3,366,943
Deferred revenue			45,249				588,236
Deferred rent			45,408				53,084
Loans payable			9,836,256				—
Total liabilities			13,214,045				4,008,263
Commitments and contingencies (Note 15)
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 33,681,355 and 26,035,596 shares as of December 31, 2014 and 2013, respectively			33,681				26,036
Warrants			1,083,193				1,083,193
Additional paid-in capital			171,289,703				155,953,894
Accumulated other comprehensive loss			(1,133,266	)			(1,133,266	)
Accumulated deficit			(149,368,253	)			(132,465,370	)
Total stockholders’ equity			21,905,058				23,464,487
Total liabilities and stockholders’ equity		$	35,119,103			$	27,472,750

 
 
See accompanying notes to the consolidated financial statements.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Consolidated Statements of Loss

		Years ended December 31,
		2014				2013
Expenses
Research and development		$	11,892,368			$	9,423,056
Leukemia & Lymphoma Society funding			(1,542,986	)			(561,086	)
General and administrative			7,292,159				5,427,707
Loss on disposal of property and equipment			77,624				126,633
Amortization and depreciation			195,492				197,743
Operating loss			(17,914,657	)			(14,614,053	)
Other income (expenses)
Foreign exchange loss			(31,093	)			(31,028	)
Interest and miscellaneous income			10,001				9,092
Non-cash derivative instrument charge			—				(7,473,108	)
Interest expense			(903,890	)			(147,360	)
Loss before income taxes			(18,839,639	)			(22,256,457	)
Income tax benefit			1,936,756				1,412,302
Net loss		$	(16,902,883	)		$	(20,844,155	)
Net loss per share
Basic and diluted		$	(0.62	)		$	(0.95	)
Weighted average of common shares outstanding
Basic and diluted			27,422,460				22,000,476

 
 
See accompanying notes to the consolidated financial statements.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Consolidated Statements of Stockholders’ Equity

		Common Stock								Warrants				Additional Paid-In Capital				Accumulated Other Comprehensive Loss				Accumulated Deficit				Stockholders’ Equity
		Number				Amount
Balance at December 31, 2012			13,673,160			$	13,673			$	1,083,193			$	118,509,395			$	(1,133,266	)		$	(111,621,215	)		$	6,851,780
Stock based compensation			—				—				—				538,643				—				—				538,643
Issued for cash, net of stock issuance costs			12,362,436				12,363				—				29,432,748				—				—				29,445,111
Derivative liability reclassificaton (See Note 9)			—				—				—				7,473,108				—				—				7,473,108
Net loss for the period			—				—				—				—				—				(20,844,155	)			(20,844,155	)
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
Stock based compensation			—				—				—				1,350,243				—				—				1,350,243
Issued for cash on exercise of stock options			42,936				43				—				100,596				—				—				100,639
Issued for cash, net of stock issuance costs			7,602,823				7,602				—				13,564,218				—				—				13,571,820
Warrants Issued			—				—				—				320,752				—				—				320,752
Net loss for the period			—				—				—				—				—				(16,902,883	)			(16,902,883	)
Balance at December 31, 2014			33,681,355			$	33,681			$	1,083,193			$	171,289,703			$	(1,133,266	)		$	(149,368,253	)		$	21,905,058

 
 
See accompanying notes to the consolidated financial statements.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Consolidated Statements of Cash Flows

		Year ended December 31,
		2014				2013
Operating activities
Net loss		$	(16,902,883	)		$	(20,844,155	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization and depreciation			195,492				197,743
Non-cash stock-based compensation expense			1,350,243				538,643
Loss on disposal of property and equipment			77,624				126,633
Non-cash derivative instrument charge			—				7,473,108
Non-cash financing costs			259,926				74,752
Changes in operating assets and liabilities
Other receivables			1,392,463				586,792
Prepaid expenses and deposits			7,632				(343,190	)
Restricted cash			90,000				(250,049	)
Other current assets			10,111				(468,389	)
Other assets			—				25,056
Accounts payable			(462,045	)			492,332
Accrued liabilities			120,104				439,075
Deferred rent liability			(7,676	)			53,084
Deferred revenue			(542,987	)			(561,086	)
Cash used in operating activities			(14,411,996	)			(12,459,651	)
Investing activities
Purchase of property and equipment			(64,865	)			(92,523	)
Proceeds on disposals of property and equipment			—				51,776
Cash used in by investing activities			(64,865	)			(40,747	)
Financing activities
Proceeds from issuance of common stock and on options exercised			14,929,892				32,520,974
Payment of share issuance costs			(1,253,685	)			(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			23,318,954				26,441,363
Effect of foreign exchange rate changes			(17,832	)			543
Net change in cash			8,824,261				13,941,508
Cash and cash equivalents, beginning of year			23,589,516				9,648,008
Cash and cash equivalents, end of year		$	32,413,777			$	23,589,516
Supplemental disclosure of cash flow information
Interest paid		$	560,624			$	79,388
Warrants issued in connection with debt issuance costs		$	320,752				—

 
 
See accompanying notes to the consolidated financial statements.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

1. Nature of Business and Liquidity

Celator Pharmaceuticals, Inc., with locations in Ewing, N.J., and Vancouver, B.C., is a clinical stage biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. The Company’s proprietary technology platform, CombiPlex®, enables the rational design and rapid evaluation of optimized combinations incorporating traditional chemotherapies as well as molecularly targeted agents to deliver enhanced anti-cancer activity. CombiPlex addresses several fundamental shortcomings of conventional combination regimens, as well as the challenges inherent in combination drug development, by identifying the most effective synergistic molar ratio of the drugs being combined in vitro, and fixing this ratio in a nano-scale drug delivery complex to maintain the optimized combination until exposure to the tumor following administration. The Company’s pipeline includes lead product, CPX-351 (a liposomal formulation of cytarabine:daunorubicin) for the treatment of acute myeloid leukemia; CPX-1 (a liposomal formulation of irinotecan:floxuridine) for the treatment of colorectal cancer; a preclinical stage product candidate; CPX-8 (a hydrophobic docetaxel prodrug nanoparticle formulation), being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory; and several programs exploring novel combinations of existing drugs, including molecularly targeted therapies.

The Company has incurred recurring losses and negative cash flows from operations since inception. As of December 31, 2014, the Company had an accumulated deficit of $149.4 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 December 31, 2014, the Company had cash and cash equivalents of $32.4 million. Management believes that the cash and cash equivalents at December 31, 2014, and cash available to the Company through the Hercules Technology Growth Capital Inc. (“Hercules”) term loan will be sufficient to meet estimated working capital requirements and fund planned operations into the second half of 2016.

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. Substantial additional financing will be needed by the Company to fund its operations and to commercialize its product candidates. 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 consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are presented in U.S. dollars. The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.

Basis of consolidation:  The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Celator Pharmaceutical 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, amongst 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, warrants and contingencies.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

Foreign currency translation and transactions:  The functional currency of the Company and its foreign subsidiary is the U.S. dollar. As such, monetary assets and liabilities of the Company’s operation denominated in a currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate prevailing as at the balance sheet date. Non-monetary assets and liabilities are translated at historical exchange rates prevailing at each transaction date. Expenses are translated at the average exchange rates prevailing during the year, with the exception of amortization which is translated at historical cash and cash equivalents exchange rates. Exchange gains and losses on translation are included in operations.

Cash and cash equivalents:  The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The carrying amount of cash equivalents approximates its fair value due to its short-term nature. The Company had $29,500,819 in short-term money market accounts as of December 31, 2014.

Property and equipment:  Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line depreciation method as follows:

Computer equipment		4 years
Furniture and office equipment		7 years
Laboratory equipment		10 years
Capital lease equipment and Leasehold improvements		Lesser of useful life or term of lease

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. The Company reviews property and equipment to assess recoverability from future operations whenever events and circumstances indicate that the carrying value may not be recoverable. Impairment losses are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the assets used or disposed of by sale. If impairment is indicated, the asset value is written down to its fair value.

Research and development:  Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, maintenance of research equipment, costs related to research collaboration and licensing agreements, the cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and clinical trials. All costs associated with research and development are expensed as incurred.

Research collaboration funding:  The Company has research and development agreements where the Company receives funding when it achieves certain agreed upon milestones such as meeting clinical trial objectives or patient enrollment. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-28-25-2, Milestone Method-Recognition milestones considered substantive and that related solely to past Company performance and do not have any remaining deliverables associated with them are recognized as revenue when earned. Income derived from these arrangements is shown gross of research and development expenses on the consolidated statement of loss.

Stock-based compensation:  Stock based compensation transactions are recognized as compensation expense in the consolidated statement of loss based on their fair values on the date of the grant, with the compensation expense recognized over the period in which a grantee is required to provide service in exchange for the award. The Company estimates the fair value of options granted using the Black-Scholes option valuation model. This estimate uses assumptions regarding a number of inputs that required the Company to make significant estimates and judgments. Because the Company is a relatively new publicly traded common stock the expected volatility assumption was based on industry peer information.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

Warrants:  The estimated fair value of warrants is determined by using the Black-Scholes pricing model with assumptions for risk free interest rates, dividend yields, volatility factors and the contractual life of the warrants. Based on ASC 815 Derivatives and Hedging, the Company has determined that its outstanding warrants meet the criteria for equity classification.

Loss per share:  Income (loss) per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share would be calculated, if the Company had positive net earnings, to give effect to the potential dilution that if secured or other contracts to issue common stock were exercised or converted to common stock using the treasury stock method. The treasury stock method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common stock at the prevailing market rate.

Income taxes:  The Company accounts for income taxes using ASC 740 Income Taxes. ASC 740 Income Taxes is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, ASC 740 generally considers all expected future events other than enactments of and changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Valuation allowances are provided if, considering available evidence, it is more likely than not that the deferred tax assets will not be realized. ASC 740 clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. ASC 740 provides a benefit recognition model with a two-step approach consisting of “more-likely-than-not” recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. ASC 740 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements.

Investment tax credits relating to scientific research and experimental development are accounted for in operations. To the extent there is reasonable assurance the credits will be realized, they are recorded in the period the related expenditure is made as a reduction of current operating expenses (tax recovery).

Fair value of financial instruments:  The carrying values of certain Company’s financial instruments, including cash equivalents, restricted cash, other receivables and accounts payable approximate fair value due to the short-term nature of those investments. The Company believes that the current carrying amount of its long-term debt approximates fair value because interest rate on this instrument is similar to rates that the Company would be able to receive for similar instruments of comparable maturity.

ASC 820 Fair Value Measurements defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 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

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

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, Fair Value Measurements 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)
December 31, 2014
Assets:
Money Market Fund		$	29,500,819			$	29,500,819			$	—			$	—
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			$	—			$	—

Segment reporting:  The Company operates within one reportable segment and presents geographic results of its United States and Canadian operations. Intersegment transactions and balances have been eliminated in the preparation of the segmental analysis note.

New Accounting Pronouncement:  In June 2014, the 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 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.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The ASU provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

In March 2013, FASB issued an amendment to the accounting guidance on foreign currency matters in order to clarify the guidance for the release of cumulative translation adjustments. The guidance is effective for interim and annual periods beginning on or after December 15, 2013. The adoption of this amended accounting guidance did not have any impact on the Company’s consolidated financial position and results of operations.

3. Other Receivables

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

		2014				2013
Receivables related to the sale of New Jersey net operating losses		$	—			$	1,412,302
Other receivables			21,102				5,011
		$	21,102			$	1,417,313

4. Other Current Assets

Other current assets as of December 31, 2014 and 2013, consists of the following:

		2014				2013
Clinical trial materials		$	458,278			$	468,389

5. Property and Equipment

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

		2014				2013
Computer and equipment		$	144,138			$	136,498
Furniture and office equipment			96,457				96,457
Laboratory equipment			1,723,331				1,760,633
Capital lease equipment			155,524				155,523
Leaseholds			37,789				37,789
			2,157,239				2,186,900
Less: Accumulated depreciation			(1,152,827	)			(1,048,321	)
		$	1,004,412			$	1,138,579

During the years ended December 31, 2014 and 2013, depreciation and amortization expense was $195,492 and $197,743 respectively.

In February 2012, the Company closed a laboratory and consigned certain property and equipment for sale with net book value of $507,622. During 2014, the Company wrote off the net book value of the remaining consigned equipment of $74,086. The Company determined that the carrying amount of these assets as of December 31, 2014 was not recoverable and less than the fair value less the cost to sell.

During 2014, the Company wrote off other property and equipment and incurred a loss of $3,538. In 2013, assets with a net book value of $177,827 were sold for proceeds of $51,776, resulting in a loss on disposal of $126,051. During 2013, the also Company wrote off other property and equipment and incurred a loss of $582.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

6. Other Assets

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

		2014				2013
Deferred financing costs (see Note 8)		$	539,296			$	—
Other non-current assets			5,205				5,745
		$	544,501			$	5,745

7. Accrued Liabilities

Accrued liabilities as of December 31, 2014 and 2013, consists of the following:

		2014				2013
Accrued bonuses		$	816,144			$	624,472
Accrued salaries and vacation			152,700				143,484
Accrued professional fees			8,904				30,911
Accrued clinical trial expenses			633,395				636,497
Interest payable			83,958				—
Accrued other			40,319				195,445
		$	1,735,420			$	1,630,809

8. Loans Payable

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-eight months including an initial interest-only period of eighteen months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time until 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 until December 1, 2015. 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 $138,709 for the year ended December 31, 2014 and the remaining unamortized debt issuance costs of $539,296 are 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 $121,217 of this fee during the year ended December 31, 2014.

Long-term debt as of December 31, 2014 consists of the following:

Loan payable		$	10,000,000
End of term fee			121,217
			10,121,217
Less: Current portion			(284,961	)
Long-term debt		$	9,836,256

TABLE OF CONTENTS

Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

9. Stockholders’ Equity

Public Offering of Common Stock and Warrants to Purchase Common Stock

On October 28, 2014, the Company completed a public offering of 7,602,823 shares of common stock and warrants to purchase up to 760,282 shares of its common stock, including the exercise in full of the underwriters’ overallotment option to purchase up to an additional 991,673 shares of common stock and warrants to purchase 99,167 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a warrant to purchase 0.10 of a share of common stock at a price of $1.95 per unit. The Company received approximately $13.6 million in net proceeds from the public offering after payment of fees, expenses and underwriting expenses. The shares of common stock and the warrants were immediately separable and were issued separately. The warrants have an exercise price of $3.58 per share and have a term of five years. In addition, the Company issued to the underwriters, underwriter warrants to purchase 114,042 shares of common stock at an exercise price of $3.58 per share.

Private Placement

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 $7,473,108 and the fair value was measured using significant unobservable inputs (Level 3). Upon the final 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.

Warrants

The following table summarizes the warrants outstanding to purchase common stock at December 31, 2014:

Issue date		Number of warrants				Exercise price				Term
March 2009			12,445			$	11.25				7 years
December 2011			123,585			$	5.21				7 years
February 2012			3,700			$	5.21				6 years
June 2012			17,267			$	5.21				7 years
August 2012			112,536			$	5.21				7 years
April 2013			161,327			$	5.21				7 years
April 2013			3,977,290			$	3.58				7 years
May 2014			158,006			$	2.67				5 years
October 2014			874,324			$	3.58				5 years
			5,440,480

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

10. Stock Based Compensation

2013 Equity Incentive Plan

In 2013, the Company adopted the Celator Pharmaceuticals, Inc. 2013 Equity Incentive Plan (the “Plan”) and the number of shares authorized for awards of equity options or other equity instruments under this Plan are 4,205,847. At December 31, 2014, 1,200,560 stock options remain available to be granted. The Company has reserved shares of its common stock to permit exercise of options in accordance with the terms of the Plan.

Options granted under the Plan may be incentive stock options or non-qualified stock options. Incentive stock options may only be granted to employees. The board of directors, or a committee of the board of directors appointed to administer the Plan, determines the period over which options become exercisable and the conditions under which stock awards are granted and become vested.

The following table summarizes the activity of the Company stock option plans for the years ended December 31, 2014 and 2013:

						Number of options				Weighted Average Exercise price				Weighted Average Remaining Contractual Life (Yrs)				Aggregate Intrinsic Value
Outstanding at			January 1, 2013				806,788			$	2.52
			Granted				1,864,559				3.18
			Exercised				(8,803	)			2.81
			Cancelled				(84,292	)			2.98
Outstanding at			December 31, 2013				2,578,252			$	2.98
			Granted				502,100				3.13
			Exercised				(42,936	)			2.34
			Cancelled				(32,129	)			2.97
Outstanding at			December 31, 2014				3,005,287			$	3.02				7.2			$	9,801
Exercisable at			December 31, 2014				1,352,056			$	2.82				5.3			$	9,771

The following table summarizes stock options outstanding as of December 31, 2014:

Range of exercise price		Number outstanding				Average exercise price				Remaining contractual life (years)				Number exercisable				Average exercise price
$1.12 – $1.95			14,632			$	1.29				6.6				11,632			$	1.12
$2.25 – $3.40			2,672,246				2.96				7.0				1,258,100				2.79
$3.47 – $3.80			318,409				3.52				8.9				82,324				3.51
			3,005,287			$	3.02				7.2				1,352,056			$	2.82

A summary of unvested awards activity during the year ended December 31, 2014 is as follows:

		Number				Grant date fair value
January 1, 2014			1,810,203			$	4,146,515
Granted			502,100				1,343,817
Vested			(659,072	)			(1,478,969	)
December 31, 2014			1,653,231			$	4,011,363

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

10. Stock Based Compensation  – (continued)

The following table provides information regarding stock options activity for the year ended December 31, 2014 and 2013:

		Year ended December 31,
		2014				2013
Stock compensation expense recognized		$	1,350,243			$	538,643
Weighted average grant-date fair value of stock options issued (per share)		$	2.68			$	2.29
Grant-date fair value of stock options issued		$	1,343,817			$	4,266,120
Intrinsic value of stock options exercised		$	32,892			$	2,566
Volatility			114.4	%			117.7	%
Risk-free interest rate			2.0	%			1.9	%
Dividend yield			0.0	%			0.0	%
Expected life in years			6.2				6.2

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 December 31, 2014, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $3,641,722 and 2.6 years, respectively.

11. Benefit Plans

The Company has a domestic employee 401K savings plan. Beginning in 2014, the Company matches 50% of each employee’s contribution up to a maximum of 6% of the employee’s earnings for contributions made to the domestic 401K savings plan and to individual registered retirement savings plans in Canada. The Company’s matching contributions to the savings plan were $111,509 in 2014.

12. Income Taxes

Loss before income taxes consisted of the following:

		Year ended December 31,
		2014				2013
Domestic		$	(16,710,376	)		$	(20,038,881	)
Foreign			(2,129,263	)			(2,217,576	)
Total		$	(18,839,639	)		$	(22,256,457	)

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

12. Income Taxes  – (continued)

A reconciliation of the Statutory United States federal income tax rate to the Company’s effective rate and for December 31, 2014 and 2013 is as follows:

		Year ended December 31,
		2014				2013
Loss before income taxes		$	(18,839,639	)		$	(22,256,457	)
Federal rate			34	%			34	%
US Federal statutory tax rate			6,405,477				7,567,195
State, net of federal rate			837,307				487,083
Permanent differences			(1,030,698	)			(2,548,770	)
Research and development tax credits			833,271				72,377
Other			386,594				(113,803	)
Changes to valuation allowances			(5,495,195	)			(4,051,780	)
		$	1,936,756			$	1,412,302

In 2014 and 2013, the Company was approved to sell New Jersey net operating loss carryforwards (“NOLS”) under the New Jersey Technology Business Tax Certificate Transfer Program, which resulted in the recognition of an income tax benefit of $1,936,756 and $1,412,302, respectively.

Deferred income taxes reflect the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carry forwards. Significant components of the Company’s total deferred tax asset as of December 31, 2014 and 2013 are as follows:

		December 31,
		2014				2013
Net operating loss carry forwards		$	43,176,150			$	38,619,755
Research and development loss pool carry forwards			3,512,452				3,865,195
Deferred revenue			229,410				384,615
Accrued expenses and other			440,342				287,272
Stock based compensation			1,094,135				529,645
Property and equipment			(267,909	)			(366,186	)
R&D and investment tax credit carry forwards			1,125,434				494,523
Deferred tax assets		$	49,310,014			$	43,814,819
Deferred tax assets valuation allowance		$	(49,310,014	)		$	(43,814,819	)
		$	—			$	—

The valuation allowance at December 31, 2014 and 2013 was primarily related to R&D investment tax credits carryforwards and expenditures, federal and state net operating loss carryforwards that, in the judgment of management, are not more-likely-than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

At December 31, 2014, the Company had net operating loss carryforwards for Federal income tax purposes of $124,704,785 which are available to offset future Federal taxable income, if any, through 2022. The Company has U.S. Research and Development tax credits carryforwards for federal income tax purposes of $674,435 which are available to offset future federal tax liability, if any, through 2025. The Company has net operating loss carryforwards for state income tax purposes of $15,530,804 which are available to offset future state taxable income through 2034.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

12. Income Taxes  – (continued)

At December 31, 2014 and 2013, the Company had Canadian federal investment tax credits of approximately $450,999 and $494,523, respectively, available to reduce taxes payable through 2030. The Company has no Canadian tax loss carry forwards.

13. 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
		December 31,
		2014				2013
United States		$	34,027,837			$	26,190,516
Canada			223,572				284,563
Germany			867,694				997,671
Total Assets		$	35,119,103			$	27,472,750

		Net Loss
		Year ended December 31,
		2014				2013
United States		$	(14,773,620	)		$	(18,626,579	)
Canada			(2,129,263	)			(2,217,576	)
Total Net Loss		$	(16,902,883	)		$	(20,844,155	)

14. Leukemia and Lymphoma Society funding

In June 2012, the Company entered into an agreement with the Leukemia & Lymphoma Society® (“LLS”) pursuant to which LLS has agreed to provide up to $5.0 million in funding from the LLS Therapy Acceleration Program (“TAP program”) for the Phase 3 clinical study of the Company’s lead compound CPX-351. Upon execution of the agreement, the Company received an upfront payment of $2.0 million and may receive further payments of $3.0 million upon the achievement of clinical milestones. The Company recorded the $2.0 million upfront payment as deferred revenue which will be recognized on a straight-line basis over the estimated performance period of the funding agreement. During the years ended December 31, 2014 and 2013, the Company recognized $542,986 and $561,086, respectively related to the amortization of the upfront payment. The estimated performance period is expected to be complete in January 2016. During 2014, the Company met two separate milestones under the agreement which resulted in the recognition of $1.0 million which was recorded as Leukemia & Lymphoma Society funding. The agreement remains in effect until the completion of the milestones unless terminated earlier in accordance with the provisions in the agreement. The Company may terminate the agreement at any time during its term upon at least 30 days’ prior written notice to LLS or upon written notice to LLS upon the termination of the CPX-351 program. LLS may terminate this agreement upon 90 days prior written notice to the Company. Funding under the agreement is exclusively for use in support of the clinical development activities of the research program. Provided the Company believes the product is safe and effective, the Company has agreed that, for a period of five years following the expiration or termination of the agreement, the Company will take such steps as are commercially reasonable to further the clinical development of the product and to bring the product to practical application for Acute Myeloid Leukemia.

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

15. Commitments and Contingencies

In September 2014, the Company entered into a lease agreement for a laboratory space in Vancouver, British Columbia, which expires in September 2015. The remaining minimum lease payments as of December 31, 2014 were $25,087.

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 December 31, 2014 were $495,840. 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.

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 December 31, 2014 were $93,292.

Rent expense amounted to $221,867 in 2014 and $246,784 in 2013. Minimum lease payments on all operating leases are as follows:

Year ending December 31,
2015		$	232,932
2016			177,013
2017			145,475
2018			72,372
Total		$	627,792

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 the Company’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

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Celator Pharmaceuticals, Inc. and Subsidiaries
 
Notes to the Consolidated Financial Statements

15. Commitments and Contingencies  – (continued)

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 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.

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SIGNATURES

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

CELATOR PHARMACEUTICALS, INC.

By:

/s/ Scott T. Jackson Scott T. Jackson, Chief Executive Officer

Date: March 17, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature		Title		Date
/s/ Scott T. Jackson Scott T. Jackson		Chief Executive Officer and a Director (principal executive officer)		March 17, 2015
/s/ Fred M. Powell Fred M. Powell		Vice President and Chief Financial Officer (principal financial and accounting officer)		March 17, 2015
/s/ Michael Dougherty Michael Dougherty		Chairman		March 17, 2015
/s/ Jean-Pierre Bizzari Jean-Pierre Bizzari		Director		March 17, 2015
/s/ Richard S. Kollender Richard S. Kollender		Director		March 17, 2015
/s/ Joseph Lobacki Joseph Lobacki		Director		March 17, 2015
/s/ Joseph A. Mollica Joseph A. Mollica		Director		March 17, 2015
/s/ Scott Morenstein Scott Morenstein		Director		March 17, 2015
/s/ Nicole Vitullo Nicole Vitullo		Director		March 17, 2015

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EXHIBIT INDEX

Exhibit No.		Description
3.1		Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.)
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		Amended and Restated Warrant issued to Square 1 Bank. (Incorporated by reference to Exhibit 4.1 to the Company’s Form 10 registration statement filed on November 13, 2012.)
4.2		Form of Amended and Restated Warrant. (Incorporated by reference to Exhibit 4.2 to the Company’s Form 10 registration statement filed on November 13, 2012.)
4.3		Comerica Bank Warrant issued March 11, 2009. (Incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Company’s Form 10 registration statement filed on December 28, 2012.)
4.4		Form of Warrant to Purchase Common Stock. (Incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K current report filed on May 3, 2013.)
4.5		Form of Warrant issued October 28, 2014. (Incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q quarterly report filed on November 13, 2014.)
4.6		Form of Warrant Agreement between the Company and American Stock Transfer. (Incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K current report filed on October 23, 2014.
4.7		Form of Underwriter Warrant. (Incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K current report filed on October 23, 2014.
4.8		Warrant Agreement dated May 9, 2014 issued to Hercules Technology Growth Capital. (Incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.)
10.1*		Amended and Restated Employment Agreement dated December 19, 2002 between Dr. Lawrence Mayer and the Company. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.2*		Amended and Restated Employment Agreement dated as of August 26, 2013 between the Company and Scott T. Jackson. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on August 27, 2013.)
10.3		Registration Rights Agreement dated as of April 29, 2013 among the Company and the investors identified on the signature pages thereto. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on May 3, 2013.)
10.4*		Letter Agreement dated December 4, 2007 between Joseph A. Mollica, Ph.D. and the Company. (Incorporated by reference to Exhibit 10.4 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.5*		Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.5 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.6*		Amended and Restated 2005 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.6 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.7**		Exclusive License Agreement dated June 28, 2007 between Princeton University and the Company, as amended on July 6, 2010 and August 20, 2012. (Incorporated by reference to Exhibit 10.7 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.8**		Clinical and Commercial Manufacturing and Supply Agreement dated as of December 22, 2010 between Baxter Oncology GmbH and the Company. (Incorporated by reference to Exhibit 10.8 to Amendment No. 2 to the Company’s Form 10 registration statement on January 30, 2013.)

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Exhibit No.		Description
10.9**		Collaborative Research Agreement dated May 11, 2001 between the Company and the British Columbia Cancer Agency. (Incorporated by reference to Exhibit 10.9 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.10		Settlement Agreement dated August 5, 2008 between the British Columbia Cancer Agency and the Company. (Incorporated by reference to Exhibit 10.10 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.11**		Definitive Agreement dated June 27, 2012 between Leukemia & Lymphoma Society and the Company. (Incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the Company’s Form 10 registration statement on January 30, 2013.)
10.12*		Form of Incentive Stock Option Agreement. (Incorporated by reference to Exhibit 10.12 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.13*		Form of Nonqualified Stock Option Agreement. (Incorporated by reference to Exhibit 10.13 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.14*		Form of Nonqualified Stock Option Agreement (Non-VC Directors). (Incorporated by reference to Exhibit 10.14 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.15*		Form of Nonqualified Stock Option Agreement (VC Directors). (Incorporated by reference to Exhibit 10.15 to the Company’s Form 10 registration statement filed on November 13, 2012.)
10.16		Intentionally omitted.
10.17		2013 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on May 24, 2013.)
10.18		2013 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on May 24, 2013.)
10.19*		Letter and Restrictive Covenant Agreement dated December 7, 2012 between the Company and Fred M. Powell. (Incorporated by reference to Exhibit 10.19 to Amendment No. 2 to the Company’s Form 10 registration statement on January 30, 2013.)
10.20		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. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.)
10.21		Princeton South Corporate Center Office Lease dated March 1, 2013 between Princeton South Investors, LLC and the Company. (Incorporated by reference to Exhibit 10.21 to the Company’s Form 10-K annual report for the year ended December 31, 2012 filed on April 1, 2013.)
10.22		Right to Invest Letter dated May 9, 2014 between the Company and Hercules Technology Growth Capital, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.)
14.1		Code of Conduct. (Incorporated by reference to Exhibit 14.1 to the Company’s Form 8-K filed on April 18, 2013.)
21.1		Subsidiaries. (Incorporated by reference to Exhibit 21.1 to the Company’s Form 10 registration statement filed on November 13, 2012.)
23.1		Consent of Independent Registered Public Accounting Firm
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.

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Exhibit No.		Description
101.1		The following materials from Celator Pharmaceuticals Inc.’s annual report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Loss for years ended December 31, 2014 and 2013, (ii) Consolidated Balance Sheets at December 31, 2014 and December 31, 2013, (iii) Consolidated Statements of Cash Flows for years ended December 31, 2014 and 2013, (iv) Consolidated Statements of Stockholders’ Equity for years ended December 31, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.