UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

 

(Mark One)

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

 

For the Quarterly Period Ended March 31, 2016

or

 

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

 

For the transition period from                      to                     

 

Commission file number 000-54852 

 

 

CELATOR PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter) 

 

 

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

 

(609)-243-0123

(Registrant’s telephone number, including area code)

 

(Former name or former address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of May 6, 2016 was 42,470,256.

 

 

CELATOR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

			Page
Part I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)	1
		Consolidated Balance Sheets as March 31, 2016 and December 31, 2015	1
		Consolidated Statements of Loss for the three months ended March 31, 2016 and 2015	2
		Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2016	3
		Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	4
		Notes to Consolidated Financial Statements	5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.		Controls and Procedures	18
Part II.		OTHER INFORMATION
Item 1.		Legal Proceedings	19
Item 1A.		Risk Factors	19
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 6.		Exhibits	19
Signature			19
Certifications

  

 

Part I. Financial Information

 

Item 1. Financial Statements

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Consolidated Balance Sheets

(Unaudited)

 

		March 31, 2016				December 31, 2015
Assets
Current assets:
Cash and cash equivalents		$	67,541,467			$	23,253,328
Restricted cash			150,921				149,017
Other receivables			116,859				74,244
Prepaid expenses and deposits			329,800				421,491
Other current assets			407,043				414,904
Total current assets			68,546,090				24,312,984
Property and equipment, net			816,438				861,490
Other assets			43,024				43,998
Total assets		$	69,405,552			$	25,218,472
Liabilities
Current liabilities:
Current portion of debt		$	436,690			$	5,378,134
Accounts payable			394,369				778,360
Accrued liabilities			2,081,544				2,377,713
Current portion of deferred revenue			-				45,249
Total current liabilities			2,912,603				8,579,456
Other liabilities			1,024,177				1,026,993
Loans payable			12,837,810				9,081,110
Total liabilities			16,774,590				18,687,559
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  41,222,270 and 34,944,150 shares as of March 31, 2016 and December 31, 2015, respectively			41,222				34,944
Warrants			1,083,193				1,083,193
Additional paid-in capital			226,856,737				175,229,643
Accumulated other comprehensive loss			(1,133,266	)			(1,133,266	)
Accumulated deficit			(174,216,924	)			(168,683,601	)
Total stockholders' equity			52,630,962				6,530,913
Total liabilities and stockholders' equity		$	69,405,552			$	25,218,472

 

See accompanying notes to consolidated financial statements.

 

  

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Loss

(Unaudited)

 

		Three months ended
		March 31
		2016				2015
Expenses
Research and development		$	2,689,189			$	2,708,011
Leukemia & Lymphoma Society funding			(145,249	)			(135,747	)
General and administrative			2,468,648				1,761,449
Amortization and depreciation			48,347				48,928
Operating loss			(5,060,935	)			(4,382,641	)
Other income (expenses)
Foreign exchange gain (loss)			(15,984	)			9,639
Interest and miscellaneous income			2,329				3,141
Interest expense			(458,733	)			(341,122	)
Net loss		$	(5,533,323	)		$	(4,710,983	)
Net loss per share
Basic and diluted		$	(0.16	)		$	(0.14	)
Weighted average of common shares outstanding
Basic and diluted			35,400,496				33,704,889

 

See accompanying notes to consolidated financial statements.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended March 31, 2016

(Unaudited)

 

		Common Stock												Additional Paid-In				Accumulated Other								Stockholders’
		Number				Amount				Warrants				Capital				Comprehensive Loss				Accumulated Deficit				Equity
Balance at December 31, 2015			34,944,150			$	34,944			$	1,083,193			$	175,229,643			$	(1,133,266	)		$	(168,683,601	)		$	6,530,913
Issuance of shares from exercise of stock options and warrants			324,220				324				-				295,316				-				-				295,640
Issued for cash, net of stock issuance costs			5,953,900				5,954				-				50,390,446				-				-				50,396,400
Stock-based compensation			-				-				-				576,070				-				-				576,070
Stock options granted in payment of accrued bonuses			-				-				-				365,262				-				-				365,262
Net loss for the period			-				-				-				-				-				(5,533,323	)			(5,533,323	)
Balance at March 31, 2016			41,222,270			$	41,222			$	1,083,193			$	226,856,737			$	(1,133,266	)		$	(174,216,924	)		$	52,630,962

 

See accompanying notes to consolidated financial statements.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three months ended
		March 31
		2016				2015
Operating activities
Net loss		$	(5,533,323	)		$	(4,710,983	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization and depreciation			48,347				48,928
Non-cash stock-based compensation expense			576,070				359,200
Non-cash financing costs			112,117				94,664
Changes in operating assets and liabilities
Other receivables			(42,362	)			(4,864	)
Prepaid expenses and deposits			94,826				79,617
Restricted cash			(6	)			(8	)
Other current assets			7,861				16,266
Other assets			1,012				-
Accounts payable			(385,118	)			46,113
Accrued liabilities			62,979				(285,171	)
Deferred rent liability			(2,816	)			(2,218	)
Deferred revenue			(45,249	)			(135,746	)
Cash used in operating activities			(5,105,662	)			(4,494,202	)
Investing activities
Purchase of property and equipment			(3,295	)			(17,938	)
Cash used in investing activities			(3,295	)			(17,938	)
Financing activities
Proceeds from issuance of common stock and stock options and warrants exercised			51,105,723				-
Payment of share issuance costs			(413,357	)			-
Proceeds from loans payable			-				5,000,000
Repayments of loans payable			(1,296,861	)			-
Cash provided by financing activities			49,395,505				5,000,000
Effect of foreign exchange rate changes			1,591				(3,825	)
Net change in cash			44,288,139				484,035
Cash and cash equivalents, beginning of period			23,253,328				32,413,777
Cash and cash equivalents, end of period		$	67,541,467			$	32,897,812
Supplemental disclosure of cash flow information
Interest paid		$	356,166			$	243,750
Stock options granted in payment of accrued bonuses		$	365,262				-
Common stock issued in payment of accrued bonuses			-			$	168,843
Warrants issued in connection with debt issuance costs			-			$	76,897

 

See accompanying notes to consolidated financial statements

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

1.

Nature of Business and Liquidity

 

Celator Pharmaceuticals, Inc. is an oncology-focused biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. Our 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. Our lead product is VYXEOS^TM, a nano-scale liposomal formulation of cytarabine:daunorubicin, completed a Phase 3 clinical trial for the treatment of acute myeloid leukemia (AML). On March 14, 2016 we reported positive results from our Phase 3 study of VYXEOS in patients with high-risk (secondary) acute myeloid leukemia (AML) compared to the standard of care regimen of cytarabine and daunorubicin known as 7+3. We have also conducted clinical development on CPX-1, a nano-scale liposomal formulation of irinotecan:floxuridine for the treatment of colorectal cancer; and have a preclinical stage product candidate, CPX-8, a hydrophobic docetaxel prodrug nanoparticle formulation. More recently, we have advanced the CombiPlex platform and broadened its application to include molecularly targeted therapies.

 

The Company has incurred recurring losses and negative cash flows from operations since inception. As of March 31, 2016, the Company had an accumulated deficit of $174.2 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. Management believes that the cash and cash equivalents of $67.5 million at March 31, 2016 will be sufficient to meet estimated working capital requirements and fund operations into 2018.

 

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. There is no assurance that such financing will be available when needed or on acceptable terms. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.

 

2.

Summary of Significant Accounting Policies

 

The accompanying unaudited consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted.

 

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

 

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

 

Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, 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 and contingencies.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

New Accounting Pronouncements Adopted: During the period, the Company adopted Financial Accounting Standards Board (“FASB”) guidance originally issued in April 2015 which requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge. The guidance was effective retroactively for financial statements covering fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The following table summarizes the cumulative effect of the change on total assets, total liabilities and stockholders’ equity in the statement of financial position as of the beginning of the period presented. The adoption of the guidance did not have any effect on loss from operations, and loss per share amounts for the current period and any prior periods.

 

		As Reported				Deferred Financing Costs				Adjusted
		December 31, 2015				Reclassification				December 31, 2015
Assets
Other assets		$	460,710			$	(416,712	)		$	43,998
Total assets		$	25,635,184			$	(416,712	)		$	25,218,472
Loans payable		$	9,497,822			$	(416,712	)		$	9,081,110
Total liabilities			19,104,271				(416,712	)			18,687,559
Total liabilities and stockholders' equity		$	25,635,184			$	(416,712	)		$	25,218,472

 

All other new guidance that became effective during the reported period did not have a material impact on the Company’s consolidated financial statements.

 

New Accounting Pronouncements Not Yet Effective: In February 2016, the FASB issued comprehensive new guidance about leases. Under the new guidance, most leases will be recognized on an entity’s balance sheet as liabilities with corresponding right-of-use assets. The new guidance is effective for interim and annual period in fiscal years beginning after December 15, 2018, with early adoption permitted. The standard must be adopted using a modified retrospective approach. We have not yet evaluated the impact of this new pronouncement.

 

In November 2015, the FASB issued guidance which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The guidance is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2016. This guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In August 2014, the FASB issued 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 guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

 

3.

Fair Value Measurements

 

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

 

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

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

		Fair Value				(Level 1)				(Level 2)				(Level 3)
March 31, 2016
Assets:
Money Market Fund		$	17,194,140			$	17,194,140			$	-			$	-
December 31, 2015
Assets:
Money Market Fund		$	22,162,678			$	22,162,678			$	-			$	-

 

4.

Other Current Assets

 

Other current assets as of March 31, 2016 and December 31, 2015, consist of the following:

 

		March 31, 2016				December 31, 2015
Clinical trial materials		$	407,043			$	414,904

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

5.

Property and Equipment

 

Property and equipment as of March 31, 2016 and December 31, 2015, including assets held under capital lease, consists of the following:

 

		March 31, 2016				December 31, 2015
Computer and equipment		$	118,935			$	117,135
Furniture and office equipment			73,863				73,863
Laboratory equipment			1,754,608				1,754,608
Capital lease equipment			155,524				155,524
Leaseholds			56,227				54,732
			2,159,157				2,155,862
Less: Accumulated depreciation			(1,342,719	)			(1,294,372	)
		$	816,438			$	861,490

  

During the three months ended March 31, 2016 and March 31, 2015, depreciation and amortization expense was $48,347 and $48,928 respectively.

 

6.

Accrued Liabilities

 

Accrued liabilities as of March 31, 2016 and December 31, 2015 consist of the following:

 

		March 31, 2016				December 31, 2015
Accrued clinical trial expenses		$	1,042,050			$	1,029,488
Accrued bonuses			254,425				723,039
Accrued salaries and vacation			194,438				202,059
Accrued drug manufacturing expenses			267,802				174,376
Interest payable			114,319				123,867
Accrued other			208,510				124,884
		$	2,081,544			$	2,377,713

 

7.

Other Liabilities

 

Other non-current liabilities as of March 31, 2016 and December 31, 2015 consist of the following:

 

		March 31, 2016				December 31, 2015
Non-current income tax liability		$	991,654			$	991,654
Deferred rent			32,523				35,339
		$	1,024,177			$	1,026,993

 

In 2015, the Company completed a U.S. Federal and State of New Jersey Research and Development and U.S. Federal Orphan Drug tax credits analysis related to the years ended December 31, 2008 through 2014. The Company will claim the U.S. Federal Research and Development and Orphan Drug tax credits in the future on U.S. Federal tax returns. As a result, the Company will file amended New Jersey tax returns to report an income tax liability and interest which the Company recorded in 2015 as a non-current liability of $991,654 disclosed above.

 

8.

Loans Payable

 

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Capital Growth (“Hercules”). The first $10 million of the term loan was funded at closing. On March 30, 2015, the Company drew down the remaining $5 million of the term loan. The term loan was repayable in installments over forty-eight months and, at drawdown date, had an interest-only period of eighteen months after closing. 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 average interest rate paid by the Company during the first quarter of 2016 was 10% and 9.75% during the first of quarter of 2015.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase an aggregate of 210,675 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The warrant is exercisable beginning on the date of issuance and expires May 9, 2019. The fair value of the warrants of $397,649 and financing costs of $407,253 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 $66,194 and $50,518 for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, the remaining unamortized balance of debt issuance costs was $350,518.

 

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 $45,923 and $44,146 of this fee during the three months ended March 31, 2016 and 2015, respectively.

 

On April 25, 2016, the Company entered into an amendment agreement with Hercules which provided that the scheduled principal payments due on May 1, 2016 and the first business day of each month thereafter through and including the payment due on May 1, 2017 will be deferred (“deferred payments”). Commencing on June 1, 2017, and continuing on the first business day of each month thereafter, the Company will recommence scheduled payments of principal and interest based on original amortization period of thirty-one (31) consecutive months with a balloon payment of all the deferred payments included in the last installment. The deferred payments and all other accrued but unpaid interest will be due and payable on the loan maturity date of June 1, 2018. The current portion of debt on the consolidated balance sheet and the summary of payments disclosed below were adjusted for this amendment.

 

Long-term debt as of March 31, 2016 and December 31, 2015, consists of the following:

 

		March 31, 2016				December 31, 2015
Loan payable		$	13,275,698			$	14,572,558
End of term fee			349,320				303,398
			13,625,018				14,875,956
Deferred debt issuance costs			(350,518	)			(416,712	)
			13,274,500				14,459,244
Less: Current portion			(436,690	)			(5,378,134	)
Long-term debt		$	12,837,810			$	9,081,110

 

The summary of payments due on the term loan as of March 31, 2016, is as follows:

 

2016		$	436,690
2017			2,603,824
2018			10,827,684
Total loan  payments			13,868,198
Less end of term fee			(592,500	)
		$	13,275,698

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

9.

Stockholders’ Equity

 

Public Offering of Common Stock

 

On March 29, 2016, the Company completed a public offering of 4,600,000 shares of the Company's common stock, including the exercise in full of the underwriters’ overallotment option to purchase up an additional 600,000 shares of common stock at the public offering price of $9.50 per share. The gross proceeds of this offering were $43.7 million. Net proceeds to the Company, after deducting the underwriters' discounts and commission and other offering expenses payable by the Company, were $40.6 million.

 

At-The-Market Equity Offering Program

 

On October 16, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of common stock with aggregate gross proceeds of up to $20.0 million, from time to time, through an “at-the-market” equity offering program under which Cantor will act as sales agent. The Sales Agreement provides that Cantor will be entitled to compensation for its services in an amount equal to 3.0% of the gross proceeds from the sales of shares sold under the Sales Agreement.

 

During the first quarter of 2016, the Company sold 1,353,900 shares of common stock under the Sales Agreement at $7.43 per share for gross proceeds of $10.1 million and net proceeds of $9.8 million, after deducting Cantor’s commission. As of March 31, 2016, $7.9 million of common stock remains available to be sold under this facility.

 

Warrants

 

During the first quarter of 2016, 321,384 warrants were exercised with a weighted average exercise price of $2.99 of which 85,170 shares were withheld to satisfy the exercise price. A total of 12,445 warrants with a weighted average exercise price of $11.25 expired during the quarter. The following table summarizes the warrants outstanding to purchase common stock at March 31, 2016:

 

 

Issue date		Number of warrants				Exercise price				Term		Expiry
December 2011			123,585			$	5.21			7 years		December 2018
February 2012			3,700			$	5.21			6 years		February 2018
June 2012			17,267			$	5.21			7 years		June 2019
August 2012			112,536			$	5.21			7 years		August 2019
April 2013			159,806			$	5.21			7 years		April 2020
April 2013			3,934,649			$	3.58			7 years		April 2020
October 2014			807,777			$	3.58			5 years		October 2019
			5,159,320

 

10.

Stock Based Compensation

 

2013 Equity Incentive Plan

 

In 2013, the Company adopted the Celator Pharmaceuticals, Inc. 2013 Equity Incentive Plan (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.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

The following table summarizes the activity of the Company’s stock option plans for the three months ended March 31, 2016:

 

				Number of options				Weighted Average Exercise price				Weighted Average Remaining Contractual Life (Yrs)				Aggregate Intrinsic Value
Outstanding at		December 31, 2015			3,944,571			$	2.90
		Granted			1,599,024				1.32
		Exercised			(100,087	)			2.25
		Cancelled			(5,334	)			2.25
Outstanding at		March 31, 2016			5,438,174			$	2.45				8.1			$	46,686,011
Exercisable at		March 31, 2016			2,488,458			$	2.73				7.1			$	20,650,985

 

During the three months ended March 31, 2016, 12,081 shares were withheld to satisfy the exercise of certain stock options exercised during the period.

 

In January 2016, the Company granted 397,024 stock options, included in the options granted above, to certain employees as payment of $365,262 of bonuses earned and accrued as of December 31, 2015. In February 2015, the Company issued 60,517 shares of common stock to certain Company employees as payment of $168,843 of bonuses earned and accrued as of December 31, 2014.

 

The following table provides information regarding stock options activity for the three months ended March 31, 2016 and 2015:

 

		Three months ended
		March 31
		2016				2015
Stock compensation expense recognized		$	576,070			$	359,200
Weighted average grant-date fair value of stock options issued (per share)		$	1.03			$	2.31
Grant-date fair value of stock options issued		$	1,651,472			$	1,360,094
Volatility			98.8	%			106.9	%
Risk-free interest rate			1.7	%			1.7	%
Dividend yield			0	%			0	%
Expected life in years			5.9				6.2
Intrinsic value of stock options exercised		$	669,582			$	-

 

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 March 31, 2016, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $4,850,285 and 2.5 years, respectively.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

11.

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
		March 31, 2016				December 31, 2015
United States		$	68,531,389			$	24,256,629
Canada			156,905				204,283
Germany			717,258				757,560
Total Assets		$	69,405,552			$	25,218,472

 

		Net Loss
		Three months ended
		March 31
		2016				2015
United States		$	(5,199,096	)		$	(4,311,341	)
Canada			(334,227	)			(399,642	)
Total Net Loss		$	(5,533,323	)		$	(4,710,983	)

 

12.

Commitments and Contingencies

 

In September 2015, the Company entered into a lease agreement for office and laboratory space in Vancouver, British Columbia, which expires in August 2017. The remaining minimum lease payments as of March 31, 2016 were $159,700. The Company also vacated its previous lease for office space effective October 1, 2015. The vacated lease expires in June 2016.

 

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 March 31, 2016 were $322,000. 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 and the deposit is reduced annually through lease expiration date. The restricted deposit balance as of March 31, 2016 was $120,000.

 

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.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Notes to the Consolidated Financial Statements

(Unaudited)

 

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

 

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

 

 

Item 2.

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

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties that may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. Examples of forward-looking statements contained in this Form 10-Q quarterly report include, among others, statements about the sufficiency of its capital to fund its estimated working capital requirements and operations into 2018, the expected timeline for its milestones in connection with its Phase 3 clinical study, its product pipeline, statements regarding the efficacy of the Company's CombiPlex® technology, the safety, tolerability, efficacy and therapeutic potential of VYXEOS^TM, whether clinical results for VYXEOS obtained to date will be predictive of future clinical study results, the Company's expectations regarding the Company's development plans for VYXEOS and our drug candidates, and the Company's expectations about expanding the Company's product pipeline and advancing the Company's CombiPlex platform. Forward-looking statements in this Form 10-Q quarterly report involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, capital market conditions, the uncertainties inherent in the conduct of future clinical studies, enrollment in clinical studies, availability of data from ongoing clinical studies, expectations for regulatory approvals, other matters that could affect the availability or commercial potential of the Company’s drug candidates, and the Company’s ability to pay its debt obligations on a timely basis or otherwise pay its expenses and enhance its liquidity position. Forward-looking statements in this Form 10-Q quarterly report involve substantial risks and uncertainties that could cause the Company's clinical development programs, future results, performance of achievements to differ significantly from those expressed or implied in the forward-looking statements. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.

 

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

 

Overview

 

Celator Pharmaceuticals, Inc. is an oncology-focused biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. Our 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. Our lead product is VYXEOS, a nano-scale liposomal formulation of cytarabine:daunorubicin, completed a Phase 3 clinical trial for the treatment of acute myeloid leukemia. We have also conducted clinical development efforts on CPX-1, a nano-scale liposomal formulation of irinotecan:floxuridine for the treatment of colorectal cancer; and have a preclinical stage product candidate CPX-8, a hydrophobic docetaxel prodrug nanoparticle formulation. More recently, we have advanced the CombiPlex platform and broadened its application to include molecularly targeted therapies.

 

On March 14, 2016 we reported positive results from our Phase 3 study of VYXEOS in patients with high-risk (secondary) acute myeloid leukemia (AML) compared to the standard of care regimen of cytarabine and daunorubicin known as 7+3. The trial met its primary endpoint demonstrating a statistically significant improvement in overall survival. The median overall survival for patients treated with VYXEOS in the study was 9.56 months compared to 5.95 months for patients receiving 7+3, representing a 3.61 month improvement in favor of VYXEOS. The hazard ratio (HR) was 0.69 (p=0.005) which represents a 31 percent reduction in the risk of death versus 7+3. The percentage of patients alive 12 months after randomization was 41.5% on the VYXEOS arm compared to 27.6% on the 7+3 arm. The percentage of patients alive 24 months after randomization was 31.1% on the VYXEOS arm compared to 12.3% on the 7+3 arm.

 

 

VYXEOS also demonstrated a statistically significant improvement in induction response rate (CR+CRi of 47.7% versus 33.3%; p=0.016) and this significance was maintained for the analysis of CR alone (CR of 37.3% versus 25.6%, p=0.040). Sixty-day all-cause mortality was 13.7% versus 21.2%, in favor of patients treated with VYXEOS.

 

No substantial difference in Grade 3 or higher adverse events was observed between VYXEOS and 7+3. In the intent-to-treat population, Grade 3 or higher, hematologic adverse events were similar for overall infections, febrile neutropenia, and bleeding events. In the intent-to-treat population, Grade 3 or higher, non-hematologic adverse events were similar across all organ systems, including cardiac, gastrointestinal, general systems, metabolic disorders, musculoskeletal, nervous system, respiratory, skin and renal.

 

Our current plans for VYXEOS assume the following key dates:

	·	3Q 2016 – New Drug Application (NDA) submission.
	·	1Q 2017 – Marketing Authorization Application (MAA) submission.
	·	Mid 2017 – Prescription Drug User Fee Act (PDUFA) date (assuming FDA grants priority review).
	·	3Q 2017 – US Commercial Launch (assuming FDA approval in mid-2017)
	·	1Q 2018 – Committee for Medicinal Products for Human Use (CHMP) opinion date.

 

There are a number of additional VYXEOS clinical studies either ongoing or planned. These clinical development activities are designed to evaluate VYXEOS in other AML patient populations as well as other blood cancers. The studies are taking into consideration a variety of patient variables, including, but not limited to, age, suitability (or fitness) for intensive treatment, and patients’ line of therapy (first line, relapse, and refractory).

 

AML is a cancer of the bone marrow and blood. It affects mostly cells that are not fully developed and these cells cannot carry out their normal functions. AML has many other names, including acute myelocytic leukemia, acute myelogenous leukemia, acute granulocytic leukemia, and acute non-lymphocytic leukemia.

 

AML accounts for 25 percent of all adult leukemias 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 2016, the American Cancer Society’s Cancer Facts & Figures estimates 19,950 new cases in the U.S. In Europe and in Japan, the incidence is reported to be approximately 18,000 and 5,500 new cases, respectively. Untreated AML in all ages is rapidly fatal, with patients dying on average within a few months of diagnosis. Even with treatment, the median overall survival of newly diagnosed AML patients is approximately 12 months, with particular groups of AML patients, including those with high-risk (secondary) AML, having a poorer prognosis (median overall survival 6-7 months).

 

We own worldwide development and commercialization rights to VYXEOS. In 2008, the Food and Drug Administration (“FDA”) granted orphan drug designation to VYXEOS for the treatment of AML. In 2012, the European Commission granted orphan drug status to VYXEOS for the treatment of AML. In January 2015, the FDA granted fast track designation to VYXEOS for the treatment of elderly patients with secondary AML. We have been granted, or notified of allowance of, a number of key patents for VYXEOS.

 

VYXEOS is based on our proprietary technology platform, CombiPlex®, which enables the rational design and rapid evaluation of optimized drug combinations to deliver enhanced anti-cancer activity. The platform can utilize traditional chemotherapies as well as molecularly targeted agents. 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.

 

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, we have funded our operations primarily through private placements of preferred stock, private and public placements of common stock, convertible debt and debt financings. In the future, we may also pursue additional funding options, including entering into agreements with collaborative partners. We believe that the cash and cash equivalents of $67.5 million at March 31, 2016 will be sufficient to meet estimated working capital requirements and fund operations into 2018. We expect to continue to incur losses as we fund research and development and commercial launch activities, and we do not expect material revenues for at least the next few years.

 

 

Results of Operations

 

Three months ended March 31, 2016 compared to the three months ended March 31, 2015

 

Expenses

 

Research and Development: Research and development expenses consist largely of costs directly attributable to the conduct of research and development programs, including the cost of salaries and related benefits, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses and the full cost of manufacturing drug. All costs associated with research and development are expensed as incurred.

 

The following table summarizes research and development spending:

 

		Three months ended
		March 31
		2016				2015
VYXEOS Phase 3 – Study (301)		$	2,465,000			$	2,321,000
CombiPlex Platform Technology Advancement			111,000				207,000
Intellectual Property (legal and patent costs)			81,000				82,000
General Research (professional development, recruitment, etc.)			32,000				98,000
Totals		$	2,689,000			$	2,708,000

 

Research and development expenses were $2,689,000 for the three months ended March 31, 2016 compared to $2,708,000 for the three months ended March 31, 2015 reflecting a decrease of $19,000. The decrease was primarily attributable to $121,000 decrease in manufacturing and drug and lipid costs, and $63,000 decrease in laboratory research costs and CombiPlex Platform technology advancement costs. These decreases were offset by increases in compensation and stock option expenses of $68,000, stability and validation studies of $70,000, and outsourced clinical trial and regulatory activities related to the Phase 3 trial and new drug application preparation of VYXEOS of $28,000.

 

LLS Funding:   The LLS revenue recognized for the three months ended March 31, 2016 was $145,000 compared to $136,000 for 2015, reflecting an increase of $9,000. The $145,000 recognized in 2016 represents an earned milestone of $100,000 from LLS for the milestone achieved relating to the primary end-point analysis of the Phase 3 trial of VYXEOS during the quarter, and amortization of a $2,000,000 upfront payment received during 2012 of $45,000.The amount recognized during the three months ended March 31, 2015 represents the amortization the upfront payment received during 2012 of $136,000.

 

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 $2,469,000 for the three months ended March 31, 2016 compared to $1,761,000 for the three months ended March 31, 2015, reflecting an increase of $708,000. The increase was primarily attributable to $282,000 increase in compensation and stock option expense, $367,000 increase in commercial operations, $34,000 increase in professional fees, $21,000 increase in public company costs and $20,000 increase in investor relations and strategic consulting.

 

Amortization and Depreciation: Amortization and depreciation expense was $48,000 for the three months ended March 31, 2016 and $49,000 for the three months ended March 31, 2015.

 

Other Income and Expenses

 

Interest Expense: Interest expense was $459,000 and $341,000 for the three months ended March 31, 2016 and 2015, respectively and was related to interest on a Hercules term loan entered into in May 2014. Interest expense of $459,000 for the three months ended March 31, 2016 includes $112,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge. Interest expense of $341,000 for the three months ended March 31, 2015 included $95,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge.

 

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, we have funded our operations primarily through private placements of preferred stock, private and public placements of common stock, convertible debt and debt financings. In the future, we may also pursue additional funding options, including entering into agreements with collaborative partners. We believe that the cash and cash equivalents of $67.5 million at March 31, 2016 will be sufficient to meet estimated working capital requirements and fund operations into 2018. We expect to continue to incur losses as we fund research and development activities and commercial launch activities, and we do not expect material revenues for at least the next few years.

 

Substantial additional funding will be needed by the Company to fund its operations and to commercialize its product candidates. Our future capital requirements will depend on many factors, including those factors described in Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as well as our ability to execute on our business and strategic plans as currently conceived.

 

 

On March 29, 2016, the Company completed a public offering of 4,600,000 shares of the Company's common stock, including the exercise in full of the underwriters’ overallotment option to purchase up an additional 600,000 shares of common stock at the public offering price of $9.50 per share. The gross proceeds of this offering were $43.7 million. Net proceeds to the Company, after deducting the underwriters' discounts and commission and other offering expenses payable by the Company, were $40.6 million.

 

On October 16, 2015, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent, to sell shares of common stock with aggregate gross proceeds of up to $20.0 million, from time to time, through an “at-the-market” equity offering program. The Sales Agreement provides that the sales agent will be entitled to compensation for its services in an amount equal to 3.0% of the gross proceeds from the sales of shares sold under the Sales Agreement. During the first quarter of 2016, we sold 1,353,900 shares of common stock under the Sales Agreement at $7.43 per share for gross proceeds of $10.1 million and net proceeds of $9.8 million, after deducting the sales agent’s commission. As of March 31, 2016, $7.9 million of common stock remains available to be sold under this facility.

 

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Capital Growth (“Hercules”). The first $10 million of the term loan was funded at closing. On March 30, 2015, the Company drew down the remaining $5 million of the term loan. The term loan was repayable in installments over forty-eight months and, at drawdown date, had an interest-only period of eighteen months after closing. 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 average interest rate paid by the Company during the first quarter of 2016 was 10%.

 

On April 25, 2016, the Company entered into an amendment agreement with Hercules which provided that the scheduled principal payments due on May 1, 2016 and the first business day of each month thereafter through and including the payment due on May 1, 2017 will be deferred (“deferred payments”). Commencing on June 1, 2017, and continuing on the first business day of each month thereafter, the Company will recommence scheduled payments of principal and interest based on the original amortization period of thirty-one (31) consecutive months with a balloon payment of all the deferred payments included in the last installment. The deferred payments and all other accrued but unpaid interest will be due and payable on the loan maturity date of June 1, 2018.

 

In June 2012, we 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 VYXEOS. The agreement provided for LLS to make an upfront payment of $2.0 million, which was received in July 2012, and further payments totaling an additional $3.0 million on the achievement of clinical milestones; however, the amount may be refundable by the Company in the event of a material breach by us under the agreement. Through March 31, 2016 we have received the $5.0 million in funding from the LLS.

 

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, we must pay LLS a multiple on the LLS funding. (LLS funding is the $5.0 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of a Phase 2 study during 2010 and 2011). Subject to exclusions under the agreement, we are obligated to pay LLS an amount equal to 50% of the cash payments we receive from out licenses and transfers of rights to the product or other liquidity events, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding we received from LLS. There may also be royalties due to LLS, not to exceed 5% of net sales. The total amount payable by us 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 but will not exceed the maximum amount referred to in the preceding sentence.

 

Cash Flows

 

Net cash used in operating activities was $5,106,000 for the three months ended March 31, 2016. The three months ended March 31, 2016 amount reflected the Company’s net loss of $5,533,000, offset by $736,000 in net non-cash charges including stock-based compensation expense of $576,000, non-cash interest expense of $112,000 related to the Hercules loan, and amortization and depreciation of $48,000. In addition, the Company used $309,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the three months ended March 31, 2016. The changes in operating assets and liabilities were decreases in accounts payable of $385,000, deferred revenue of $45,000, deferred rent of $3,000 and increase in other receivables of $42,000. Offsetting these changes were decreases in prepaid expenses and deposits of $95,000, other current assets of $8,000, and other non-current assets of $1,000 and an increase in accrued expenses of $63,000,.

 

 

Net cash used in operating activities was $4,494,000 for the three months ended March 31, 2015. The three months ended March 31, 2015 amount reflected the Company’s net loss of $4,711,000, offset by $503,000 in net non-cash charges including non-cash interest expense of $95,000 related to the Hercules loan, amortization and depreciation of $49,000, and stock-based compensation expense of $359,000. In addition, the Company used $286,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the three months ended March 31, 2015. The changes in operating assets and liabilities were decreases in accrued expenses of $285,000, deferred revenue of $136,000, deferred rent of $2,000 and increase in other receivables of $5,000. Offsetting these changes were decreases in prepaid expenses and deposits of $80,000, other current assets of $16,000, and increase in accounts payable of $46,000.

 

Cash used in investing activities was $3,000 for the three months ended March 31, 2016 for acquisition of property and equipment. Cash used in investing activities was $18,000 for the three months ended March 31, 2015 for acquisition of property and equipment.

 

Cash provided by financing activities for the three months ended March 31, 2016 was $49,396,000. The cash inflow was from the net proceeds from issuance of common stock and exercise of stock options and warrants of $50,692,000 offset by $1,297,000 for the repayment of the debt. Cash provided by financing activities was $5,000,000 for the three months ended March 31, 2015 for proceeds from a loan.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2015 included in Celator Pharmaceuticals Inc.’s Form 10-K filed. There have been no significant changes in the Company’s critical accounting policies since December 31, 2015.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

The Company invests excess cash in investment grade, interest-bearing securities and at March 31, 2016, had approximately $17.2 million invested in money market instruments. Such investments are subject to interest rate and credit risk and are not fully insured by the federal government. The Company believes its policy of investing in highly rated securities, whose liquidities are, at March 31, 2016, all less than 90 days minimizes such risks. In addition, while a hypothetical one percent per annum decrease in market interest rates would have decreased the Company’s interest income for the period, it would not have resulted in a loss of the principal and the decline in interest income would have been immaterial to the Company.

 

The Company had outstanding total debt at March 31, 2016 of $13.3 million. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate. The average interest rate paid by the Company during the first quarter of 2016 was 10%.

 

The majority of the Company’s business is conducted in U.S. dollars. However, the Company does conduct certain transactions in other currencies, including Canadian dollars. Historically, fluctuations in foreign currency exchange rates have not materially affected the Company’s results of operations, and during the three months ended March 31, 2016 and 2015, the Company’s results of operations were not materially affected by fluctuations in foreign currency exchange rates.

 

Item 4.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (the “Commission”) rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.

 

 

Change in Internal Control over Financial Reporting

 

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

 

Part II. Other Information

 

Item 1.

Legal Proceedings

 

There are no material pending legal proceedings.

 

Item 1A.

Risk Factors

 

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

 

You should consider carefully the risk factors, together with all of the other information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Each of these risk factors could adversely affect our business, results of operations and financial condition, as well as adversely affect the value of an investment in our common stock. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no sales of unregistered equity securities during the three months ended March 31, 2016. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Item 6.

Exhibits

 

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

 

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.)
10.1		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Scott T. Jackson (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on April 5, 2016).
10.2		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Dr. Lawrence Mayer (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on April 5, 2016).
10.3		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Fred M. Powell (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K current report filed on April 5, 2016).
10.4		Amendment No. 1 to Loan and Security Agreement dated April 25, 2016 among Celator Pharmaceuticals, Inc., Celator Pharmaceuticals Corp. and Hercules Capital, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on April 27, 2016)
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1		Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1		The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31 2016 and December 31, 2015, (ii) the Statements of Loss for the three months ended March 31, 2016 and 2015, (iii) Statement of Shareholders’ Equity for the three months ended March 31, 2016, (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.

 

 

SIGNATURES

 

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

 

CELATOR PHARMACEUTICALS, INC.

Signature		Title		Date
/s/ Scott T. Jackson Scott T. Jackson		Chief Executive Officer and a Director (principal executive officer)		May 10, 2016
/s/ Fred M. Powell Fred M. Powell		Vice President and Chief Financial Officer (principal financial and accounting officer)		May 10, 2016

 

 

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.)
10.1		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Scott T. Jackson (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on April 5, 2016).
10.2		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Dr. Lawrence Mayer (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on April 5, 2016).
10.3		Amendment to Employment Agreement dated as of April 1, 2016 between Celator Pharmaceuticals, Inc. and Fred M. Powell (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K current report filed on April 5, 2016).
10.4		Amendment No. 1 to Loan and Security Agreement dated April 25, 2016 among Celator Pharmaceuticals, Inc., Celator Pharmaceuticals Corp. and Hercules Capital, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on April 27, 2016)
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1		Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1		The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31 2016 and December 31, 2015, (ii) the Statements of Loss for the three months ended March 31, 2016 and 2015, (iii) Statement of Shareholders’ Equity for the three months ended March 31, 2016, (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.