Forward-Looking Statements
Statements and terms such as "expect", "anticipate", "estimate", "plan", "believe" and words of similar import regarding our expectations as to the development and effectiveness of our technologies, the potential demand for our products, and other aspects of our present and future business operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will not differ materially from our expectations. In evaluating such forward-looking statements, readers should specifically consider the various factors contained in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theSEC onMarch 25, 2020 , which factors include, without limitation, plans and objectives of management for future operations or programs or proposed new products or services; changes in the course of research and development activities and in clinical trials; possible changes in cost and timing of development and testing; possible changes in capital structure, financial condition, working capital needs and other financial items; changes in approaches to medical treatment; clinical trial analysis and future plans relating thereto; our ability to realize the full extent of the anticipated benefits of our acquisition of substantially all of the assets ofEGEN, Inc. , including achieving operational cost savings and synergies in light of any delays we may encounter in the integration process and additional unforeseen expenses; introduction of new products by others; possible licenses or acquisitions of other technologies, assets or businesses; and possible actions by customers, suppliers, partners, competitors and regulatory authorities. These and other risks and uncertainties could cause actual results to differ materially from those indicated by forward-looking statements. The discussion of risks and uncertainties set forth in this Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K, as well as in other filings with theSEC , is not a complete or exhaustive list of all risks facing the Company at any particular point in time. We operate in a highly competitive, highly regulated and rapidly changing environment and our business is constantly evolving. Therefore, it is likely that new risks will emerge, and that the nature and elements of existing risks will change, over time. It is not possible for management to predict all such risk factors or changes therein, or to assess either the impact of all such risk factors on our business or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.
Strategic and Clinical Overview
Celsion is a fully integrated oncology company focused on developing a portfolio of innovative cancer treatments, including immunotherapies, DNA-based therapies and directed chemotherapies. The Company's product pipeline includes GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian cancer and ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in Phase III development for the treatment of primary liver cancer and in development for other cancer indications.Celsion has two feasibility stage platform technologies for the development of novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies. Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection. With these technologies we are working to develop and commercialize more efficient, effective and targeted oncology therapies that maximize efficacy while minimizing side effects common to cancer treatments. ThermoDox® ThermoDox® is being evaluated in a Phase III clinical trial for primary liver cancer, which we call the OPTIMA Study, which was initiated in 2014. ThermoDox® is a liposomal encapsulation of doxorubicin, an approved and frequently used oncology drug for the treatment of a wide range of cancers. Localized heat at hyperthermia temperatures (greater than 40° Celsius) releases the encapsulated doxorubicin from the liposome enabling high concentrations of doxorubicin to be deposited preferentially in and around the targeted tumor. The OPTIMA Study. The OPTIMA Study represents an evaluation of ThermoDox® in combination with a first line therapy, RFA, for newly diagnosed, intermediate stage HCC patients. HCC incidence globally is approximately 755,000 new cases per year and is the third largest cancer indication globally. Approximately 30% of newly diagnosed patients can be addressed with RFA. 26 OnFebruary 24, 2014 , we announced that theUnited States Food and Drug Administration (the "FDA") provided clearance for the OPTIMA Study, which is a pivotal, double-blind, placebo-controlled Phase III trial of ThermoDox®, in combination with standardized RFA, for the treatment of primary liver cancer. The trial design of the OPTIMA Study is based on the comprehensive analysis of data from an earlier clinical trial called the HEAT Study (the "HEAT Study"). The OPTIMA Study is supported by a hypothesis developed from an overall survival analysis of a large subgroup of patients from the HEAT Study. Post-hoc data analysis from our earlier Phase III HEAT Study suggest that ThermoDox® may substantially improve OS, when compared to the control group, in patients if their lesions undergo a 45-minute RFA procedure standardized for a lesion greater than 3 cm in diameter. Data from nine OS sweeps have been conducted since the top line progression free survival ("PFS") data from the HEAT Study were announced inJanuary 2013 , with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical significance. OnAugust 15, 2016 , we announced updated results from its final retrospective OS analysis of the data from the HEAT Study. These results demonstrated that in a large, well bounded, subgroup of patients with a single lesion (n=285, 41% of the HEAT Study patients), treatment with a combination of ThermoDox® and optimized RFA provided an average 54% risk improvement in OS compared to optimized RFA alone. The Hazard Ratio ("HR") at this analysis is 0.65 (95% CI 0.45 - 0.94) with a p-value of 0.02. Median OS for the ThermoDox® group has been reached which translates into a two-year survival benefit over the optimized RFA group (projected to be greater than 80 months for the ThermoDox® plus optimized RFA group compared to less than 60 months projection for the optimized RFA only group). While this information should be viewed with caution since it is based on a retrospective analysis of a subgroup, we also conducted additional analyses that further strengthen the evidence for the HEAT Study subgroup. We commissioned an independent computational model at theUniversity of South Carolina Medical School . The results unequivocally indicate that longer RFA heating times correlate with significant increases in doxorubicin concentration around the RFA treated tissue. In addition, we conducted a prospective preclinical study in 22 pigs using two different manufacturers of RFA and human equivalent doses of ThermoDox® that clearly support the relationship between increased heating duration and doxorubicin concentrations. The OPTIMA Study was designed with extensive input from globally recognized HCC researchers and expert clinicians and after receiving formal written feedback from the FDA. The OPTIMA Study was designed to enroll up to 550 patients globally at approximately 65 clinical sites in theU.S. ,Canada ,European Union (EU),China and other countries in theAsia-Pacific region and will evaluate ThermoDox® in combination with standardized RFA, which will require a minimum of 45 minutes across all investigators and clinical sites for treating lesions three to seven centimeters, versus standardized RFA alone. The primary endpoint for this clinical trial is overall survival ("OS"), and the secondary endpoints are progression free survival and safety. The statistical plan calls for two interim efficacy analyses by an independent Data Monitoring Committee ("DMC"). The Company completed enrollment of 556 patients in the Phase III OPTIMA Study inAugust 2018 . OnDecember 18, 2018 , we announced that the DMC for the OPTIMA Study completed its last scheduled review of all patients enrolled in the trial and unanimously recommended that the OPTIMA Study continue according to protocol to its final data readout. The DMC's recommendation was based on the Committee's assessment of safety and data integrity of all patients randomized in the trial as ofOctober 4, 2018 . The DMC reviewed study data at regular intervals throughout the patient enrollment period, with the primary responsibilities of ensuring the safety of all patients enrolled in the study, the quality of the data collected, and the continued scientific validity of the study design. As part of its review of all 556 patients enrolled into the trial, the DMC evaluated a quality matrix relating to the total clinical data set, confirming the timely collection of data, that all data are current as well as other data collection and quality criteria. OnAugust 5, 2019 , the Company announced that the prescribed number of OS events had been reached for the first prespecified interim analysis of the OPTIMA Phase III Study. Following preparation of the data, the first interim analysis was conducted by the DMC onNovember 1, 2019 . This timeline was consistent with the Company's stated expectations and is necessary to provide a full and comprehensive data set that may represent the potential for a successful trial outcome. In accordance with the statistical plan, this initial interim analysis has a target of 118 events, or 60% of the total number required for the final analysis. At the time of the data cutoff, the Company received reports of 128 events. The hazard ratio for success at 128 events is approximately 0.63, which represents a 37% reduction in the risk of death compared with RFA alone and is consistent with the 0.65 hazard ratio that was observed in the prospective HEAT Study subgroup, which demonstrated a two-year overall survival advantage and a median time to death of more than seven and a half years. 27
OnAugust 13, 2019 , the Company announced that results from an independent analysis of the Company's ThermoDox® HEAT Study conducted by theNational Institutes of Health (NIH) were published in the peer-reviewed publication,Journal of Vascular and Interventional Radiology . The analysis was conducted by the intramural research program of theNIH and theNIH Center for Interventional Oncology (CIO), with the full data set from the Company's HEAT Study. The analysis evaluated the full data set to determine if there was a correlation between baseline tumor volume and radiofrequency ablation (RFA) heating time (minutes/tumor volume in milliliters), with or without ThermoDox® treatment, for patients with HCC. TheNIH analysis was conducted under the direction of Dr.Bradford Wood , MD, Director,NIH Center for Interventional Oncology and Chief , NIH Clinical Center Interventional Radiology. The article titled, "RFA Duration Per Tumor Volume May Correlate With Overall Survival in Solitary Hepatocellular Carcinoma Patients Treated With RFA Plus Lyso-thermosensitive Liposomal Doxorubicin," discussed theNIH analysis of results from 437 patients in the HEAT Study (all patients with a single lesion representing 62.4% of the study population). The key finding was that increased RFA heating time per tumor volume significantly improved overall survival (OS) in patients with single-lesion HCC who were treated with RFA plus ThermoDox®, compared to patients treated with RFA alone. A one-unit increase in RFA duration per tumor volume was shown to result in about a 20% improvement in OS for patients administered ThermoDox®, compared to RFA alone. The authors conclude that increasing RFA heating time in combination with ThermoDox® significantly improves OS and establishes an improvement of over two years versus the control arm when the heating time per milliliter of tumor is greater than 2.5 minutes. This finding is consistent with the Company's own results, which defined the optimized RFA procedure as a 45-minute treatment for tumors with a diameter of 3 centimeters. Thus, theNIH analysis lends support to the hypothesis underpinning the OPTIMA Study. OnNovember 4, 2019 , the Company announced that the DMC unanimously recommended the OPTIMA Study continue according to protocol. The recommendation was based on a review of blinded safety and data integrity from 556 patients enrolled in the Company's multinational, double-blind, placebo-controlled pivotal Phase III OPTIMA Study. The DMC's pre-planned interim efficacy review followed 128 patient events, or deaths, which occurred inAugust 2019 . Data presented demonstrated that PFS and OS data appear to be tracking with patient data observed at a similar point in the Company's subgroup of patients followed prospectively in the earlier Phase III HEAT Study, upon which the OPTIMA Study is based.
The data review demonstrated the following:
? The OPTIMA Study patient demographics and risk factors are consistent with
what the Company observed in the HEAT Study subgroup with all data quality
metrics meeting expectations.
? Median PFS for the OPTIMA Study reached 17 months as of
blinded data compare favorably with 16 months median PFS for all 285 patients
in the HEAT Study subgroup of patients treated with RFA >45 minutes.
? Median OS for the OPTIMA Study has not been reached as of
however median OS appears to be consistent with the HEAT Study subgroup of
patients treated with RFA >45 minutes and followed prospectively for overall
survival.
? The OPTIMA Study has lost only 4 patients to follow-up from the initiation of
the trial in
for 3% risk for loss per year, which at this point would have exceeded 60 patients. Unblinded PFS and OS were tracking similarly to the subgroup of patients who received more than 45 minutes of RFA in our HEAT Study and followed prospectively for more than three years. This subgroup in the HEAT Study demonstrated a 2-year overall survival advantage and a median time to death of more than 7 ½ years. This tracking appears to bode well for success at the second of two pre-planned interim efficacy analysis, which is intended after a minimum of 158 patient deaths and is projected to occur during the second quarter of 2020. The hazard ratio for success at 158 events is 0.70. This is below the hazard ratio of 0.65 observed in the HEAT Study subgroup of patients treated with RFA > 45 minutes. OnApril 15, 2020 , the Company announced that the prescribed minimum number of events of 158 patient deaths had been reached for the second pre-specified interim analysis of the OPTIMA Phase III Study. The hazard ratio for success at 158 deaths is 0.70, which represents a 30% reduction in the risk of death compared with RFA alone. OnJuly 13, 2020 , the Company announced that it has received a recommendation from the DMC to consider stopping the global OPTIMA Study. The recommendation was made following the second pre-planned interim safety and efficacy analysis by the DMC onJuly 9, 2020 . The DMC analysis found that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. However, the 2-sided p-value of 0.524 for this analysis provides uncertainty, subsequently, the DMC has left the final decision of whether or not to stop the OPTIMA Study toCelsion . There were no safety concerns noted during the interim analysis. The Company intends to follow the advice of the DMC and will consider our options either to stop the study or continue to follow patients after a thorough review of the data, and an evaluation of our probability of success. Timing for this decision is made less urgent by the fact that the OPTIMA Study has been fully enrolled sinceAugust 2018 and that the vast majority of the trial expenses have already been incurred. OnAugust 4, 2020 , the Company issued a press release announcing it will continue following patients for overall survival ("OS"), noting that the unexpected and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis onJuly 9, 2020 , may be associated with a data maturity issue. 28 The HEAT Study. OnJanuary 31, 2013 , the Company announced that the HEAT Study, ThermoDox® in combination with RFA, did not meet the primary endpoint, PFS, in the Phase III clinical trial enrolling 701 patients with primary liver cancer. This determination was made after conferring with the HEAT Study independent DMC, that the HEAT Study did not meet the goal of demonstrating a clinically meaningful improvement in progression free survival. In the trial, ThermoDox® was well-tolerated with no unexpected serious adverse events. Following the announcement of the HEAT Study results, we continued to follow patients for OS, the secondary endpoint of the HEAT Study. We have conducted a comprehensive analysis of the data from the HEAT Study to assess the future strategic value and development strategy for ThermoDox®. GEN-1
GEN-1 is a DNA-based immunotherapeutic product candidate for the localized treatment of ovarian cancer by intraperitoneally administering an Interleukin-12 ("IL-12") plasmid formulated with our proprietary TheraPlas delivery system. In this DNA-based approach, the immunotherapy is combined with a standard chemotherapy drug, which can potentially achieve better clinical outcomes than with chemotherapy alone. We believe that increases in IL-12 concentrations at tumours sites for several days after a single administration could create a potent immune environment against tumor activity and that a direct killing of the tumor with concomitant use of cytotoxic chemotherapy could result in a more robust and durable antitumor response than chemotherapy alone. We believe the rationale for local therapy with GEN-1 is based on the following.
? Loco-regional production of the potent cytokine IL-12 avoids toxicities and
poor pharmacokinetics associated with systemic delivery of recombinant IL-12;
? Persistent local delivery of IL-12 lasts up to one week and dosing can be
repeated; and ? Ideal for long-term maintenance therapy.
GEN-I OVATION Study. InFebruary 2015 , we announced that the FDA accepted, without objection, the Phase I dose-escalation clinical trial of GEN-1 in combination with the standard of care in neoadjuvant ovarian cancer (the "OVATION Study"). OnSeptember 30, 2015 , we announced enrollment of the first patient in the OVATION Study. The OVATION Study was designed to (i) identify a safe, tolerable and potentially therapeutically active dose of GEN-1 by recruiting and maximizing an immune response; (ii) to enroll three to six patients per dose level and will evaluate safety and efficacy and (iii) attempt to define an optimal dose for a follow-on Phase I/II study. In addition, the OVATION Study establishes a unique opportunity to assess how cytokine-based compounds such as GEN-1, directly affect ovarian cancer cells and the tumor microenvironment in newly diagnosed patients. The study was designed to characterize the nature of the immune response triggered by GEN-1 at various levels of the patients' immune system, including:
? Infiltration of cancer fighting T-cell lymphocytes into primary tumor and
tumor microenvironment including peritoneal cavity, which is the primary site
of metastasis of ovarian cancer;
? Changes in local and systemic levels of immuno-stimulatory and
immunosuppressive cytokines associated with tumor suppression and growth,
respectively; and ? Expression profile of a comprehensive panel of immune related genes in pre-treatment and GEN-1-treated tumor tissue.
We initiated the OVATION Study at four clinical sites at the
29 Key translational research findings from all evaluable patients are consistent with the earlier reports from partial analysis of the data and are summarized below: ? The intraperitoneal treatment of GEN-1 in conjunction with neoadjuvant chemotherapy resulted in dose dependent increases in IL-12 and
Interferon-gamma (IFN-?) levels that were predominantly in the peritoneal
fluid compartment with little to no changes observed in the patients' systemic
circulation. These and other post-treatment changes including decreases in
VEGF levels in peritoneal fluid are consistent with an IL-12 based immune
mechanism;
? Consistent with the previous partial reports, the effects observed in the IHC
analysis were pronounced decreases in the density of immunosuppressive T-cell
signals (Foxp3, PD-1, PDL-1, IDO-1) and increases in CD8+ cells in the tumor
microenvironment; ? The ratio of CD8+ cells to immunosuppressive cells was increased in approximately 75% of patients suggesting an overall shift in the tumor
microenvironment from immunosuppressive to pro-immune stimulatory following
treatment with GEN-1. An increase in CD8+ to immunosuppressive T-cell
populations is a leading indicator and believed to be a good predictor of
improved overall survival; and
? Analysis of peritoneal fluid by cell sorting, not reported before, shows a
treatment-related decrease in the percentage of immunosuppressive T-cell
(Foxp3+), which is consistent with the reduction of Foxp3+ T-cells in the
primary tumor tissue, and a shift in tumor naïve CD8+ cell population to more
efficient tumor killing memory effector CD8+ cells.
The Company also reported positive clinical data from the first fourteen patients who completed treatment in the OVATION Study. GEN-1 plus standard chemotherapy produced positive clinical results, with no dose limiting toxicities and positive dose dependent efficacy signals which correlate well with positive surgical outcomes as summarized below:
? Of the fourteen patients treated in the entire study, two patients
demonstrated a complete response, ten patients demonstrated a partial response
and two patients demonstrated stable disease, as measured by RECIST criteria.
This translates to a 100% disease control rate and an 86% objective response
rate ("ORR"). Of the five patients treated in the highest dose cohort, there
was a 100% ORR with one complete response and four partial responses;
? Fourteen patients had successful resections of their tumors, with nine
patients (64%) having a complete tumor resection ("R0"), which indicates a
microscopically margin-negative resection in which no gross or microscopic
tumor remains in the tumor bed. Seven out of eight (88%) patients in the
highest two dose cohorts experienced a R0 surgical resection. All five patients treated at the highest dose cohort experienced a R0 surgical resection; and
? All patients experienced a clinically significant decrease in their CA-125
protein levels as of their most recent study visit. CA-125 is used to monitor
certain cancers during and after treatment. CA-125 is present in greater
concentrations in ovarian cancer cells than in other cells.
OnMarch 2, 2019 , the Company announced final PFS results from the OVATION Study. Median PFS in patients treated per protocol (n=14) was 21 months and was 17.1 months for the intent-to-treat population (n=18) for all dose cohorts, including three patients who dropped out of the study after 13 days or less, and two patients who did not receive full NAC and GEN-1 cycles. Under the current standard of care, in women with Stage III/IV ovarian cancer undergoing NAC, the disease progresses within about 12 months on average. The results from the OVATION Study support continued evaluation of GEN-1 based on promising tumor response, as reported in the PFS data, and the ability for surgeons to completely remove visible tumor at debulking surgery. GEN-1 was well tolerated, and no dose-limiting toxicities were detected. Intraperitoneal administration of GEN-1 was feasible with broad patient acceptance. GEN-1 OVATION 2 Study. The Company held an Advisory Board Meeting onSeptember 27, 2017 with the clinical investigators and scientific experts including those fromRoswell Park Cancer Institute ,Vanderbilt University Medical School , andM.D. Anderson Cancer Center to review and finalize clinical, translational research and safety data from the Phase IB OVATION Study in order to determine the next steps forward for our GEN-1 immunotherapy program. OnNovember 13, 2017 , the Company filed its Phase I/II clinical trial protocol with the FDA for GEN-1 for the localized treatment of ovarian cancer. The protocol is designed with a single dose escalation phase to 100 mg/m² to identify a safe and tolerable dose of GEN-1 while maximizing an immune response. The Phase I portion of the study will be followed by a continuation at the selected dose in 130 patients randomized Phase II study. 30 In the OVATION 2 Study, patients in the GEN-1 treatment arm will receive GEN-1 plus chemotherapy pre- and post-interval debulking surgery. The OVATION 2 Study will include up to 130 patients with Stage III/IV ovarian cancer, with 12 to 15 patients in the Phase I portion and up to 118 patients in Phase II. The study is powered to show a 33% improvement in the primary endpoint, PFS, when comparing GEN-1 with neoadjuvant + adjuvant chemotherapy versus neoadjuvant + adjuvant chemotherapy alone. The PFS primary analysis will be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months, whichever is later. OnNovember 5, 2019 , the Company announced that the independent Data Safety Monitoring Board (DSMB) completed its safety review of data from the first eight patients enrolled in the ongoing Phase I/II OVATION 2 Study. Based on theDSMB's recommendation, the study will continue as planned and the Company will proceed with completing enrollment in the Phase I portion of the trial. InMarch 2020 , the Company announced highly encouraging initial clinical data from the first 15 patients enrolled in the ongoing Phase I/II OVATION 2 Study for patients newly diagnosed with Stage III and IV ovarian cancer. The OVATION 2 Study combines GEN-1, the Company's IL-12 gene-mediated immunotherapy, with standard-of-care neoadjuvant chemotherapy (NACT). Following NACT, patients undergo interval debulking surgery (IDS), followed by three additional cycles of chemotherapy.
GEN-1 plus standard NACT produced positive dose-dependent efficacy results, with no dose-limiting toxicities, which correlates well with successful surgical outcomes as summarized below:
? Of the 15 patients treated in the Phase I portion of the OVATION 2 Study, nine
patients were treated with GEN-1 at a dose of 100 mg/m² plus NACT and six
patients were treated with NACT only. All 15 patients had successful
resections of their tumors, with seven out of nine patients (78%) in the GEN-1
treatment arm having an R0 resection, which indicates a microscopically
margin-negative resection in which no gross or microscopic tumor remains in
the tumor bed. Only three out of six patients (50%) in the NACT only treatment
arm had a R0 resection.
? When combining these results with the surgical resection rates observed in the
Company's prior Phase Ib dose-escalation trial (the OVATION 1 Study), a
population of patients with inclusion criteria identical to the OVATION 2
Study, the data reflect the strong dose-dependent efficacy of adding GEN-1 to
the current standard of care NACT: % of Patients with R0 Resections 0, 36, 47 mg/m² of GEN-1 plus NACT n=12 42 % 61, 79, 100 mg/m² of GEN-1 plus NACT n=17 82 %
? The objective response rate (ORR) as measured by Response Evaluation Criteria
in Solid Tumors (RECIST) criteria for the 0, 36, 47 mg/m² dose GEN-1 patients
were comparable, as expected, to the higher (61, 79, 100 mg/m²) dose GEN-1
patients, with both groups demonstrating an approximate 80% ORR.
OnMarch 23, 2020 , the Company announced that theEuropean Medicines Agency (EMA) Committee for Orphan Medicinal Products (COMP) has recommended that GEN-1 be designated as an orphan medicinal product for the treatment of ovarian cancer. GEN-1, designed usingCelsion's proprietary TheraPlas platform technology, is an IL-12 DNA plasmid vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent, local secretion of the IL-12 protein. GEN-1 previously received orphan designation from the FDA and is currently being evaluated in a Phase I/II clinical trial (the OVATION 2 Study) for the treatment of newly diagnosed patients with Stage III and IV ovarian cancer. OnMarch 26, 2020 , the Company announced withMedidata , a Dassault Systèmes company, that examining matched patient data provided byMedidata in a synthetic control arm (SCA) with results from the Company's completed Phase Ib dose-escalating OVATION I Study with GEN-1 in Stage III/IV ovarian cancer patients showed positive results in progression-free survival (PFS). The hazard ratio (HR) was 0.53 in the intent-to-treat (ITT) group, showing strong signals of efficacy. GEN-1, designed usingCelsion's proprietary TheraPlas platform technology, is an IL-12 DNA plasmid vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent, local secretion of the IL-12 protein.Celsion believes these data may warrant consideration of strategies to accelerate the clinical development program for GEN-1 in newly diagnosed, advanced ovarian cancer patients by the FDA. In itsMarch 2019 discussion withCelsion , the FDA noted that preliminary findings from the Phase Ib OVATION I Study were exciting but lacked a control group to evaluate GEN-1's independent impact on impressive tumor response, surgical results and PFS. The FDA encouraged the Company to continue its GEN-1 development program and consult with FDA with new findings that may have a bearing on designations such as Fast Track and Breakthrough Therapy. SCAs have the potential to revolutionize clinical trials in certain oncology indications and some other diseases where a randomized control is not ethical or practical. SCAs are formed by carefully selecting control patients from historical clinical trials to match the demographic and disease characteristics of the patients treated with the new investigational product. SCAs have been shown to mimic the results of traditional randomized controls so that the treatment effects of an investigational product can be visible by comparison to the SCA. SCAs can help advance the scientific validity of single arm trials, and in certain indications, reduce time and cost, and expose fewer patients to placebos or existing standard-of-care treatments that might not be effective for them.
31
OnJuly 27, 2020 , the Company announced the randomization of the first two patients in the Phase II portion of the Phase I/II OVATION 2 Study with GEN-1 in advanced ovarian cancer. The Company anticipates completing enrolment of up to 118 patients in the third quarter of 2021. Because this is an open-label study, the Company intends to provide clinical updates throughout the course of treatment including response rates and surgical resection scores. TheraPlas Technology Platform. TheraPlas is a technology platform for the delivery of DNA and messenger RNA ("mRNA") therapeutics via synthetic non-viral carriers and is capable of providing cell transfection for double-stranded DNA plasmids and large therapeutic RNA segments such as mRNA. There are two components of the TheraPlas system, a plasmid DNA or mRNA payload encoding a therapeutic protein and a delivery system. The delivery system is designed to protect the DNA/RNA from degradation and promote trafficking into cells and through intracellular compartments. We designed the delivery system of TheraPlas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity. We believe TheraPlas is a viable alternative to current approaches to gene delivery due to several distinguishing characteristics, including enhanced molecular versatility that allows for complex modifications to improve activity and safety.Technology Development and Licensing Agreements. Our current efforts and resources are applied on the development and commercialization of cancer drugs including tumor-targeting chemotherapy treatments using focused heat energy in combination with heat-activated drug delivery systems, immunotherapies and RNA-based therapies. OnAugust 8, 2016 , we signed the GEN-1 Agreement with Hisun to pursue an expanded partnership for the technology transfer relating to the clinical and commercial manufacture and supply of GEN-1,Celsion's proprietary gene mediated, IL-12 immunotherapy, for theChina territory, with the option to expand into other countries in the rest of the world after all necessary regulatory approvals are obtained. The GEN-1 Agreement will help to support supply for both ongoing and planned clinical studies in theU.S. and for potential future studies of GEN-1 inChina . GEN-1 is currently being evaluated byCelsion in first line ovarian cancer patients. InJune 2012 ,Celsion and Hisun signed a long-term commercial supply agreement for the production of ThermoDox®. Hisun is one the largest manufacturers of chemotherapy agents globally, including doxorubicin. InJuly 2013 , the ThermoDox® collaboration was expanded to focus on next generation liposomal formulation development with the goal of creating safer, more efficacious versions of marketed cancer chemotherapeutics. During 2015, Hisun successfully completed the manufacture of three registration batches for ThermoDox® and has obtained regulatory approvals to supply ThermoDox® to participating clinical trial sites in all of the countries ofSouth East Asia andNorth America , as well as to theEuropean Union countries allowing for early access to ThermoDox®. The future manufacturing of clinical and commercial supplies by Hisun will result in a cost structure allowingCelsion to profitably access all global markets, including third world countries, and help accelerate the Company's product development program inChina for ThermoDox® in primary liver cancer and other approved indications. 32 Business Plan
As a clinical stage biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in "Part II, Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q. Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company's research and development programs, clinical trials conducted in connection with the Company's product candidates, and applications and submissions to the FDA. The Company has not generated significant revenue and have incurred significant net losses in each year since our inception. As ofJune 30, 2020 , the Company has incurred approximately$301 million of cumulative net losses and we had approximately$25.5 million in cash, investment securities, and interest receivable. We have substantial future capital requirements to continue our research and development activities and advance our product candidates through various development stages. The Company believes these expenditures are essential for the commercialization of its technologies. The Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts, and when it undertakes marketing and sales activities. The Company's ability to achieve profitability is dependent upon its ability to obtain governmental approvals, manufacture, and market and sell its new product candidates. There can be no assurance that the Company will be able to commercialize its technology successfully or that profitability will ever be achieved. The operating results of the Company have fluctuated significantly in the past. COVID-19 Pandemic
InJanuary 2020 , the WHO declared an outbreak of coronavirus, COVID-19, to be a "Public Health Emergency of International Concern," and theU.S. Department of Health and Human Services declared a public health emergency to aid theU.S. healthcare community in responding to COVID-19. This virus has spread to over 100 countries, includingthe United States . Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets. The Company did not observe significant impacts on its business or results of operations for the thus far in 2020 due to the global emergence of COVID-19. While the extent to which COVID-19 impacts the Company's future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company's future financial condition, results of operations and cash flows. The Company's ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic. The disruptions caused by COVID-19 may also disrupt the clinical trials process and enrolment of patients. This may delay commercialization efforts. The Company is currently monitoring its operating activities in light of these events and it is reasonably possible that the virus could have a negative effect on the Company's financial condition and results of operations, the specific impact is not readily determinable as of the date of these financial statements. The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company's control. These factors include the following:
? the progress of research activities;
? the number and scope of research programs;
? the progress of preclinical and clinical development activities;
? the progress of the development efforts of parties with whom the Company has
entered into research and development agreements;
? the costs associated with additional clinical trials of product candidates;
33
? the ability to maintain current research and development licensing arrangements
and to establish new research and development and licensing arrangements;
? the ability to achieve milestones under licensing arrangements;
? the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
? the costs and timing of regulatory approvals.
OnJuly 13, 2020 , the Company announced that it has received a recommendation from the DMC to consider stopping the global Phase III OPTIMA Study of ThermoDox® in combination with RFA for the treatment of HCC, or primary liver cancer. The recommendation was made following the second pre-planned interim safety and efficacy analysis by the DMC onJuly 9, 2020 . The DMC analysis found that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. The Company intends to follow the advice of the DMC and will consider its options either to stop the study or continue to follow patients after a thorough review of the data, and an evaluation of the probability of success. Timing for this decision is made less urgent by the fact that the OPTIMA Study has been fully enrolled sinceAugust 2018 and that the vast majority of the trial expenses have already been incurred. OnAugust 4, 2020 , the Company issued a press release announcing it will continue following patients for overall survival ("OS"), noting that the unexpected and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis onJuly 9, 2020 , may be associated with a data maturity issue. During 2019 and 2018, the Company submitted applications to sell a portion of the Company'sState of New Jersey net operating losses as part of the Technology Business Tax Certificate Program sponsored byThe New Jersey Economic Development Authority . Under the program, emerging biotechnology companies with unused NOLs and unused research and development credits are allowed to sell these benefits to otherNew Jersey -based companies. As more fully discussed in Note 9, the Company received approval from theNew Jersey Economic Development Authority to sell$1.9 million of itsState of New Jersey net operating losses recognizing a tax benefit for the year endedDecember 31, 2019 for the net proceeds (approximately$1.8 million ). In early 2020, the Company entered into an agreement to sell these net operating losses. In April of 2020, the Company completed the sale of itsState of New Jersey net operating losses and received$1.8 million in net proceeds. In 2018, the Company completed the sale of a portion of itsState of New Jersey net operating losses for calendar years 2011 - 2017 totalling approximately$11.1 million for net proceeds of approximately$10.4 million inDecember 2018 . The proceeds of$10.4 million were reflected as a tax benefit for the year endedDecember 31, 2018 . InJune 2020 , the Company filed an application with theNew Jersey Economic Development Authority to sell substantially all of its remainingState of New Jersey net operating losses totalling$2.0 million available under the program. InJune 2018 , the Company entered into the Horizon Credit Agreement with Horizon that provided$10 million in new capital. The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets ofCelsion other than intellectual property assets. Payments under the loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first twenty-four (24) months after throughJuly 2020 , closing, followed by a 24-month amortization period of principal and interest starting onAugust 1, 2020 and ending through the scheduled maturity date.
With$25.5 million in cash, investments, interest receivable and up to$2.0 million in potential proceeds from the sale of the 2019State of New Jersey net operating losses, coupled with remaining availability under the Capital-on-Demand Equity Facility withJonesTrading Institutional Services LLC , the Company believes it has sufficient capital resources to fund its operations through the end of 2021. The Company has based its estimates on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company's shares or debt, the sale of the Company'sState of New Jersey net operating losses and other sources. If the Company raises funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of existing stockholders may be diluted. 34 Financing Overview
Equity, Debt and Other Forms of Financing
As more fully discussed in Note 3 of the Financial Statement included in this Quarterly Report, during the fourth quarter of 2018 and 2020, the Company received eligibility from theNew Jersey Economic Development Authority to sell$11.1 million and$1.9 million , respectively, of its unusedNew Jersey net operating losses under the Technology Business Tax Certificate Program, and after selling these net operating losses, received$10.4 million and$1.8 million of non-dilutive funding in the fourth quarter of 2018 and second quarter of 2020, respectively. InJune 2020 , the Company filed an application with theNew Jersey Economic Development Authority to sell substantially all the remaining$2.0 million of itsState of New Jersey net operating losses available under the program. OnApril 23, 2020 , we entered into the April PPP Loan, pursuant to the CARES Act and administered by the SBA. We thereafter received proceeds of$632,220 under the April PPP Loan. The April PPP Loan application requiredCelsion to certify that there was economic uncertainty surrounding the Company and that, as such, the April PPP Loan was necessary to support our ongoing operations.Celsion made this certification in good faith after analysing, among other things, its financial situation and access to alternative forms of capital, and believed that the Company satisfied all eligibility criteria for the April PPP Loan, and that our receipt of the April PPP Loan proceeds was consistent with the broad objectives of the PPP of the CARES Act. The certification given with respect to the April PPP Loan does not contain any objective criteria and is subject to interpretation. Considering subsequent guidance issued by theU.S. Small Business Administration in consultation with theU.S. Department of the Treasury at that time, out of an abundance of caution we returned the proceeds of the PPP Loan in full onMay 13, 2020 . Shortly after the April PPP Loan was repaid, the SBA provided further guidance with respect to these certifications providing a safe harbor under which companies such asCelsion with PPP loans of less than$2 million will be deemed to have made these certifications in good faith. Therefore, as the Company continued to believe it qualifies for a loan under the PPP, it reapplied for and eventually received the May PPP Loan for$692,530 onMay 26, 2020 . The May PPP Loan is guaranteed by the SBA and evidenced the Note in the principal amount of$692,530 payable to the lender. Pursuant to the terms of the Note, it may be prepaid in part or in full, at any time, without penalty. OnJune 22, 2020 , as disclosed in the Company's Current Report on Form 8-K filed on the same date, the Company commenced an offering of 2,666,667 shares of its common stock which closed onJune 24, 2020 (Note 11) and received net proceeds of approximately$9.1 million . In light of the proceeds received from this equity offering, the Company elected to repay the May PPP Loan in full (including interest accrued of$577 ), onJune 24, 2020 , terminating all obligations of the Company under the Note. InJune 2018 , the Company entered into the Horizon Credit Agreement with Horizon that provided$10 million in new capital. The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets ofCelsion other than intellectual property assets. Payments under the loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first twenty-four (24) months after throughJuly 2020 , closing, followed by a 24-month amortization period of principal and interest starting onAugust 1, 2020 and ending through the scheduled maturity date.
During 2019 and thus far in 2020, we issued a total of 13.8 million shares of common stock in the following equity transactions raising approximately$27.8 million in gross proceeds.
? On
"Underwriting Agreement") with
relating to the issuance and sale (the "Underwritten Offering") of 2.7 shares
of the Company's common stock. Pursuant to the terms of the Underwriting
Agreement, the Underwriter agreed to purchase the shares at a price of
per share. The Underwriter offered the shares at a public offering price of
of the public offering price. The net proceeds to the Company from the
Underwritten Offering, after deducting the underwriting discount and estimated
offering expenses payable by the Company, are approximately
Underwritten Offering closed on
Company's effective shelf registration statement on Form S-3 (File No. 333-
227236) filed with the
and declared effective on
? On
"Purchase Agreement") with several institutional investors, pursuant to which
we agreed to issue and sell, in a registered direct offering (the "February
2020 Offering"), an aggregate of 4.6 million shares (the "Shares") of our
common stock at an offering price of
approximately
offering expenses. The Shares were offered by the Company pursuant to a
registration statement on Form S-3 (File No. 333-227236). The Purchase
Agreement contains customary representations, warranties and agreements by the
Company and customary conditions to closing. In a concurrent private placement
(the "Private Placement"), the Company agreed to issue to the investors that
participated in the Offering, for no additional consideration, warrants, to
purchase up to 3.0 million shares of Common Stock (the "Original Warrants").
The Original Warrants were initially exercisable six months following their and
were set to expire on the five-year anniversary of such initial exercise date.
The Warrants had an exercise price of
provided therein. On
agreements (the "Exchange Agreements") with holders the Warrants. Pursuant to
the Exchange Agreements, in return for a higher exercise price of
share of Common Stock, the Company issued new warrants to the Investors to
purchase up to 3.2 million shares of Common Stock (the "Exchange Warrants") in
exchange for the Original Warrants. The Exchange Warrants, like the Original
Warrants, are initially exercisable six months following their issuance (the
"Initial Exercise Date") and expire on the five-year anniversary of their
Initial Exercise Date. Other than having a higher exercise price, different
issue date, Initial Exercise Date and expiration date, the terms of the Exchange Warrants are identical to those of the Original Warrants. 35
? On
Agreement with
upon the terms and subject to the conditions and limitations set forth
therein,
million of shares of the Company's common stock over the 24-month term of the
2018 Aspire Purchase Agreement. On
the
registering all of the shares of common stock that may be offered to Aspire
Capital from time to time. The timing and amount of sales of the Company's
common stock to
sales by the Company but is obligated to make purchases from the Company as
directed by the Company in accordance with the Purchase Agreement. There were
no limitations on use of proceeds, financial or business covenants,
restrictions on future funding, rights of first refusal, participation rights,
penalties or liquidated damages in the Purchase Agreement. In consideration
for entering into the Purchase Agreement, concurrently with the execution of
the Purchase Agreement in 2018, the Company issued to
Commitment Shares. The 2018 Aspire Purchase Agreement could be terminated by
the Company at any time, at its discretion, without any cost to the Company.
During 2019 the Company sold and issued an aggregate of 3.3 million shares
under the Purchase Agreement, receiving approximately
proceeds from the Company received under the 2018 Aspire Purchase Agreement
were used for working capital and general corporate purposes. As a result of
the Company and
Agreement was terminated. The Company sold a total of 3.4 million shares
receiving
termination in 2019.
? On
with
Purchase Agreement were substantially similar to the 2018 Aspire Purchase
Agreement. Pursuant to the new 2019 Aspire Purchase Agreement,
was committed to purchase up to an aggregate of
Company's common stock over the 24-month term of the 2019 Aspire Purchase
Agreement. Concurrently with entering into the 2019 Aspire Purchase Agreement,
the Company also entered into a registration rights agreement with Aspire
Capital (the "Registration Rights Agreement"), in which the Company agreed to
file one or more registration statements, as permissible and necessary to
register under the Securities Act of 1933, as amended (the "Securities Act"),
registering the sale of the shares of the Company's common stock that have
been and may be issued to
Agreement. In consideration for entering into the 2019 Aspire Purchase
Agreement, the Company issued to
Commitment Shares. On
Registration Statement on Form S-1 registering all the shares of common stock
that may be offered to
Purchase Agreement. During 2019, the Company sold 0.5 million shares of common
stock under the 2019 Aspire Purchase Agreement, receiving approximately
million in gross proceeds. On
termination, the Company sold 1.0 million shares of common stock under the
2019 Aspire Purchase Agreement and received
? On
Agreement (the "Capital on Demand Agreement") with JonesTrading Institutional
may offer and sell, from time to time, through JonesTrading shares of common
stock having an aggregate offering price of up to
intends to use the net proceeds from the offering, if any, for general
corporate purposes, including research and development activities, capital
expenditures and working capital. The Company is not obligated to sell any
Common Stock under the Capital on Demand Agreement and, subject to the terms
and conditions of the Capital on Demand Agreement, JonesTrading will use
commercially reasonable efforts, consistent with its normal trading and sales
practices and applicable state and federal law, rules and regulations and the
rules of The Nasdaq Capital Market, to sell common stock from time to time
based upon
other customary parameters or conditions the Company may impose. Under the
Capital on Demand Agreement, JonesTrading may sell common stock by any method
deemed to be an "at the market offering" as defined in Rule 415 promulgated
under the Securities Act of 1933, as amended. The Capital on Demand Agreement
will terminate upon the earlier of (i) the sale of all shares of our common
stock subject to the Sales Agreement, and (ii) the termination of the Capital
on Demand Agreement by JonesTrading or
Agreement may be terminated by JonesTrading or the Company at any time upon 10
days' notice to the other party, or by JonesTrading at any time in certain
circumstances, including the occurrence of a material adverse change in the
Company. During 2019 and in 2020 thus far, the Company sold 0.5 million and
1.2 million shares of common stock under the Capital on Demand Agreement,
respectively, receiving gross proceeds of approximately
million. 36
Significant Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our 2019 Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onMarch 25, 2020 . InJune 2016 , the FASB issued Accounting Standard Update No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which modifies the measurement of expected credit losses on certain financial instruments. The Company will adopt ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of the Company's investment portfolio and current market conditions, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements. InAugust 2018 , the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. This update is effective for annual periods beginning afterDecember 15, 2019 , and interim periods within those periods, and early adoption is permitted. The adoption of this standard did not have an impact on the Company's financial statements. InDecember 2019 , the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2020 . Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements. As a clinical stage biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in "Item 1A. Risk Factors" under "Part II: Other Information" included herein. 37
FINANCIAL REVIEW FOR THE THREE AND SIX MONTHS ENDEDJUNE 30, 2020 AND 2019
Results of Operations For the three months endedJune 30, 2020 our net loss was$5.1 million compared to a net loss of$2.4 million for the same three-month period of 2019. For the six months endedJune 30, 2020 our net loss was$10.4 million compared to a net loss of$8.3 million for the same three-month period of 2019. With$25.5 million in cash, investments, interest receivable and income tax receivable atJune 30, 2020 , coupled with future sales of the Company'sState of New Jersey net operating losses well as the remaining availability under the Capital on Demand Equity Agreement, the Company believes it has sufficient capital resources to fund its operations through the end of 2021. Three Months EndedJune 30 , (In thousands)
Change Increase (Decrease)
2020 2019 % Licensing Revenue:$ 125 $ 125 $ - - % Operating Expenses: Clinical Research 1,481 2,327 (846 ) (36.4 )% Chemistry, Manufacturing and Controls 1,510 1,231 279 22.7 % Research and development expenses 2,991 3,558 (567 ) (15.9 )% General and administrative expenses 1,901 2,137
(236 ) (11.0 )% Total operating expenses 4,892 5,695 (803 ) (14.1 )% Loss from operations$ (4,767 ) $ (5,570 ) $ 803 14.4 % Six Months Ended June 30, (In thousands) Change Increase (Decrease) 2020 2019 % Licensing Revenue:$ 250 $ 250 $ - - % Operating Expenses: Clinical Research 3,299 4,107 (808 ) (19.7 )%
Chemistry, Manufacturing and Controls 2,744 2,218 526 23.7 % Research and development expenses 6,043 6,325 (282 ) (4.5 )% General and administrative expenses 3,740 4,355
(615 ) (14.1 )% Total operating expenses 9,783 10,680 (897 ) (8.4 )% Loss from operations$ (9,533 ) $ (10,430 ) $ 897 8.6 %
Comparison of the Three Months Ended
Licensing Revenue InJanuary 2013 , we entered a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable technology transfer fee of$5.0 million to support our development of ThermoDox® in theChina territory. The$5.0 million received as a non-refundable payment from Hisun in the second quarter 2013 has been recorded to deferred revenue and will be amortized over the ten-year term of the agreement; therefore, we recorded deferred revenue of$125,000 in each of the second quarters of 2020 and 2019.
Research and Development Expenses
Research and development ("R&D") expenses decreased by$0.6 million to$3.0 million in the second quarter of 2020 from$3.6 million in the same period of 2019. Costs associated with the OPTIMA Study decreased to$0.6 million in the second quarter of 2020 compared to$1.2 million in the same period of 2019. Costs associated the OVATION 2 Study increased to$0.2 million in the second quarter of 2020 compared to$0.1 million in the same period of 2019. Regulatory costs were$0.3 million in the second quarter of 2020 compared to$0.4 million in the same period of 2019. Other clinical costs were consistent at$0.5 million in the second quarter of 2020 compared to$0.6 million in the same period of 2019. Costs associated with the development of GEN-1 to support the OVATION 2 Study were$0.7 million in the second quarter of 2020 compared to$0.8 million in the same period of 2019. Production costs associated with the development of ThermoDox® increased to$0.8 million in the second quarter of 2020 compared to$0.4 million in the same period of 2019. 38
General and Administrative Expenses
General and administrative expenses decreased to
Change in Earn-out Milestone Liability and Warrant Expense
The total aggregate purchase price for the acquisition of assets fromEGEN included potential future earn-out payments contingent upon achievement of certain milestones. The difference between the aggregate$30.4 million in future earn-out payments and the$13.9 million included in the fair value of the acquisition consideration atJune 20, 2014 was based on the Company's risk-adjusted assessment of each milestone and utilizing a discount rate based on the estimated time to achieve the milestone. These milestone payments are fair valued at the end of each quarter and any change in their value is recognized in the condensed consolidated financial statements. OnMarch 28, 2019 , the Company andEGWU, Inc , entered into the Amended Asset Purchase Agreement discussed in Note 8. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of$12.4 million has been modified. The Company has the option to make the payment as follows:
?
?$12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone. The Company providedEGWU, Inc. 200,000 warrants to purchase common stock at a strike price of$0.01 per warrant share as consideration for entering into the amended agreement. These warrant shares have no expiration and were fair valued at$2.00 using the closing price of a share ofCelsion stock on the date of issuance offset by the exercise price and recorded as an expense in the income statement and were classified as equity on the balance sheet. As ofJune 30, 2020 , andMarch 31, 2020 , the Company fair valued the earn-out milestone liability at$6.0 million and$5.8 million , respectively and recognized a non-cash charge of$0.2 million during the second quarter of 2020. In assessing the earnout milestone liability atJune 30, 2020 , the Company fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 80% and 20% probability for the$7.0 million and the$12.4 million payments, respectively. As ofJune 30, 2019 , andMarch 31, 2019 , the Company fair valued the earn-out milestone liability at$5.9 million and$5.8 million , respectively and recognized a non-cash charge of$0.1 million during the second quarter of 2019. In assessing the earnout milestone liability atJune 30, 2019 , the Company the fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 80% and 20% probability for the$7.0 million and the$12.4 million payments, respectively.
Investment income and interest expense
The Company realized
In connection with the Horizon Credit Agreement, the Company incurred
Comparison of the Six Months Ended
Licensing Revenue InJanuary 2013 , we entered a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable technology transfer fee of$5.0 million to support our development of ThermoDox® in theChina territory. The$5.0 million received as a non-refundable payment from Hisun in the second quarter 2013 has been recorded to deferred revenue and will be amortized over the ten-year term of the agreement; therefore, we recorded deferred revenue of$250,000 in each of the first halves of 2020 and 2019. 39
Research and Development Expenses
R&D expenses decreased by$0.3 million to$6.0 million in the first half of 2020 from$6.3 million in the same period of 2019. Costs associated with the OPTIMA Study decreased to$1.3 million in the first half of 2020 compared to$2.1 million in the same period of 2019. Costs associated the OVATION 2 Study increased to$0.5 million in the first half of 2020 compared to$0.2 million in the same six-month period of 2019. Regulatory costs were$0.4 million in the first half of 2020 compared to$0.6 million in the same period of 2019. Other clinical costs were consistent at$1.1 million in the first half of 2020 compared to$1.2 million in the same period of 2019. Costs associated with the development of GEN-1 to support the OVATION 2 Study were$1.6 million in the first half of 2020 compared to$1.5 million in the same period of 2019. Production costs associated with the development of ThermoDox® increased to$1.1 million in the first half of 2020 compared to$0.7 million in the same period of 2019.
General and Administrative Expenses
General and administrative expenses decreased to$3.7 million in the first half of 2020 compared to$4.4 million in the same period of 2019. This decrease is primarily attributable to lower personnel costs and professional fees in the first six months of 2020 when compared to the same period of 2019.
Change in Earn-out Milestone Liability and Warrant Expense
The total aggregate purchase price for the acquisition of assets fromEGEN included potential future earn-out payments contingent upon achievement of certain milestones. The difference between the aggregate$30.4 million in future earn-out payments and the$13.9 million included in the fair value of the acquisition consideration atJune 20, 2014 was based on the Company's risk-adjusted assessment of each milestone and utilizing a discount rate based on the estimated time to achieve the milestone. These milestone payments are fair valued at the end of each quarter and any change in their value is recognized in the condensed consolidated financial statements. OnMarch 28, 2019 , the Company andEGWU, Inc , entered into the Amended Asset Purchase Agreement discussed in Note 8. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of$12.4 million has been modified. The Company has the option to make the payment as follows:
?
?$12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone. The Company providedEGWU, Inc. 200,000 warrants to purchase common stock at a strike price of$0.01 per warrant share as consideration for entering into the amended agreement. These warrant shares have no expiration and were fair valued at$2.00 using the closing price of a share ofCelsion stock on the date of issuance offset by the exercise price and recorded as an expense in the income statement and were classified as equity on the balance sheet. As ofJune 30, 2020 , andDecember 31, 2019 , the Company fair valued the earn-out milestone liability at$6.0 million and$5.7 million , respectively and recognized a non-cash charge of$0.3 million during the first half of 2020. In assessing the earnout milestone liability atJune 30, 2020 , the Company fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 80% and 20% probability for the$7.0 million and the$12.4 million payments, respectively. As ofJune 30, 2019 , andDecember 31, 2018 , the Company fair valued the earn-out milestone liability at$5.9 million and$8.8 million , respectively and recognized a non-cash benefit of$3.0 million during the first half of 2019. In assessing the earnout milestone liability atJune 30, 2019 , the Company the fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 80% and 20% probability for the$7.0 million and the$12.4 million payments, respectively. 40
Investment income and interest expense
The Company realized
In connection with the Horizon Credit Agreement, the Company incurred
Financial Condition, Liquidity and Capital Resources
Since inception we have incurred significant losses and negative cash flows from operations. We have financed our operations primarily through the net proceeds from the sales of equity, credit facilities and amounts received under our product licensing agreement withYakult and our technology development agreement with Hisun. The process of developing and commercializing ThermoDox®, GEN-1 and other product candidates and technologies requires significant research and development work and clinical trial studies, as well as significant manufacturing and process development efforts. We expect these activities, together with our general and administrative expenses to result in significant operating losses for the foreseeable future. Our expenses have significantly and regularly exceeded our revenue, and we had an accumulated deficit of$301 million atJune 30, 2020 . AtJune 30, 2020 we had total current assets of$26.8 million (including cash, cash equivalents and short-term investments and related interest receivable on short-term investments of$25.5 million ) and current liabilities of$9.2 million , resulting in net working capital of$17.6 million . AtDecember 31, 2019 we had total current assets of$16.2 million (including cash, cash equivalents, short-term investment, interest receivable of$14.9 million ) and current liabilities of$7.9 million , resulting in net working capital of$8.3 million . We have substantial future capital requirements to continue our research and development activities and advance our product candidates through various development stages. The Company believes these expenditures are essential for the commercialization of its technologies. Net cash used in operating activities for the first six months of 2020 was$7.9 million . Net cash provided by investing activities was$5.1 million during the first six months of 2020. Net cash provided by financing activities was$18.6 million during the first six months of 2020 from net proceeds received through the sale of our common stock. The Company also received$1.3 million from two PPP Loans in 2020 pursuant to the CARES Act which have been paid back in full as ofJune 30, 2020 . We expect to seek additional capital through further public or private equity offerings, debt financing, additional strategic alliance and licensing arrangements, collaborative arrangements, potential sales of our net operating losses, or some combination of these financing alternatives. If we raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders could be significantly diluted, and the newly issued equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities may have rights, preferences, and privileges senior to those of our common stock. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, we may need to relinquish rights to certain of our existing or future technologies, product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our technologies, product candidates, or products on terms that are not favorable to us. The overall status of the economic climate could also result in the terms of any equity offering, debt financing, or alliance, license, or other arrangement being even less favorable to us and our stockholders than if the overall economic climate were stronger. We also will continue to look for government sponsored research collaborations and grants to help offset future anticipated losses from operations and, to a lesser extent, interest income. If adequate funds are not available through either the capital markets, strategic alliances, collaborators, or sales of our net operating losses, we may be required to delay or, reduce the scope of, or terminate our research, development, clinical programs, manufacturing, or commercialization efforts, or effect additional changes to our facilities or personnel, or obtain funds through other arrangements that may require us to relinquish some of our assets or rights to certain of our existing or future technologies, product candidates, or products on terms not favorable to us.
Off-Balance Sheet Arrangements and Contractual Obligations
None. 41
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