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CLSN > SEC Filings for CLSN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

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Form 10-Q for CELSION CORP


9-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

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 our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2011, which factors include, without limitation, unforeseen changes in the course of research and development activities and in clinical trials; possible changes in cost and timing of development and testing, capital structure, and other financial items; changes in approaches to medical treatment; introduction of new products by others; possible acquisitions of other technologies, assets or businesses; and possible actions by customers, suppliers, 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/A, as well as in other filings with the SEC, is not necessarily 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 Corporation is an innovative oncology drug development company focused on the development of treatments for those suffering with difficult to treat forms of cancer. We are working to develop and commercialize more efficient and effective, targeted chemotherapeutic oncology drugs based on our proprietary heat-activated liposomal technology. The promise of this drug technology is to maximize efficacy while minimizing side effects common to cancer treatments.

Our lead product ThermoDox® is being evaluated in a Phase III clinical trial for primary liver cancer (the HEAT study), Phase II clinical trial for colorectal liver metastasis (CRLM) and a Phase II clinical trial for recurrent chest wall breast cancer. The Company expects to report top line data from the HEAT Study in January 2013. 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 mild hyperthermia temperatures (greater than 39.5 degrees Celsius) releases the encapsulated doxorubicin from the liposome enabling high concentrations of doxorubicin to be deposited preferentially in and around the targeted tumor.

The U.S. Food and Drug Administration (FDA) has granted our Phase III HEAT study for ThermoDox®, in combination with radiofrequency ablation, a Special Protocol Assessment and has designated it as a Fast Track Development Program. We have received written guidance from the FDA stating that, assuming the results of our ongoing studies are adequate, we may submit our New Drug Application (NDA) for ThermoDox® pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act. A 505(b) (2) NDA provides that some of the information from the reports required for marketing approval may come from studies that the applicant does not own or for which the applicant does not have a legal right of reference and permits a manufacturer to obtain marketing approval for a drug without needing to conduct or obtain a right of reference for all of the required studies. The availability of Section 505(b) (2) and the designation of ThermoDox® as a Fast Track Development Program may provide us with an expedited pathway to approval. There can be no assurance, however, that the results of our ongoing studies will be adequate to obtain approval of ThermoDox® under Section
505(b)(2). Drug research and development is an inherently uncertain process and there is a high risk of failure at every stage prior to approval and the timing and the outcome of clinical results is extremely difficult to predict. Clinical development successes and failures can have a disproportionate positive or negative impact on our scientific and medical prospects, financial prospects, financial condition, and market value. In December 2011, the European Medicines Agency (EMA) provided written, scientific advice confirming that the HEAT study is acceptable as a basis for submission of a marketing authorization application (MAA). Based on feedback and guidance received from the EMA, we expect that future results demonstrating a convincing magnitude of improvement in progression-free survival, the study's primary endpoint, along with a favorable benefit-risk ratio in the HEAT study, would be sufficient as the primary basis for registration of ThermoDox® in Europe. The EMA also supported our manufacturing strategy and technology transfer protocols, which will allow us to establish multiple manufacturing sites to support commercialization of ThermoDox® outside the United States.


In March of 2011, we announced that the European Commission granted orphan drug designation for ThermoDox® in primary liver cancer, which provides assistance and incentives, including ten years of marketing exclusivity subsequent to product approval, in support of product candidates intended for the treatment of a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union. ThermoDox® also holds orphan drug designation in the U.S.

We have also demonstrated the feasibility for a product pipeline of cancer drugs that employ our heat activated liposomal technology in combination with known chemotherapeutics, including docetaxel and carboplatin. We believe that our technology can improve efficacy and safety of anticancer agents whose mechanism of action and safety profile are well understood by the medical and regulatory communities. Our approach provides a comparatively cost effective, low risk approval pathway. An element of our business strategy is to pursue, as resources permit, the research and development of a range of product candidates for a variety of indications. This is intended to allow us to diversify the risks associated with our research and development expenditures. To the extent we are unable to maintain a broad range of product candidates, our dependence on the success of one or a few product candidates would increase.

Additionally, in 2009, we formed a joint research agreement with Philips Healthcare, a division of Royal Philips Electronics, to evaluate the combination of Philips' high intensity focused ultrasound (HIFU) with ThermoDox® to determine the potential of this combination to treat a broad range of cancers. Philips & Celsion are currently negotiating a new agreement reflecting our progress to clinical development status. In August 2012, we announced FDA Clearance to commence a Phase II Study of ThermoDox® and Philip's Sonalleve® MR-Guided HIFU technology for the palliation of painful metastases to the bone caused by prostate cancer. In June 2012, we announced a collaboration with the University of Oxford, in the UK, to begin a clinical study of ThermoDox plus HIFU in the treatment of metastatic liver cancer. The trial, which is supported by the National Institute for Health Research Oxford Biomedical Research Centre, will be carried out as a multi-disciplinary collaboration between Celsion, the Oxford University Institute of Biomedical Engineering, and the Oxford University Hospitals NHS Trust. This early phase clinical study is being finalized and will require approval from a local Ethics Committee. Treatment of the first patient is targeted for the first half of 2013. In addition, we are working with the Focused Ultrasound Foundation in preclinical studies designed to explore the use of ThermoDox in combination with MR-guided HIFU for the treatment of pancreatic cancer. The studies are being conducted at the University of Washington (UW) School of Medicine. The UW research is expected to include animal models to confirm the ability of HIFU to target high concentrations of doxorubicin in proprietary pancreatic cancer cell lines, and in vivo studies to assess the response to these tumors treated using ThermoDox with and without HIFU-induced hyperthermia. We believe that these collaborations are just the beginning for combining important device technologies such as HIFU with our low heat activated liposomal technology. For certain markets, we may seek licensing partners to share in the development and commercialization costs. We will also evaluate licensing cancer products from third parties for cancer treatments to expand our product pipeline.

On May 30, 2012, we announced that we had reached our enrollment objective of 700 patients in the HEAT Study. On November 9, 2012, we announced 380 progression free survival (PFS) events have been realized in the HEAT Study. According to the study's protocol, 380 events of progression trigger the data collection process, unblinding and final analysis of the results by the study's independent Data Monitoring Committee (DMC). PFS is the HEAT Study's primary end point which has been granted Special Protocol Assessment by the FDA. Following review by the DMC, the Company plans to disclose top line results from the pivotal Phase III HEAT Study in January of 2013.

On November 28, 2011, we announced that the independent Date Monitoring Committee (DMC) for the HEAT study completed a pre-planned interim analysis for safety, efficacy and futility and unanimously recommended that the study continue to its final analysis as planned. The DMC evaluated data from 613 patients in its review, which was conducted following realization of 219 PFS events within the study population.

Consistent with our global regulatory strategy, we announced on April 23, 2012, that randomization of at least 200 patients in the People's Republic of China (PRC), a requirement for registrational filing in the PRC, had been completed. The HEAT study had already enrolled a sufficient number to support registrational filings in South Korea and Taiwan, two important markets for ThermoDox®.


In January 2012, we announced the enrollment of our first patient in the randomized Phase II study of ThermoDox® in combination with radiofrequency ablation for the treatment of colorectal liver metastases (the ABLATE Study). The ABLATE Study is expected to enroll up to 88 patients with colorectal cancer metastasized to the liver. Patients will be randomized to receive either RFA plus ThermoDox® or RFA alone for the treatment of their liver tumors. The primary study endpoint is based on one year local tumor recurrence, with secondary endpoints of time to progression and overall survival.

On May 6, 2012, we entered into a long term commercial supply agreement with Zhejiang Hisun Pharmaceutical Co. Ltd. (Hisun) for the production of ThermoDox® in the mainland China, Hong Kong and Macau (the China territory). Per the terms of the agreement, Hisun will be responsible for providing all of the technical and regulatory support services, including the costs of all technical transfer, registrational and bioequivalence studies, technical transfer costs, Celsion consultative support costs and the purchase of any necessary equipment and additional facility costs necessary to support capacity requirements for the manufacture of ThermoDox®. We will repay Hisun for the aggregate amount of these development costs and fees commencing on the successful completion of three registrational batches of ThermoDox®. The batches are expected to be successfully delivered in mid 2013, and repayment of the development costs will occur at any time on or prior to the fourth year anniversary of the signing of the agreement, which in total is expected to be approximately $2.0 million. Hisun is also obligated to certain performance requirements under the agreement. The agreement will initially be limited to a percentage of the production requirements of ThermoDox® in the China territory with Hisun retaining an option for additional global supply after local regulatory approval in the China territory. In addition, Hisun will collaborate with us in relation to the regulatory approval activities for ThermoDox® with the China State Food and Drug Administration (SFDA).

On June 27, 2012, we entered into a Loan and Security Agreement (the Credit Agreement) with Oxford Finance LLC (Oxford) and Horizon Technology Finance Corporation (Horizon). The Credit Agreement provides for a secured term loan of up to $10 million, with 50% of any loans to be funded by Oxford and 50% to be funded by Horizon. The aggregate loan amount may be advanced in two tranches of $5 million each. The first tranche (the Term A Loan) was made available to us on June 27, 2012 and the second tranche (the Term B Loan) may be made available, if at all, during the period beginning on the date that we achieve positive data in our hepatocellular carcinoma Phase III clinical trial of RFA and ThermoDox® and ending on March 31, 2013. The Term A Loan is scheduled to mature on October 15, 2015 (or, if the Term B Loan is made available, January 1, 2016) and the Term B Loan is scheduled to mature on January 1, 2016. As a fee in connection with the Credit Agreement, we issued warrants to Horizon and Oxford (the Warrants) to purchase the number of shares of Celsion's common stock equal to 3% of each loan amount divided by the exercise price, which is calculated as the average NASDAQ closing price of our common stock for the three days prior to the funding of the loan amount ($2.92 per share for the Term A Loan). This results in 51,370 warrant shares issuable in connection with the Term A Loan and additional warrant shares issuable in connection with the Term B Loan, if that is made available. The Warrants are immediately exercisable for cash or by net exercise and will expire seven years after their issuance, which is June 27, 2019 for the Warrants issued connection with the Term A Loan.

Our current business strategy includes the possibility of entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates. In the event that third parties take over the clinical trial process for one or more of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our development plan or capital requirements. We may also apply for subsidies, grants, or government or agency-sponsored studies that could reduce our development costs.

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements when appropriate could significantly increase our capital requirements and could adversely impact our liquidity. While our estimated future capital requirements are uncertain and could increase or decrease as a result of many factors, including the extent to which we choose to advance our research, development and clinical trials, or if we are in a position to pursue manufacturing or commercialization activities, it is clear we will need significant additional capital to develop our product candidates through clinical development, manufacturing, and commercialization. We do not know whether we will be able to access additional capital when needed or on terms favorable to us or our stockholders. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.


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.

FINANCIAL REVIEW FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Results of Operations

For the three months ended September 30, 2012, our net loss was $6.0 million, or $0.18 per basic and diluted share, compared to $6.4 million, or $0.25 per basic and diluted share, for the same period of 2011. For the nine months ended September 30, 2012, our net loss was $18.3 million, or $0.55 per basic and diluted share, compared to $17.1 million, or $0.93 per basic and diluted share, for the same period of 2011. As of September 30, 2012, we had $22.7 million in cash and short-term investments (including accrued interest from short term investments).

                                                          Three Months Ended September 30,
                                            ($ amounts in 000's)              Change Increase (Decrease)
                                            2012             2011               $                     %

Operating Expenses:
Clinical Research                       $      2,813      $     4,195     $      (1,382)              (32.9) %
Chemistry, Manufacturing and Controls            727            1,219              (492)              (40.4) %
Research and development                       3,540            5,414            (1,874)              (34.6) %
General and administrative                     1,420            1,409                 11                 0.1 %
Total operating expenses                $      4,960      $     6,823     $      (1,863)              (27.3) %

Loss from operations                    $     (4,960 )    $    (6,823 )   $      (1,863)              (27.3) %




                                                          Nine Months Ended September 30,
                                            ($ amounts in 000's)             Change Increase (Decrease)
                                            2012            2011               $                     %

Licensing Revenue:                      $          -     $     2,000     $       (2,000 )              (100 )%

Operating Expenses:
Clinical Research                       $      9,162     $    11,759     $      (2,597)              (22.1) %
Chemistry, Manufacturing and Controls          3,183           2,968                215                 7.2 %
Research and development                      12,345          14,727            (2,382)              (16.2) %
General and administrative                     4,586           3,906                680                17.4 %
Total operating expenses                $     16,931     $    18,633     $      (1,702)               (9.1) %

Loss from operations                    $    (16,931 )   $   (16,633 )   $         (298 )              (1.8 )%


Comparison of the three months ended September 30, 2012 and 2011

Research and Development Expenses

Research and development (R&D) expenses decreased by $1.9 million from $5.4 million in the third quarter of 2011 to $3.5 million in the same period of 2012. Costs associated with the HEAT Study decreased to $1.6 million in the third quarter of 2012 compared to $3.1 million in the same period of 2011 primarily due to reaching the enrollment targets for this pivotal study in the second quarter of 2012. Costs associated with our recurrent chest wall breast cancer clinical trial remained relatively unchanged at $0.1 million in the third quarter of 2012 compared to the same period of 2011. Costs associated with our colorectal liver metastases trial were insignificant in the third quarter of 2012 compared to $0.2 million in the same period of 2011. Other costs associated with the clinical department remained relatively unchanged at $0.4 million in the third quarter of 2012 compared to the same period of 2011. Preclinical costs remained relatively unchanged at $0.2 million in the third quarter of 2012 compared to the same period of 2011. Costs associated with regulatory activities increased to $0.4 million in the third quarter of 2012 compared to $0.1 million the same period of 2011 as the Company is preparing for submission of its New Drug Application (NDA). Costs associated with the production of ThermoDox® decreased to $0.7 million in the third quarter of 2012 compared to $1.2 million in the same period of 2011 primarily due to the timing of the production of registration batches and ongoing progress towards developing our commercial manufacturing capabilities for ThermoDox®.

General and Administrative Expenses

General and administrative (G&A) expenses were relatively unchanged at $1.4 million in the third quarter of 2012 compared the same period of 2011. We continue to carefully monitor operating costs and focus our financial resources on patient follow-up in the HEAT Study.

Other Expense and Income and Interest Expense

A warrant liability was incurred as a result of warrants we issued in a public offering in September 2009. This liability is calculated at its fair market value using the Black-Scholes option-pricing model and is adjusted at the end of each quarter. For the third quarter of 2012, we recorded a non cash loss of $881,000 based on the change in the fair value of the warrants from the end of the prior quarter compared to recording a non cash gain of $375,000 in the same period of 2011.

In connection with the Credit Facility entered into during the second quarter of 2012, the Company incurred $0.2 million in interest expense in the third quarter of 2012.

Comparison of the nine months ended September 30, 2012 and 2011

Licensing Revenue

In the first nine months of 2011, we recognized $2.0 million in licensing revenue in relation to the amendment of our development, product supply and commercialization agreement for ThermoDox® with Yakult Honsha Co. Concurrent with a convertible preferred stock equity financing in January 2011, we amended the Yakult Agreement to provide for up to $4.0 million in accelerated partial payments to us on a drug approval milestone. The terms of the Yakult Agreement provided for the payment to us of $2.0 million upon the closing of the preferred equity financing. The second $2.0 million was conditioned upon the resumption of enrollment of Japanese patients in the Japan cohort of the HEAT study, which has not been resumed. In consideration of the $2.0 million accelerated milestone payment from Yakult, we have agreed to reduce future drug approval milestone payments by approximately twenty percent (20%). All other milestone payments are unaffected. We had no licensing revenue in the first nine months of 2012.

Research and Development Expenses

Research and development (R&D) expenses decreased by $2.4 million from $14.7 million in the first nine months of 2011 to $12.3 million in the same period of 2012. Costs associated with the HEAT Study decreased to $6.0 million in the first nine months of 2012 compared to $9.2 million in the same period of 2011 primarily due to reaching enrollment targets for this pivotal study in the second quarter of 2012. Costs associated with our recurrent chest wall breast cancer clinical trial remained relatively unchanged at $0.3 million in the first nine months of 2012 compared to the same period of 2011. Costs associated with our colorectal liver metastases trial remained relatively unchanged at $0.2 million in the first nine months of 2012 compared to the same period of 2011. Preclinical costs increased to $0.7 million in the first nine months of 2012 compared to $0.5 million in the same period of 2011. Costs associated with regulatory activities increased to $0.7 million in the first nine months of 2012 compared to $0.3 million the same period of 2011 as the Company is preparing for submission of its New Drug Application (NDA). Costs associated with the production of ThermoDox® increased to $3.2 million in the first nine months of 2012 compared to $3.0 million in the same period of 2011 primarily due to the production of registration batches and ongoing progress towards developing our commercial manufacturing capabilities for ThermoDox®.


General and Administrative Expenses

General and administrative (G&A) expenses increased to $4.6 million in the first nine months of 2012 compared to $3.9 million in the same period of 2011. This increase is largely the result of an increase in professional fees related to product pre-commercialization market analysis, business development activities, and personnel costs in the first nine months of 2012 compared to the same period of 2011. We continue to carefully monitor operating costs and focus our financial resources on patient follow-up in the Phase III HEAT Study.

Other Expense and Income

A warrant liability was incurred as a result of warrants we issued in a public offering in September 2009. This liability is calculated at its fair market value using the Black-Scholes option-pricing model and is adjusted at the end of each quarter. For the first nine months of 2012, we recorded a non cash loss of $1.3 million based on the change in the fair value of the warrants from the end of the prior quarter compared to recording a non cash loss of $42,000 in the same period of 2011.

We incurred $0.2 million in interest expense in the first nine months of 2012, in connection with the credit facility we entered into during the second quarter of 2012. In connection with the shares of preferred stock we issued in a January 2011 preferred stock offering, we incurred dividend expense of approximately $0.5 million in the first nine months of 2011. All of the outstanding shares of preferred stock mandatorily converted into common stock in August 2011. We did not incur any dividend expense in the first nine months of 2012.

Financial Condition, Liquidity and Capital Resources

Since inception, excluding the net aggregate payments received from Boston Scientific of $43 million through the divestiture of our medical device business in 2007 (which we received in installments of $13 million in 2007 and $15 million in each of 2008 and 2009), we have incurred significant losses and negative cash flows from operations. We have financed our operations primarily through the net proceeds we received in this divesture, subsequent sales of equity, credit facilities and amounts received under our product licensing agreement with Yakult. The process of developing and commercializing ThermoDox® requires significant research and development work and clinical trial studies, . . .

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