U.S. 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: September 30, 2017

 

¨

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

 

For the transition period from ______________ to ______________

 

Commission File Number: 1-36598

 

 

CELLECTAR BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)

 

DELAWARE		04-3321804
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

3301 Agriculture Drive

Madison, Wisconsin 53716

(Address of principal executive offices)

 

(608) 441-8120

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
		Emerging growth company	¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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

 

Number of shares outstanding of the issuer’s common stock as of the latest practicable date: 15,813,961 shares of common stock, $0.00001 par value per share, as of November 9, 2017.

 

 

 

CELLECTAR BIOSCIENCES, INC.

 

FORM 10-Q INDEX

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 4.	Controls and Procedures	20
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 6.	Exhibits	24

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

CELLECTAR BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		September 30, 2017				December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	5,662,227			$	11,444,619
Restricted cash			55,000				55,000
Prepaid expenses and other current assets			970,240				693,569
Total current assets			6,687,467				12,193,188
FIXED ASSETS, NET			1,496,566				1,444,058
GOODWILL			1,675,462				1,675,462
OTHER ASSETS			11,872				11,872
TOTAL ASSETS		$	9,871,367			$	15,324,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable		$	—			$	86,591
Accounts payable and accrued liabilities			2,019,231				1,416,433
Derivative liability			110,500				127,125
Capital lease obligations, current portion			2,929				2,727
Total current liabilities			2,132,660				1,632,876
LONG-TERM LIABILITIES:
Deferred rent			142,782				146,583
Capital lease obligation, less current portion			3,261				5,249
Total long-term liabilities			146,043				151,832
TOTAL LIABILITIES			2,278,703				1,784,708
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.00001 par value; 7,000 shares authorized; none and 17 Series A issued and outstanding as of September 30, 2017 and December 31, 2016, respectively			—				875,572
Common stock, $0.00001 par value; 80,000,000 and 40,000,000 shares authorized at September 30, 2017 and December 31, 2016; 13,477,170 and 10,368,325 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively			135				104
Additional paid-in capital			87,863,106				83,451,222
Accumulated deficit			(80,270,577	)			(70,787,026	)
Total stockholders’ equity			7,592,664				13,539,872
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	9,871,367			$	15,324,580

 

The accompanying notes are an integral part of these financial statements.

 

 

CELLECTAR BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
COSTS AND EXPENSES:
Research and development		$	2,333,058			$	1,305,610			$	6,365,868			$	3,310,248
General and administrative			1,150,710				1,162,278				3,146,605				3,491,259
Total costs and expenses			3,483,768				2,467,888				9,512,473				6,801,507
LOSS FROM OPERATIONS			(3,483,768	)			(2,467,888	)			(9,512,473	)			(6,801,507	)
OTHER INCOME:
Gain on revaluation of derivative warrants			9,100				177,912				16,625				3,201,004
Interest income, net			3,969				3,116				12,297				5,303
Total other income, net			13,069				181,028				28,922				3,206,307
NET LOSS		$	(3,470,699	)		$	(2,286,860	)		$	(9,483,551	)		$	(3,595,200	)
BASIC AND DILUTED NET LOSS PER COMMON SHARE		$	(0.26	)		$	(0.43	)		$	(0.73	)		$	(1.02	)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER COMMON SHARE			13,470,974				5,368,235				12,986,435				3,541,000

 

The accompanying notes are an integral part of these financial statements.

 

 

CELLECTAR BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended September 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(9,483,551	)		$	(3,595,200	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization			294,195				269,317
Stock-based compensation expense			573,084				397,132
Gain on revaluation of derivative warrants			(16,625	)			(3,201,004	)
Changes in:
Accounts payable and accrued liabilities			602,798				411,516
Prepaid expenses and other current assets			(160,334	)			(208,387	)
Other assets and liabilities			(3,801	)			(6,824	)
Cash used in operating activities			(8,194,234	)			(5,933,450	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets			(346,703	)			(5,258	)
Cash used in investing activities			(346,703	)			(5,258	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable			(86,591	)			(182,283	)
Proceeds from issuance of common stock, net of underwriting issuance costs			—				7,371,121
Cash paid for issuance costs			—				(150,633	)
Proceeds from exercise of warrants			2,963,259				652,516
Cash paid for reverse stock split fractional shares			—				(594	)
Change in deferred issuance costs			(116,337	)			38,569
Payments on capital lease obligations			(1,786	)			(1,811	)
Cash provided by financing activities			2,758,545				7,726,885
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(5,782,392	)			1,788,177
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			11,444,619				3,857,791
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	5,662,227			$	5,645,968
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense		$	364			$	3,702
Reclassification to equity for warrants that are no longer derivative instruments		$	—			$	1,392,000

 

The accompanying notes are an integral part of these financial statements.

 

 

CELLECTAR BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.

NATURE OF BUSINESS, ORGANIZATION AND GOING CONCERN

 

Cellectar Biosciences, Inc. (the “Company”) is a clinical stage biopharmaceutical company developing compounds for the treatment of cancer. The Company’s headquarters are located in Madison, Wisconsin.

 

The Company is subject to a number of risks similar to those of other small pharmaceutical companies. Principal among these risks are dependence on key individuals, competition from substitute products and larger companies, the successful development and marketing of its products in a highly regulated environment and the need to obtain additional financing necessary to fund future operations.

 

The accompanying financial statements have been prepared on a basis that assumes the Company will continue as a going concern and that contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has devoted substantially all of its efforts toward research and development and has, during the nine months ended September 30, 2017, generated an operating loss of approximately $9,512,000. The Company expects that it will continue to generate operating losses for the foreseeable future.

 

The Company believes that its cash balance as of the date of this filing is adequate to fund operations at budgeted levels for the next twelve months. In October 2017, the Company completed a registered direct offering of 1,954,388 shares of its common stock and 41.0412949 shares of its preferred stock that are convertible into 2,190,330 shares of common stock that raised gross cash proceeds of approximately $7,760,000 (see Note 9). The investors in the financing also received in a private placement warrants to purchase an aggregate of 3,108,538 shares of common stock at an exercise price of $1.78 per share. The Company’s ability to execute its operating plan beyond the next twelve months depends on its ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise.

 

The accompanying condensed consolidated balance sheet as of December 31, 2016 has been derived from audited financial statements. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2017, the condensed consolidated statements of operations for the three months and nine months ended September 30, 2017 and 2016, the condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 and the related interim information contained within the notes to the condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions, rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and the notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments which are of a nature necessary for the fair presentation of the Company’s consolidated financial position at September 30, 2017 and consolidated results of its operations for the three months and nine months ended September 30, 2017 and 2016, and its cash flows for the nine months ended September 30, 2017 and 2016. The results for the nine months ended September 30, 2017 are not necessarily indicative of future results.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2016, which was filed with the SEC on March 15, 2017.

 

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Restricted Cash — The Company accounts for cash that is restricted for other than current operations as restricted cash. Restricted cash at September 30, 2017 and December 31, 2016 consisted of a certificate of deposit of $55,000 required under the Company’s lease agreement for its Madison, Wisconsin facility.

 

 

Goodwill — Goodwill is not amortized, but is required to be evaluated for impairment annually or whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. The Company evaluates goodwill for impairment annually in the fourth fiscal quarter and additionally on an interim basis if an event occurs or there is a change in circumstances, such as a decline in the Company’s stock price or a material adverse change in the business climate, which would more likely than not reduce the fair value of the reporting unit below its carrying amount. No such event or change in circumstances occurred; therefore no changes in goodwill were made during the nine months ended September 30, 2017 and 2016.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill. The standard streamlines the methodology for calculating whether goodwill is impaired based upon whether the carrying amount of goodwill exceeds the reporting unit’s fair value. ASU 2017-04 applies to public business entities and those other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill and is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on its financial statements.

 

Impairment of Long-Lived Assets — Long-lived assets other than goodwill consist primarily of fixed assets, which we periodically evaluate for potential impairment. Whenever events or circumstances change, an assessment is made as to whether there has been an impairment in the value of long-lived assets by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment date. No such event or change in circumstances occurred; therefore no such impairment occurred during the nine months ended September 30, 2017 and 2016.

 

Stock-Based Compensation — The Company uses the Black-Scholes option-pricing model to calculate the grant-date fair value of stock option awards. The resulting compensation expense, net of expected forfeitures, for awards that are not performance-based is recognized on a straight-line basis over the service period of the award, which is generally three years for stock options. For stock options with performance-based vesting provisions, recognition of compensation expense, net of expected forfeitures, commences if and when the achievement of the performance criteria is deemed probable. The compensation expense, net of expected forfeitures, for performance-based stock options is recognized over the relevant performance period. Awards of stock that are not performance-based are valued at the fair market value on the date of the grant and are amortized over the service period of the award. Non-employee stock-based compensation is accounted for in accordance with the guidance of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 505, Equity. As such, the Company recognizes expense based on the estimated fair value of options granted to non-employees over their vesting period, which is generally the period during which services are rendered and deemed completed by such non-employees.

 

Fair Value of Financial Instruments — The guidance under FASB ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. Financial instruments in the accompanying financial statements consist of cash equivalents, accounts payable and long-term obligations. The carrying amount of cash equivalents and accounts payable approximate their fair value due to their short-term nature. The carrying value of remaining long-term obligations, including the current portion, approximates fair value because the fixed interest rate approximates current market interest rates available on similar instruments.

 

 

Derivative Instruments — The Company generally does not use derivative instruments to hedge exposures to cash flow or market risks. However, certain warrants to purchase common stock that do not meet the requirements for classification as equity, in accordance with the Derivatives and Hedging Topic of the FASB ASC, are classified as liabilities.  In such instances, net-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. These warrants are considered derivative instruments because the agreements contain a certain type of cash settlement feature, “down-round” provisions whereby the number of shares for which the warrants are exercisable and/or the exercise price of the warrants is subject to change in the event of certain issuances of stock at prices below the then-effective exercise price of the warrants. The number of shares issuable under such warrants was 533,065 at September 30, 2017 and December 31, 2016. The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying common stock. Such financial instruments are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on derivatives on the consolidated statements of operations in each reporting period. If these instruments subsequently meet the requirements for equity classification, the Company reclassifies the fair value to equity. At September 30, 2017 and December 31, 2016, these warrants represented the only outstanding derivative instruments issued or held by the Company.

 

Leases — In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its results of operations, cash flows and financial position.

 

Recent Accounting Pronouncement — In November 2016, the FASB issued ASU 2016-18, Statement of cash flows (Topic 230): Restricted Cash, providing specific guidance on the cash flow classification and presentation of changes in restricted cash and restricted cash equivalents. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will become effective for fiscal years, and the interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company does not anticipate any material impact from the adoption of this accounting standard.

 

2.

FAIR VALUE

 

In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC 820, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

·

Level 1: Input prices quoted in an active market for identical financial assets or liabilities.

·

Level 2: Inputs other than prices quoted in Level 1, such as prices quoted for similar financial assets and liabilities in active markets, prices for identical assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

·

Level 3: Input prices quoted that are significant to the fair value of the financial assets or liabilities which are not observable or supported by an active market.

 

 

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

The Company issued warrants to purchase an aggregate of 82,500 common shares in a February 2013 public offering (the “February 2013 Public Offering Warrants”). On February 20, 2014, 27,500 of the February 2013 Public Offering Warrants expired. On May 20, 2016, 16,250 warrants were exercised. The remaining 38,750 warrants are classified within the Level 3 hierarchy.

 

In August 2014, as part of an underwritten public offering, the Company issued 494,315 warrants to purchase common stock (the “August 2014 Warrants”). The August 2014 Warrants are listed on the Nasdaq Capital Market under the symbol “CLRBW,” however, there are certain periods where trading volume is low; therefore, they are classified as Level 2 within the hierarchy.

 

The following tables set forth the Company’s financial instruments carried at fair value using the lowest level of input applicable to each financial instrument as of September 30, 2017 and December 31, 2016:

 

		September 30, 2017
		Level 1				Level 2				Level 3				Fair Value
Liabilities:
February 2013 Public Offering Warrants		$	—			$	—			$	15,500			$	15,500
August 2014 Warrants			—				95,000				—				95,000
Total		$	—			$	95,000			$	15,500			$	110,500

 

		December 31, 2016
		Level 1				Level 2				Level 3				Fair Value
Liabilities:
February 2013 Public Offering Warrants		$	—			$	—			$	27,125			$	27,125
August 2014 Warrants			—				100,000				—				100,000
Total		$	—			$	100,000			$	27,125			$	127,125

 

In order to estimate the value of the February 2013 Public Offering Warrants considered to be derivative instruments, the Company uses a modified option-pricing model together with assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rates, volatility, the contractual term of the warrants, future financing requirements and dividend rates. The future financing estimates are based on the Company’s estimates of anticipated cash requirements over the term of the warrants as well as the frequency of required financings based on its assessment of its historical financing trends and anticipated future events. Due to the nature of these inputs and the valuation technique utilized, these warrants are classified within the Level 3 hierarchy.

 

The following table summarizes the modified option-pricing assumptions used:

 

		Nine Months Ended September 30, 2017				Twelve Months Ended December 31, 2016
Volatility			76-118	%			92.72-134	%
Risk-free interest rate			1.03-1.21	%			0.53-1.15	%
Expected life (years)			0.39-0.89				1.14-1.89
Dividend			0	%			0	%

 

 

During fiscal year 2016, the Company had warrants outstanding for part of the year that were considered financial instruments. Those warrants were either extinguished or amended such that they were no longer considered financial instruments as of December 31, 2016, and were, therefore, not financial instruments during the three or nine months ended September 30, 2017. The following table summarizes the modified option-pricing assumptions used for the period they were considered financial instruments:

 

 

		Twelve Months Ended December 31, 2016
Volatility			89.73	%
Risk-free interest rate			1.65	%
Expected life (years)			4.50
Dividend			0	%

 

The following table summarizes the changes in the fair market value of the Company’s warrants which are classified within the Level 3 fair value hierarchy:

 

		Nine Months Ended September 30, 2017				Twelve Months Ended December 31, 2016
Beginning balance – Fair value		$	27,125			$	2,067,000
Reclassification to equity for warrants that are no longer derivative liabilities			—				(1,392,429	)
Gain on derivatives resulting from change in fair value or extinguishment			(11,625	)			(647,446	)
Ending balance – Fair value		$	15,500			$	27,125

 

In order to estimate the fair value of the August 2014 Warrants, the Company calculated the weighted average closing price for the trailing 10 day period with trades that ended on the balance sheet date.

 

3.

STOCKHOLDERS’ EQUITY

 

Authorized Share Increase

 

At a special meeting held on September 12, 2017, the Company’s stockholders approved the ratification of the approval of the Certificate of Amendment to our Certificate of Incorporation to increase the number of authorized shares by 40,000,000 to 80,000,000 which was previously approved by the Company’s stockholders at our annual meeting of stockholders held on May 31, 2017.

 

November 2016 Underwritten Offering

 

On November 23, 2016, the Company entered into an Underwriting Agreement with Ladenburg Thalmann & Co. Inc., as representative of the several underwriters named therein, in connection with the Company’s Registration Statement on Form S-1. Pursuant to the Underwriting Agreement, the Company agreed to sell to the Underwriter 800,000 shares of common stock, 68 shares of Series A preferred stock convertible into 4,533,356 shares of common stock, and Series C warrants to purchase 5,333,356 shares of common stock, plus up to an additional 800,000 shares of common stock and Series C warrants to purchase up to an additional 800,000 shares of common stock in the event of the exercise by the Underwriter of its over-allotment option. The public offering price of a share of common stock together with a Series C warrant to purchase one share of common stock was $1.50. The public offering price to purchase one share of Series A preferred stock, each of which is convertible into 66,667 shares of common stock, together with a Series C warrant to purchase 66,667 shares of common stock was $100,000. The preferred stock was non-voting, had no dividend rights (except to the extent dividends were also paid on common stock), liquidation preference, or other preferences over common stock. The Series C warrants have an exercise price of $1.50 per share, and are exercisable for five years from the date of issuance. The net proceeds were allocated to each security based upon the pro-rata values of the underlying common stock and a Black-Scholes valuation of the warrants.

 

 

The sale of securities pursuant to the Underwriting Agreement, including the entire over-allotment option, closed on November 29, 2016 (the “November 2016 Underwritten Offering”). Gross proceeds were $9.2 million with net proceeds to the Company of approximately $8.3 million.

 

As of December 31, 2016, 17 shares of Series A preferred stock were outstanding. During the nine months ended September 30, 2017, all 17 shares were converted into 1,133,339 shares of common stock.

 

During the nine months ended September 30, 2017, Series C warrants representing 1,975,506 shares of common stock were exercised by the holders, for proceeds of $2,963,259.

 

April 2016 Underwritten Offering

 

On April 15, 2016 the Company entered into an Underwriting Agreement with Ladenburg Thalmann & Co., Inc. in connection with the Company’s Registration Statement on Form S-1. Pursuant to the Underwriting Agreement, the Company agreed to sell to the Underwriter 1,378,364 shares of common stock, Series B prefunded warrants to purchase 1,908,021 shares of common stock and Series A warrants to purchase 3,286,385 shares of common stock, plus up to an additional 492,957 shares of common stock and Series A warrants to purchase up to an additional 492,957 shares of common stock in the event of the exercise by the Underwriter of its over-allotment option. The public offering price of a share of common stock together with a Series A warrant to purchase one share of common stock was $2.13. The public offering price of a Series B pre-funded warrant to purchase one share of common stock together with a Series A warrant to purchase one share of common stock was $2.12. The Series B pre-funded warrants had an exercise price of $0.01 per share, were immediately exercisable and did not expire. The Series A warrants have an exercise price of $3.04 per share, are exercisable for five years from the date of issuance, and are callable by the Company under certain circumstances.

 

On April 20, 2016, the Company closed on the underwritten public offering (the “April 2016 Underwritten Offering”) of 1,871,321 shares of its common stock and Series B pre-funded warrants to purchase 1,908,021 shares of common stock, plus the issuance of Series A warrants to purchase 3,779,342 shares of common stock, reflecting the exercise in full of the Underwriter’s over-allotment option. Prior to September 30, 2016, all of the Series B pre-funded warrants were exercised. The gross proceeds of the offering amounted to approximately $8.0 million with net proceeds to the Company of approximately $7.2 million.

 

Warrant Restructuring

 

On April 13, 2016, the Company entered into an exchange and amendment agreement (the “Warrant Restructuring Agreement”). Pursuant to the Warrant Restructuring Agreement, the Company agreed with the holders of 2015 Series A warrants that upon the consummation of the 2016 Underwritten Offering, the exercise price of the 2015 Series A warrants would be reduced to the public offering price per share of the shares of common stock sold in this offering and that the warrants would be amended such that the exercise price would no longer be subject to adjustment in connection with future equity offerings we may undertake. In consideration of this amendment, the Company agreed to issue to each of those holders a new warrant to purchase an additional number of shares of common stock equal to twice the number of shares of common stock underlying the 2015 Series A Warrants held by them (the “Incremental Series A Warrants”). As a result, the 2015 Series A warrants and the Incremental Series A Warrants have an exercise price equal to $2.13 (the public offering price of the shares of common stock sold in the 2016 Underwritten Offering).

 

 

2016 Reverse Stock Split and Recapitalization

 

At a special meeting held on February 8, 2016, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse split of the Company’s common stock at a ratio between 1:5 to 1:10 in order to ensure that adequate authorized but unissued shares would be available for anticipated future financings, and to satisfy requirements for the continued listing of the Company’s common stock on the NASDAQ Capital Market. In addition, the proposal approved by the stockholders provided that if the reverse split was effected, the number of shares of common stock that the Company is authorized to issue remained unchanged at 40,000,000. The Company’s stockholders further authorized the board of directors to determine the ratio at which the reverse split would be effected by filing an appropriate amendment to the Company’s certificate of incorporation. The board of directors authorized the ratio of the reverse split and corresponding reduction in authorized shares on February 24, 2016, and effective at the close of business on March 4, 2016, the Company’s certificate of incorporation was amended to effect a 1-for-10 reverse split of the Company’s common stock (the “2016 Reverse Split”). All share and per share numbers included in these consolidated financial statements give effect to the 2016 Reverse Split.

 

See Authorized Share Increase above concerning a special meeting held on September 12, 2017 regarding the increase of authorized shares by 40,000,000 to 80,000,000.

 

Common Stock Warrants

 

The following table summarizes information with regard to outstanding warrants to purchase common stock as of September 30, 2017:

 

Offering		Number of Shares Issuable Upon Exercise of Outstanding Warrants				Exercise Price				Expiration Date
November 2016 Public Offering Series C			4,157,850			$	1.50			November 29, 2021
April 2016 Underwritten Registered Series A			3,626,942			$	3.04			April 20, 2021
October 2015 Incremental Series A			300,006			$	2.13			October 20, 2021
October 2015 Private Placement Series A			86,365			$	2.13			April 1, 2021
October 2015 Offering – Placement Agent			3,750			$	28.30			October 1, 2020
August 2014 Public Offering (1)			504,019			$	46.80			August 20, 2019
February 2013 Public Offering (1)			38,750			$	1.50	(2)		February 20, 2018
February 2013 Public Offering – Placement Agents			3,854			$	125.00			February 4, 2018
November 2012 Private Placement			5,000			$	250.00			November 2, 2017
Total			8,726,536

 

(1)

These warrants have a certain type of cash settlement feature or the exercise price for which the warrant may be exercised is subject to adjustment for “down-rounds” and the warrants have been accounted for as derivative instruments as described in Note 3, with the exception of 9,704 warrants issued in August 2014.

 

(2)

Due to the issuance of common stock at $1.50 per share as part of the November 2016 Underwritten Offering, the remaining outstanding warrants issued as part of the February 2013 Public Offering were adjusted to reflect the revised exercise price of $1.50 each.

 

Reserved Shares

 

The following shares were reserved for future issuance upon exercise of stock options and grants, preferred stock conversions and warrants:

 

		September 30, 2017				December 31, 2016
Warrants			8,726,536				10,716,952
Preferred stock			—				1,133,339
Stock options and grants			934,562				471,433
Total number of shares reserved for future issuance			9,661,098				12,321,724

 

 

4.

NOTES PAYABLE

 

During the quarter ended March 31, 2017, the two loans with initial principal amounts totaling $450,000 from the Wisconsin Economic Development Corporation, dated September 15, 2010, were paid in full.

 

5.

STOCK-BASED COMPENSATION

 

Accounting for Stock-Based Compensation

 

The following table summarizes amounts charged to expense for stock-based compensation related to employee and director stock grants and stock option grants and recorded in connection with stock options granted to non-employee consultants:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Employee and director stock and stock option grants:
Research and development		$	46,059			$	22,281			$	102,780			$	46,651
General and administrative			130,265				151,965				470,305				350,819
			176,324				174,246				573,084				397,470
Non-employee consultant stock option grants:
Research and development			—				—				—				(338	)
Total stock-based compensation		$	176,324			$	174,246			$	573,084			$	397,132

 

Assumptions Used In Determining Fair Value for Stock Options

 

Valuation and amortization method. The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period. The estimated fair value of the non-employee options is amortized to expense over the period during which a non-employee is required to provide services for the award (usually the vesting period).

 

Volatility. The Company estimates volatility based on an average of (1) the Company’s historical volatility since its common stock has been publicly traded and (2) review of volatility estimates of publicly held drug development companies with similar market capitalizations.

 

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

 

Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future. The Company applied the simplified method of estimating the expected term of the options, as described in the SEC’s Staff Accounting Bulletins 107 and 110, as the historical experience is not indicative of the expected behavior in the future. The expected term, calculated under the simplified method, is applied to groups of stock options that have similar contractual terms. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted. The Company applied the simplified method to non-employees who have a truncation of term based on termination of service and utilizes the contractual life of the stock options granted for those non-employee grants which do not have a truncation of service.

 

 

Forfeitures.  The Company records stock-based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. An annual forfeiture rate of 2% was applied to all unvested options for the nine months ended September 30, 2017 and for the year ended December 31, 2016. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.

 

Exercise prices for all grants made during the nine months ended September 30, 2017 and 2016 were equal to the market value of the Company’s common stock on the date of grant.

 

Stock Option Activity

 

A summary of stock option activity is as follows:

 

		Number of Shares Issuable Upon Exercise of Outstanding Options				Weighted Average Exercise Price				Weighted Average Remaining Contracted Term in Years				Aggregate Intrinsic Value
Outstanding at December 31, 2016			471,433			$	7.59
Granted			112,300			$	1.91
Expired			(4	)		$	21,420
Forfeited			(29,167	)		$	1.48
Outstanding at September 30, 2017			554,562			$	6.60
Vested, September 30, 2017			246,734			$	10.54				7.69			$	21,880
Unvested, September 30, 2017			307,828			$	3.45				8.95			$	25,094
Exercisable at September 30, 2017			246,734			$	10.54				7.69			$	21,880

 

The aggregate intrinsic value of options outstanding is calculated based on the positive difference between the estimated per-share fair value of common stock at the end of the respective period and the exercise price of the underlying options. There have been no options exercised during the nine months ended September 30, 2017. Shares of common stock issued upon the exercise of options are from authorized but unissued shares.

 

Stock Grants

 

During the three months ended June 30, 2017, the Company issued 460,000 shares of restricted stock to members of the executive team. The restricted stock was granted at a price of either $2.08 or $2.10, which was the closing price of the stock on the date of issuance, and vests in equal annual amounts over three years. The related expense will be amortized ratably over the vesting period. During the three months ended September 30, 2017, 80,000 shares of restricted stock were forfeited.

 

The unvested portion of the restricted stock grants is not considered outstanding for accounting purposes; therefore, the related shares are not included in the earnings per share calculation or included in the shares reported as outstanding on the balance sheet, as of or for the periods ended September 30, 2017. Note that such shares are considered outstanding from a legal perspective as of the date of grant.

 

Unrecognized Compensation Cost

 

As of September 30, 2017, there was approximately $1,403,000 of total unrecognized compensation cost related to unvested stock-based compensation arrangements. Of this total amount, the Company expects to recognize approximately $184,000, $673,000, $474,000 and $72,000 during 2017, 2018, 2019 and 2020 respectively. The Company’s expense estimates are based upon the expectation that all unvested stock grants and stock options will vest in the future, less the forfeiture rate discussed above. The weighted-average grant-date fair value of vested and unvested stock grants and stock options outstanding at September 30, 2017 was $8.34 and $2.42, respectively.

 

 

6.

INCOME TAXES

 

The Company accounts for income taxes in accordance with the liability method of accounting. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities, and net operating loss carryforwards (NOLs), using the enacted tax rates. Deferred income tax expense or benefit is based on changes in the asset or liability from period to period. The Company did not record a provision or benefit for federal, state or foreign income taxes for the nine months ended September 30, 2017 or 2016 because the Company has experienced losses on a tax basis since inception. Because of the continuing losses and uncertainty associated with the utilization of the NOLs in the future, management has provided a full allowance against the value of its gross deferred tax assets.

 

The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty in income tax positions. No uncertain tax positions have been identified.

 

7.

NET LOSS PER SHARE

 

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of shares of common stock and the dilutive potential common stock equivalents then outstanding. Potential common stock equivalents consist of stock grants, stock options and warrants. Since there is a net loss attributable to common stockholders for the three months and nine months ended September 30, 2017 and 2016, the inclusion of common stock equivalents in the computation for those periods would be antidilutive. Accordingly, basic and diluted net loss per share is the same for all periods presented.

 

The following potentially dilutive securities have been excluded from the computation of diluted net loss per share since their inclusion would be antidilutive:

 

		Nine Months Ended September 30,
		2017				2016
Warrants			8,726,536				4,629,842
Stock options and grants			934,562				488,142

 

8.

COMMITMENTS AND CONTINGENCIES

 

The Company is involved in legal matters and disputes, however we do not anticipate that the outcome of such matters and disputes will materially affect the Company’s financial statements.

 

9.

SUBSEQUENT EVENTS

 

On October 12, 2017, we completed a registered direct offering of 1,954,388 shares of our common stock and 41.0412949 shares of Series B preferred stock together with a private placement of Series D warrants convertible into 3,108,538 shares of our common stock (the “2017 Financing”). Shares of common stock were issued in fixed combinations with 0.75 shares of common stock issuable upon exercise of the Series D warrants at an offering price of $1.87375 per share. Shares of Series B preferred stock convertible into approximately 53,369 shares of common stock were issued in fixed combinations with 40,026 shares of common stock issuable upon exercise of Series D warrants at an offering price of $100,000 per share. The preferred stock is non-voting, and has no dividend rights (except to the extent dividends were also paid on common stock), liquidation preference, or other preferences over common stock. The Series D warrants are immediately exercisable at an exercise price of $1.78 per share and expire seven years from the closing. Gross offering proceeds to the company are $7.76 million with net proceeds to the Company of approximately $7.0 million after deducting the placement agent fee and related offering expenses.

 

 

Item 2.

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

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements. There are a number of important factors that could cause actual results or events to differ materially from those disclosed in the forward-looking statements we make. These important factors include our significant accounting estimates, such as those for amounts due to clinical research organizations, and clinical investigators and the risk factors set forth in our annual report on Form 10-K and in Part II below under the caption “Risk Factors”. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this quarterly report.

 

Overview

 

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of drugs for the treatment of cancer. We leverage our proprietary phospholipid drug conjugate^TM (PDCs^TM) platform to specifically target treatments to cancer cells. The PDC platform possesses the potential for the discovery and development of the next generation of cancer-targeting agents. Our lead product candidate, CLR 131, is a PDC providing targeted delivery of a cytotoxic (cell-killing) radioisotope iodine 131. Our pipeline also includes a series of pre-clinical chemotherapeutic PDC programs. We believe our proprietary PDC platform can provide the next-generation of targeted cancer treatments that result in greater efficacy and less off-target effects reducing patient adverse events.

 

Our core strategy is to develop new targeted treatments for cancer patients that leverage our PDC cancer-targeting delivery platform. We employ a drug discovery and development approach that allows us to efficiently design, research and advance drug candidates. Our iterative process allows us to rapidly and systematically produce multiple generations of incrementally improved targeted drug candidates. By combining this approach with our PDC platform, we plan to develop proprietary compounds independently and in collaborations with other companies. Through strategic acquisitions and research collaborations, our strategy is to seek to generate near-term capital, supplement internal resources, gain access to novel molecules or payloads, accelerate product candidate development and broaden our product pipeline.

 

Our PDC platform provides selective delivery of a diverse range of oncologic payloads to cancerous cells, whether a hematologic cancer or solid tumor, the primary tumor, or a metastatic tumor and cancer stem cells. Our PDC platform takes advantage of a metabolic pathway utilized by all tumor cell types in all stages of the tumor “cycle.” This allows the PDC molecules to gain access to the intracellular compartment of the tumor cells and for the PDCs to continue to accumulate over time, which enhances drug efficacy. The PDC platform’s mechanism of entry does not rely upon specific cell surface epitopes or antigens as are required by other targeted delivery platforms. Specific cell surface epitopes are limited in number on the cell surface, undergo internalization and cycling upon binding and are not present on all tumor cells of a particular cancer type. This means a subpopulation of tumor cells will always remain. In addition to the benefits provided by the mechanism of entry, PDCs offer the potential advantage of having the ability to be conjugated to molecules in numerous ways, thereby increasing the types of molecules selectively delivered via the PDC.

 

  

The PDC platform features include the capacity to link to a wide variety of molecules, provide a significant increase in targeted oncologic payload delivery and the ability to target all tumor cells. As a result, we believe that we can generate PDCs to treat a broad range of cancers with the potential to improve the therapeutic index of oncologic drug payloads, enhance or maintain efficacy while reducing adverse events by minimizing drug delivery to healthy cells, and increasing delivery to cancerous cells and cancer stem cells. A description of our PDC product candidates follows:

 

•

CLR 131 is a small-molecule, cancer-targeting radiotherapeutic PDC designed to deliver cytotoxic radiation directly and selectively to cancer cells and cancer stem cells. CLR 131 is our lead therapeutic PDC product candidate and is currently being evaluated in both Phase 1 and Phase 2 clinical studies. The Investigational New Drug (IND) application was accepted by the U.S. Food and Drug Administration (FDA) in March 2014. In December 2014, the FDA granted orphan drug designation for CLR 131 for the treatment of multiple myeloma and the Phase 1 study was initiated in April 2015. This clinical study is a standard three-by-three dose escalation safety study in patients with relapse or refractory multiple myeloma. Multiple myeloma is an incurable cancer of the plasma cells and is the second most common form of hematologic cancers. This cancer type was selected for clinical, regulatory and commercial rationales, including multiple myeloma’s highly radiosensitive nature, and continued unmet medical need in the relapse/refractory setting. The primary goal of the Phase 1 study is to assess the compound’s safety and tolerability in patients with relapsed or refractory multiple myeloma.

 

In September 2017, Cohort 4 results were announced. The data monitoring committee determined that these results showed that a single 30 minute infusion of 31.25mCi/m² of CLR 131 was deemed safe and tolerated by the three patients in the cohort with one of those patients achieving a partial response (PR). The International Myeloma Working Group (IMWG) defines a (PR) as a greater than or equal to 50 percent decrease in free light chain (FLC) levels (for patients in whom M protein is unmeasurable) or 50 percent decrease in M protein. Additionally the other two evaluable patients achieved stable disease. One patient experiencing stable disease attained a 44 percent reduction in M protein. The patient experiencing a partial response had an 82 percent reduction in FLC. This patient did not produce M protein, had received seven prior lines of treatment including radiation, stem cell transplantation and multiple combination treatments including one with daratumumab that was not tolerated. As of November 2017, patients in Cohort 1 who received a single 12.5mCi/m² dose experienced a median overall survival (OS) of 26.2 months. Median OS for Cohorts 2 (18.75 mCi/m²) and 3 (25.0 mCi/m²) also continue to progress with patients experiencing OS of 15.4 months and 10 months, respectively as of November 2017. Based upon these data, we elected to initiate a Phase 2 clinical study using Cohort 3’s dose of 25.0 mCi/m² with the option to increase the dose based on our ongoing Phase 1 safety and efficacy signals.

 

In August, 2016 the University of Wisconsin Carbone Cancer Center (UWCCC) was awarded a five year Specialized Programs of Research Excellence (SPORE) grant from the National Cancer Institute to improve treatments and outcomes for head and neck cancer (HNC) patients. HNC is the sixth most common cancer across the world with approximately 56,000 new patients diagnosed every year in the United States. As a key component of this grant, the UWCCC researchers have tested CLR 131 in various animal HNC models as well as initiating the first human clinical trial combining CLR 131 and external beam radiation in patients with recurrent HNC. The UWCCC is currently anticipated to initiate this clinical trial in 2019.

 

In July 2016, we were awarded a $2,000,000 National Cancer Institute Fast-Track Small Business Innovation Research (SBIR) grant to further advance CLR 131. The funds are supporting the Phase 2 study initiated in March 2017 to further define the clinical benefits of CLR 131 in multiple myeloma and other niche hematologic malignancies with high unmet clinical need. These niche hematologic malignancies include Chronic Lymphocytic Leukemia, Small Lymphocytic Lymphoma, Marginal Zone Lymphoma, Lymphoplasmacytic Lymphoma, and Diffuse Large B-Cell Lymphoma. The study will be conducted in approximately 10-15 top cancer centers in the United States in patients with orphan-designated relapse or refractory hematologic cancers. The study's primary endpoint is clinical benefit response (CBR), with additional endpoints of progression free survival (PFS), median OS and other markers of efficacy following a single 25.0 mCi/m² dose of CLR 131, with the option for a second 25.0 mCi/m² dose approximately 75-180 days later.

 

 

•

CLR 1700 Series is an internally developed PDC program leveraging a payload designed to treat a broad range of hematologic cancers. The payload provides further specificity by targeting a pathway within hematologic cancers that is significantly upregulated in comparison to normal tissue. We believe that this additional level of targeting will allow us to provide a new drug candidate that has the ability to significantly improve patient outcomes. Leveraging our iterative discovery and screening process, we have been able to accelerate the development of this program.

 

•

CLR 1800 Series is part of a collaborative PDC program with Pierre Fabre that we entered into in December 2015 and extended in October 2017. Pierre Fabre is the third largest French pharmaceutical company with an extensive oncology research and development infrastructure. The objective of the research collaboration is to co-design a library of PDCs employing Pierre Fabre’s chemotherapeutics in combination with our proprietary cancer-targeting delivery vehicle. The newly developed PDCs may provide enhanced therapeutic indices to otherwise highly potent, non-targeted payloads through the targeted delivery to cancer cells provided by our cancer-targeting delivery vehicle. Significant progress has been achieved and the program continues to rapidly advance with a number of PDC molecules showing enhanced pharmacologic behavior over the parent compound alone.

 

•

CLR 1900 Series is an internally developed proprietary PDC program leveraging a novel small molecule cytotoxic compound as the payload. We believe that this program could produce a product candidate targeted to select solid tumors. Currently, the program is in early preclinical development.

 

•

CLR 2000 Series is part of a collaborative PDC program with Avicenna Oncology, or Avicenna, that we entered into in July 2017. Avicenna is a leading developer of antibody drug conjugates (ADCs). The objective of the research collaboration is to design and develop a series of PDCs utilizing Avicenna’s proprietary cytotoxic payload. Although Avicenna is a leading developer of ADCs, this collaboration was sought as a means to overcome many of the challenges associated with ADCs, including those associated with the targeting of specific cell surface epitopes.

 

•

CLR 2100 and 2200 Series are part of a collaborative PDC programs with Onconova Therapeutics, Inc., or Onconova, that we entered into in September 2017. Onconova is a biotechnology company specializing in the discovery and development of novel small molecule cancer therapies. The collaboration is structured such that we will design and develop a series of PDCs utilizing different small molecules that Onconova was developing as the payloads with the intent to show improved targeting and specificity to the tumor. At least one of the molecules was taken into Phase 1 clinical trials previously by Onconova. We would own all new intellectual property associated with the design of the new PDCs and both companies will have the option to advance compounds.

 

We believe our PDC platform has the potential to provide targeted delivery of a diverse range of oncologic payloads, as exemplified by the product candidates listed above, that may result in improvements upon current standard of care (SOC) for the treatment of a broad range of human cancers.

 

Results of Operations

 

Research and development expense.  Research and development expense consists of costs incurred in identifying, developing and testing, and manufacturing product candidates, which primarily include salaries and related expenses for personnel, costs of our research and manufacturing facility, cost of manufacturing materials and contract manufacturing fees paid to contract research organizations, fees paid to medical institutions for clinical trials, and costs to secure intellectual property. The Company analyzes its research and development expenses based on four categories as follows: clinical projects, preclinical projects, chemistry and manufacturing costs, and general fixed and overhead costs that are not allocated to the functional project costs, including personnel costs, facility costs, related overhead costs and patent costs.

 

General and administrative expense.  General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance and administrative functions.  Other costs include insurance, costs for public company activities, investor relations, directors’ fees and professional fees for legal and accounting services.

 

 

Nine Months Ended September 30, 2017 and 2016

 

Research and Development. Research and development expense for the nine months ended September 30, 2017 was approximately $6,366,000 (comprised of $1,338,000 in clinical project costs, $331,000 of manufacturing and related costs, $531,000 of preclinical project costs and $4,166,000 in general research and development costs) compared to approximately $3,310,000 (comprised of $707,000 in clinical project costs, $200,000 of manufacturing and related costs and $2,403,000 in general research and development costs) for the nine months ended September 30, 2016. The overall increase in research and development expense of approximately $3,056,000, or 92%, was due primarily to the initiation of the Phase 2 clinical study of CLR 131 in hematologic malignancies and the establishment of secondary manufacturing and supplier capabilities, the combination of which represented approximately $2,234,000 of the increase. Additionally, increases in: personnel and related travel of approximately $419,000 and purchased services related to pre-clinical studies of $593,000 represented the remainder of the increase, which was slightly offset by reduced costs related to the SBIR funding of approximately $276,000.

 

General and Administrative.  General and administrative expense for the nine months ended September 30, 2017 was approximately $3,147,000, compared to approximately $3,491,000 in the nine months ended September 30, 2016. The approximately $344,000 or 10% decrease was due to an approximately $370,000 decrease in purchased services primarily related to legal, accounting and consulting fees, a decrease of approximately $25,000 in public company and printing related expenses, partially offset by an increase in personnel costs of approximately $66,000.

 

Gain on Derivative Warrants. We recorded a gain on derivative warrants of approximately $17,000 and $3,201,000 in the nine months ended September 30, 2017 and 2016, respectively. These amounts represent the change in fair value, during the respective period, of outstanding warrants which contain a certain type of cash settlement feature, or “down-round” anti-dilution provisions whereby the number of shares for which the warrants are exercisable or the exercise price of the warrants is subject to change in the event of certain issuances of stock at prices below the then-effective exercise prices of the warrants. The fluctuations we experienced in historical periods have been substantially reduced as a result of the renegotiation or extinguishment of a significant portion of the liability-classified warrants.

 

Interest income, net. Interest income, net, for the nine months ended September 30, 2017 was approximately $12,000 related to the returns on the Company’s investments. For the nine months ended September 30, 2016, the approximately $5,000 of interest income, net, included approximately $6,000 of interest income partially offset by approximately $1,000 of interest expense related to the accrual of interest on the then outstanding debt with the Wisconsin Economic Development Corporation.

 

Liquidity and Capital Resources

 

We have financed our operations since inception primarily through the sale of equity and debt securities. As of September 30, 2017, we had approximately $5,662,000 in cash and cash equivalents. As of the date of this filing, we have raised capital aggregating approximately $175 million.

 

During the nine months ended September 30, 2017, we reported net loss of approximately $9,484,000, while using approximately $8,194,000 in cash in operations. The net loss included an approximately $17,000 gain on the revaluation of derivative warrants, approximately $573,000 in stock-based compensation expense and approximately $294,000 in depreciation and amortization expense. After adjustment for these non-cash items, changes in working capital provided approximately $439,000 of cash, of which $603,000 was the result of the timing of payments of accounts payable and accrued expenses net against an increase in prepaid and other assets of approximately $164,000. Also during this period, Series C warrants representing 1,975,506 shares of common stock were exercised by the holders, generating proceeds of approximately $2,963,000. The Company expects that it will continue to generate operating losses for the foreseeable future.

 

 

On October 12, 2017, we completed a registered direct offering of 1,954,388 shares of our common stock and 41.0412949 shares of Series B preferred stock together with a private placement of Series D warrants convertible into 3,108,538 shares of our common stock (the “2017 Financing”). Shares of common stock were issued in fixed combinations with 0.75 shares of common stock issuable upon exercise of the Series D warrants at an offering price of $1.87375 per share. Shares of Series B preferred stock convertible into approximately 53,369 shares of common stock were issued in fixed combinations with 40,026 shares of common stock issuable upon exercise of Series D warrants at an offering price of $100,000 per share. The preferred stock is non-voting, and has no dividend rights (except to the extent dividends were also paid on common stock), liquidation preference, or other preferences over common stock. The Series D warrants are immediately exercisable at an exercise price of $1.78 per share and expire seven years from the closing. Gross offering proceeds to the company are $7.76 million with net proceeds to the Company of approximately $7.0 million after deducting the placement agent fee and related offering expenses.

 

On November 29, 2016, the Company closed on an underwritten public offering (the “November 2016 Underwritten Offering”) of 1.6 million shares of common stock, 68 shares of Series A preferred stock convertible into 4,533,336 shares of common stock, and Series C warrants to purchase 6.1 million shares of common stock, reflecting the exercise in full of the Underwriter’s over-allotment option. The gross proceeds of the offering amounted to $9.2 million with net proceeds to the Company of approximately $8.3 million.

 

On April 20, 2016, the Company closed on its underwritten public offering of approximately 1.87 million shares of its common stock and Series B pre-funded warrants to purchase approximately 1.91 million shares of common stock, plus the issuance of Series A warrants to purchase approximately 3.78 million shares of common stock, reflecting the exercise in full of the Underwriter’s over-allotment option (the “April 2016 Underwritten Offering”). The gross proceeds of the offering amounted to approximately $8.0 million with net proceeds to the Company of approximately $7.2 million.

 

We believe our September 30, 2017 cash balance of approximately $5,662,000 and the proceeds from the 2017 Financing are adequate to fund operations for the next twelve months. Our ability to execute our operating plan beyond that time depends on our ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise. We have, in the past, successfully completed multiple rounds of financings, but due to market conditions and other factors, including our development stage, the proceeds we have been able to secure have been less than the amounts we sought to obtain. We plan to actively pursue additional financing in 2018; however, we have not entered into negotiations for any such transactions and there can be no assurance that we will obtain the necessary funding. Other than the uncertainties regarding our ability to obtain additional funding, there are currently no known trends, demands, commitments, events or uncertainties that are likely to materially affect our liquidity.

 

Item 4.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of September 30, 2017, our management has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Changes in internal control over financial reporting. There have not been any significant changes in the Company’s internal control over financial reporting.

 

The Chief Executive Officer and the Audit Committee perform significant roles in ensuring the accuracy and completeness of our financial reporting and the effectiveness of our disclosure controls and procedures. We have not identified any changes that occurred during the Company’s fiscal quarter ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

Important Considerations. Any system of controls, however well designed and operated, can provide only reasonable, and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part on certain assumptions about the likelihood of future events. The effectiveness of our disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Because of these and other inherent limitations of control systems, there can be no assurance that any system of disclosure controls and procedures will be successful in achieving its stated goals, including but not limited to preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management, under all potential future conditions, regardless of how remote.

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

We will require additional capital in order to continue our operations, and may have difficulty raising additional capital.

 

We expect that we will continue to generate significant operating losses for the foreseeable future. At September 30, 2017, our consolidated cash balance was approximately $5.7 million. We believe our cash balance at September 30, 2017 and the proceeds from the 2017 Financing are adequate to fund operations for the next twelve months. We will require additional funds to conduct research and development, establish and conduct clinical and preclinical trials, establish commercial-scale manufacturing arrangements and provide for the marketing and distribution of our products. Our ability to execute our operating plan depends on our ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise. However, there can be no assurance that we will obtain the necessary funding in the amounts we seek or that it will be available on a timely basis or upon terms acceptable to us. If we obtain capital by issuing debt or preferred stock, the holders of such securities would likely obtain rights that are superior to those of holders of our common stock.

 

Our capital requirements and our ability to meet them depend on many factors, including:

 

·

the number of potential products and technologies in development;

·

continued progress and cost of our research and development programs;

·

progress with preclinical studies and clinical trials;

·

the time and costs involved in obtaining regulatory clearance;

·

costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

·

costs of developing sales, marketing and distribution channels and our ability to sell our drugs;

·

costs involved in establishing manufacturing capabilities for clinical trial and commercial quantities of our drugs;

·

competing technological and market developments;

·

market acceptance of our products;

·

costs for recruiting and retaining management, employees and consultants;

·

costs for educating physicians regarding the application and use of our products;

·

whether we are able to maintain our listing on a national exchange;

·

uncertainty and economic instability resulting from terrorist acts and other acts of violence or war; and

·

the condition of capital markets and the economy generally, both in the U.S. and globally.

 

We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. We may seek to raise any necessary additional funds through the issuance of warrants, equity or debt financings or executing collaborative arrangements with corporate partners or other sources, which may be dilutive to existing stockholders or have a material effect on our current or future business prospects. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, we may have to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek to develop or commercialize by ourselves. If we cannot secure adequate financing when needed, we may be required to delay, scale back or eliminate one or more of our research and development programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop ourselves and commercialize ourselves. In such an event, our business, prospects, financial condition, and results of operations may be adversely affected.

 

We will require additional funds to conduct research and development, establish and conduct preclinical and clinical trials, establish commercial-scale manufacturing arrangements and provide for the marketing and distribution of our products. Our ability to execute our operating plan depends on our ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise.

 

 

We have incurred net losses and negative cash flows since inception. We currently have no product revenues, and may not succeed in developing or commercializing any products that will generate product or licensing revenues. We do not expect to have any products on the market for several years. Our primary activity to date has been research and development and conducting clinical trials. Development of our product candidates requires a process of preclinical and clinical testing, during which our product candidates could fail. We may not be able to enter into agreements with one or more companies experienced in the manufacturing and marketing of therapeutic drugs and, to the extent that we are unable to do so, we may not be able to market our product candidates. Whether we achieve profitability or not will depend on our success in developing, manufacturing, and marketing our product candidates. We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue for the foreseeable future. As of September 30, 2017, we had a stockholders’ equity of approximately $7,593,000. The operating loss for the nine months ended September 30, 2017 was approximately $9,512,000, and we may never achieve profitability.

 

 

Item 6.

Exhibits

 

						Incorporation by Reference
Exhibit No.		Description		Filed with this Form 10-Q		Form		Filing Date		Exhibit No.
3.1		Certificate of Designation of Series B Preferred Stock				8-K		October 11, 2017		3.1
4.1		Form of Series D Common Stock Purchase Warrant				8-K		October 11, 2017		4.1
4.2		Form of Series B Preferred Stock certificate				8-K		October 11, 2017		4.2
10.1		Securities Purchase Agreement, dated as of October 10, 2017, by and among Cellectar Biosciences, Inc. Inc. and the Purchasers				8-K		October 11, 2017		10.1
10.2		Registration Rights Agreement, dated as of October 10, 2017, by and among Cellectar Biosciences, Inc. Inc. and the Purchasers				8-K		October 11, 2017		10.2
10.3		Employment Agreement between the Company and Jarrod Longcor dated July 14, 2016		X
10.4		Employment Agreement between the Company and John E. Friend dated March 27, 2017		X
31.1		Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2		Certification of interim chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1		Certification of chief executive officer and interim chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101		Interactive Data Files		X

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	CELLECTAR BIOSCIENCES, INC.
Date: November 9, 2017	By:	/s/ James Caruso
		James Caruso
		President and Chief Executive Officer