CASI Pharmaceuticals, Inc (DE) - Quarter Report: 2013 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

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

For the transition period from ___________ to _____________.

Commission file number 0-20713

ENTREMED, INC.

(Exact name of registrant as specified in its charter)

9620 Medical Center Drive, Suite 300

Rockville, Maryland

(Address of principal executive offices)

20850

(Zip code)

(240) 864-2600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x    NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x    NO ¨

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

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨   NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.

ENTREMED, INC.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements also may be included in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. These statements can generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology. These forward-looking statements include, among others, statements regarding the timing of our clinical trials, our cash position and future expenses, and our future revenues.

Our forward-looking statements are based on information available to us today, and we will not update these statements.

Actual results could differ materially from those currently anticipated due to a number of factors, including: the risk that we may be unable to continue as a going concern as a result of our inability to raise sufficient capital for our operational needs; the possibility that we may be delisted from trading on the Nasdaq Capital Market; the volatility of our common stock; the difficulty of executing our business strategy in China; our inability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidate or future candidates; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; declines in actual sales of Thalomid^® resulting in reduced or no royalty payments; risks associated with our product candidates; any early-stage products under development; results in preclinical models are not necessarily indicative of clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials; the lack of success in the clinical development of any of our products; dependence on third parties; and risks relating to the commercialization, if any, of our proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. Additional information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our filings with the U.S. Securities and Exchange Commission (“SEC”), which are available at www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EntreMed, Inc.

Consolidated Balance Sheets

(Unaudited)

See accompanying notes.

EntreMed, Inc.

Consolidated Statements of Operations

(Unaudited)

See accompanying notes.

EntreMed, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes.

ENTREMED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013 (unaudited)

The accompanying consolidated financial statements include the accounts of EntreMed, Inc. and its subsidiaries (“EntreMed” or “the Company”), Miikana Therapeutics, Inc. (“Miikana”) and EntreMed (Beijing) Co., Ltd. (“EntreMed China”). EntreMed China is a non-stock Chinese entity with 100% of its interest owned by EntreMed. EntreMed China received approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has entered into a lease for operating facilities in Beijing. All inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by U. S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. For further information, refer to our audited consolidated financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2012.

Material subsequent events have been considered for disclosure and recognition through the filing date of these consolidated financial statements.

Liquidity Risks and Management’s Plans

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $394.5 million.  The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In February 2012 (the “2012 Financing”), the Company received the proceeds from a $10 million convertible note financing. Upon approval by the Company’s stockholders at the 2012 annual stockholders meeting, the convertible notes automatically converted into common stock on May 1, 2012 (see Note 3). In addition, on March 14, 2013 (the “2013 Financing”), the Company closed on the sale of 4,495,828 shares of common stock and 2,247,912 warrants to certain investors for approximately $10.8 million (see Note 3). As a result of these transactions, along with on-going cost containment measures, the Company has sufficient resources to fund its operations for at least the next twelve months. The Company will continue to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive arrangements in China to support the Company’s dual-country approach to drug development.

On October 31, 2012, EntreMed China obtained the necessary local regulatory approvals to establish a bank account in Beijing. Prior to establishing a bank account, EntreMed China incurred certain startup and initial operating expenses, which were advanced by the Company’s Chief Executive Officer on behalf of EntreMed China, totaling $86,683. During the three month period ended March 31, 2013, the full amount was repaid to the Company’s Chief Executive Officer.

In connection with the 2012 Financing, and upon stockholder approval of the Strategic Financing at the 2012 annual meeting on April 30, 2012, Celgene converted all of its preferred stock to an aggregate of 1,522,727 shares of common stock, pursuant to the terms and conditions of the Series A Preferred Stock. As a result, as of May 1, 2012, there is no Series A Preferred Stock or any class of preferred stock outstanding. In connection with the stockholder approval of the 2012 Financing, Celgene waived all accrued dividends on the Series A Preferred Stock, and Celgene is no longer entitled to any liquidation preference on its shares.

2013 Financing

As described in Note 1 and in connection with the 2013 Financing, on March 1, 2013, the Company entered into a definitive agreement with certain investors (collectively, the “2013 Investors”) for a registered financing in the aggregate amount of approximately $10.8 million.  In connection with the 2013 Financing, the Company entered into a Securities Purchase Agreement with the 2013 Investors pursuant to which the Company agreed to sell in a registered transaction 4,495,828 shares of the Company’s common stock and warrants to purchase up to an aggregate of 2,247,912 shares of common stock (the “2013 Investor Warrants”).  The 2013 Investor Warrants cover a number of shares of common stock equal to 50% of the number of shares purchased by each Investor.  The 2013 Investor Warrants have an exercise price of $2.91 per share and are exercisable on September 4, 2013 and expire on September 4, 2016. The fair value of the 2013 Warrants issued is $3,574,180, calculated using the Black-Scholes-Merton valuation model value of $1.59 with an expected and contractual life of 3.5 years, an assumed volatility of 102.3%, and a risk-free interest rate of 0.40%. The Company completed the closings on the 2013 Financing on March 14, 2013 and received net proceeds of approximately $10.3 million.

In connection with the 2013 Financing, the Company also issued a warrant to its placement agent to purchase up to 61,250 shares of common stock at an exercise price of $3.00 share of common stock (the “Agent’s Warrant”). The Agent’s Warrant is exercisable beginning on September 4, 2013 and will expire on October 9, 2017. The fair value of the Agent’s Warrant issued is $115,150, calculated using the Black-Scholes-Merton valuation model value of $1.88 with an expected and contractual life of 4.6 years, an assumed volatility of 111.9%, and a risk-free interest rate of 0.85%.

2012 Financing

As described in Note 1 and in connection with the 2012 Financing, on January 20, 2012, the Company entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase Agreement”) with certain strategic accredited investors (the “Investors”), pursuant to which the Company issued and sold to the Investors, in a private placement, subordinated mandatorily convertible promissory notes (collectively, the “Notes”) with an aggregate principal amount of $10 million. The Company also issued warrants (the “2012 Warrants”) to the Investors to purchase an aggregate of 1,739,132 shares of the Company's common stock, par value $0.01 per share (“Common Stock”). The 2012 Warrants cover a number of shares of common stock equal to 20% of the principal amount of the Notes purchased by each Investor, divided by $1.15.  The 2012 Warrants have an exercise price of $1.40 per share and shall be exercisable on or after July 29, 2012 and expire five years after the exercisable date. The relative fair value of the 2012 Warrants issued is $2,155,527, calculated using the Black-Scholes-Merton valuation model value of $1.58 with an expected and contractual life of 5.5 years, an assumed volatility of 103%, and a risk-free interest rate of 0.71%. The 2012 Warrants were recorded as additional paid-in-capital and a discount on the Notes of $2,155,527 was fully amortized as non-cash interest expense during the year ended December 31, 2012 as a result of the conversion of the Notes, of which $592,514 had been amortized as non-cash interest expense through March 31, 2012.

The 2012 Financing was completed on February 2, 2012. The Company received net proceeds of approximately $9.3 million. The Company paid one of the investors a fee in the amount of 6% of the aggregate amount invested in the 2012 Financing, for the investor’s due diligence, role in structuring and negotiating the transaction and as reimbursement for the investor’s fees incurred in connection with the 2012 Financing. In connection with the 2012 Financing, the Company incurred a total of $683,955 of debt issuance costs. All debt issuance costs were fully amortized and recorded as interest expense upon conversion of the Notes in the second quarter of 2012. Non-cash interest expense related to the amortization of debt issuance costs, which includes the fee paid to the investor, was $188,007 for the three months ended March 31, 2012.

The Company received approval of the 2012 Financing from the Company's stockholders at the 2012 annual stockholders meeting held on April 30, 2012. On May 1, 2012, the Notes, including accrued interest of $144,658, automatically and immediately converted into 8,821,431 shares of common stock and the 2012 Warrants became exercisable as of July 29, 2012.  The Notes bore an interest rate of 6% and converted at a conversion price of $1.15 per share.  The conversion price reflected the 10-day average closing sale price of the Company’s Common Stock ended on January 20, 2012. Non-cash interest expense related to accrued interest on the Notes was $95,342 for the three months ended March 31, 2012.

The Notes were not convertible, and the Warrants were not exercisable, prior to receiving stockholder approval. The Notes contained a contingent beneficial conversion feature as the conversion price of the shares was less than the share price on the date of the Notes issuance. The beneficial conversion feature was valued at $7,057,153 and was recorded as non-cash interest expense and additional paid-in-capital in the second quarter of 2012, upon removal of the contingency and conversion of the Notes on May 1, 2012.

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants. As of March 31, 2013, there are 1,608,768 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $1.75 to $60.39. In 2012, the Company awarded options to two officers, a portion of which is subject to certain performance conditions and market conditions. Options granted under the plans generally vest over periods varying from immediately to three years, are not transferable and generally expire ten years from the date of grant. As of March 31, 2013, 645,376 shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan.

The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance. Compensation costs are recognized based on a straight-line method over the requisite service period, which is generally the option vesting term of three years. Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. As of March 31, 2013, no expense has been recorded for share awards with performance conditions.

The Company’s net loss for the three months ended March 31, 2013 and 2012 includes compensation expense of $218,903 and $264,222, respectively, related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of stock options granted to employees. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award.

Following are the weighted-average assumptions used in valuing the stock options granted to employees during the three-month period ended March 31, 2012. There were no stock options granted to employees during the three-month period ended March 31, 2013.

* - Authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. During the three-month period ended March 31, 2012, forfeitures were estimated at 5%.

The weighted average fair value of stock options granted during the three-month period ended March 31, 2012 was $1.59.

A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the three months ended March 31, 2013, is as follows:

Cash received from option exercises under all share-based payment arrangements for the three months ended March 31, 2013 and 2012 was $7,190 and $1,999, respectively.

At December 31, 2012, the Company had a $3.0 million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements as of December 31, 2012.

During the three months ended March 31, 2013 there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The tax returns for all years in the Company’s major tax jurisdictions are not settled as of January 1, 2013; no changes in settled tax years have occurred through March 31, 2013. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We are a clinical-stage pharmaceutical company employing a drug development strategy primarily in the United States and China to develop innovative targeted therapeutics designed to treat cancer and other diseases. In 2012, we refocused our clinical and regulatory strategy to leverage resources in China and to conduct clinical and regulatory activities in both China and US/Canada in order to accelerate delivery of clinical data and to reduce costs of clinical trials. Our lead drug candidate is ENMD-2076, a selective Aurora A and angiogenic kinase inhibitor for the treatment of cancer, which we will continue to develop with approval by the FDA including global trials with sites in China, and parallel will develop locally under the SFDA. Our market focus includes developed countries, and also in particular, China, which has a pharmaceutical products market that we believe will continue to grow rapidly. Through partnerships and collaborations, we intend to add additional drug candidates to our pipeline for development using our US and China strategy. We intend to employ a market-oriented approach to identify pharmaceutical candidates that we believe have the potential for gaining widespread market acceptance either globally or in China and for which development can be accelerated under our US and China drug development strategy.

ENMD-2076 is an orally-active, Aurora A/angiogenic kinase inhibitor with a unique kinase selectivity profile and multiple mechanisms of action. ENMD-2076 exerts its effects through multiple mechanisms of action, including anti-proliferative activity and the inhibition of angiogenesis. ENMD-2076 has been shown to inhibit a distinct profile of angiogenic tyrosine kinase targets in addition to the Aurora A kinase. Aurora kinases are key regulators of mitosis (cell division), and are often over-expressed in human cancers. ENMD-2076 also targets the VEGFR, Flt-3, and FGFR3 kinases which have been shown to play important roles in the pathology of several cancers. ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-treated human leukemia patient cells. ENMD-2076 also has shown promising activity in Phase 1 clinical trials in solid tumor cancers, leukemia, and multiple myeloma, and in a Phase 2 trial for ovarian cancer.

Clinical Phase 1 results were published (Clin Cancer Res 2011;17:849-860) and data from the leukemia and myeloma studies were presented during the American Society of Hematology meeting in December 2010. Anti-cancer activity was demonstrated with ENMD-2076 treatment in a variety of solid and hematological cancer patients. Also, as previously reported, at the American Society of Clinical Oncology (ASCO) Annual Meeting in June 2011, Phase 2 data in ovarian cancer patients was presented by the principal investigator conducting the Phase 2 ENMD-2076 study. The data demonstrated ENMD-2076 activity in a population of difficult to treat platinum resistant patients. In October 2011, we announced that the final data for the primary endpoint of progression free survival rate at 6 months was 22 percent.  Phase 2 data in ovarian cancer were also published in the European Journal of Cancer in September 2012 in an article entitled “ENMD-2076, an Oral Inhibitor of Angiogenic and Proliferation Kinases, Has Activity in Recurrent, Platinum Resistant Ovarian Cancer.” We believe that the data, together with the Phase 1 results, provide support for additional clinical studies in ovarian cancer and other forms of cancer. We continue to monitor patients who are receiving ENMD-2076, and are focused on collecting additional data on overall survival and other endpoints.

In November 2012, favorable results of a preclinical study in triple-negative breast cancer (TNBC) of ENMD-2076 were published in the article, entitled “Predictive Biomarkers of Sensitivity to the Aurora and Angiogenic Kinase Inhibitor ENMD-2076 in Preclinical Breast Cancer Models”. Through this study, ENMD-2076 shows activity against preclinical models of breast cancer with more robust activity against TNBC. The study also supports further clinical investigation of ENMD-2076 in patients with metastatic TNBC with an emphasis on the continued development of p53-based predictive biomarkers. It provides strong support for the rational of our ongoing Phase 2 TNBC trial.

In December 2012, to advance our global development strategy, we submitted a new drug clinical trial application with China’s State Food and Drug Administration (SFDA) for our proprietary drug candidate, ENMD-2076, to conduct global clinical trials in triple-negative breast cancer patients. SFDA has accepted of our application package and we are working with the SFDA to move the process forward towards approval. SFDA’s approval of our application would pave the way for us to conduct global clinical trials in China and advance our ongoing Phase 2 triple-negative breast cancer trial currently underway at the University of Colorado and Indiana University.

ENMD-2076 has received orphan drug designation from the FDA for the treatment of ovarian cancer, multiple myeloma and acute myeloid leukemia (“AML”).

ENMD-2076 is our only program currently under active clinical evaluation. Our other product candidates in the pipeline include 2-methoxyestrdiol (2ME2) for autoimmune diseases for which we have an approved IND in rheumatoid arthritis treatment, and MKC-1, programs which we own or have exclusive license to.

We intend to advance clinical development of ENMD-2076 and the implementation of our plans will include leveraging our resources in both the United States and China. In order to capitalize on the drug development and capital resources available in China, the Company is doing business in China through its wholly-owned Chinese subsidiary that will execute the China portion of the Company’s drug development strategy, including conducting clinical trials in China, pursuing local funding opportunities and strategic collaborations, and implementing the Company’s plan for accelerated development and commercialization in the China market.

Since inception, we have incurred significant losses from operations and have incurred an accumulated deficit of $394.5 million.  We expect to continue to incur operating losses for the foreseeable future due to, among other factors, our continuing clinical activities. Based on current plans, due in large part to the $10.8 million proceeds from our 2013 Financing and the $10 million proceeds from our 2012 Financing, we expect our current available cash and cash equivalents to meet our cash requirements for at least the next twelve months. We will continue to exercise tight controls over operating expenditures. In developing drug candidates, we intend to use and leverage resources available to us in both the United States and China. We intend to pursue additional financing opportunities as well as opportunities to raise capital through forms of non- or less- dilutive arrangements, such as partnerships and collaborations with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our product candidate that we intend to pursue to commercialization. However, there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our financial statements requiring significant estimates and judgments, are as follows:

The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes or binomial model is affected by our stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards. Changes in the assumptions can materially affect the fair value estimates.

Any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized.

RESULTS OF OPERATIONS

For the Three Months March 31, 2013 and March 31, 2012.

Revenues. There were no revenues recorded during the quarters ended March 31, 2013 or March 31, 2012. Based on the recent trend, we expect annual sales of Thalomid^® in 2013 to continue to decrease to a level below the threshold amount to trigger a royalty payment to the Company. As a result we do not expect to earn any royalty revenue in 2013 or in any subsequent year. We become entitled to share in the royalty payments received by Royalty Pharma Finance Trust on annual Thalomid^® sales when Royalty Pharma Finance Trust receives more than $15,375,000 in royalties, pursuant to a 2001 agreement with Royalty Pharma. Thalomid^® is distributed and sold by Celgene Corporation and/or its affiliates, and thus, we have no control over sales of Thalomid^® or the amount, if any, of royalty payments we will receive.

Research and Development Expenses. Our research and development expenses totaled $506,000 for the three months ended March 31, 2013 and $561,000 for the corresponding 2012 period. Reflected in our R&D expenses for the three-month period ended March 31, 2013 are direct project costs of $332,000 for ENMD-2076, $20,000 for 2ME2, $0 for ENMD-1198, and $0 for MKC-1. The 2012 research and development expenses for the comparable period included $261,000 for ENMD-2076, $49,000 direct project costs for 2ME2, $8,000 for ENMD-1198 and $800 for MKC-1. The overall decrease in research and development costs in the three-month period ended March 31, 2013, as compared to same period in 2012, reflects an absence of severance related costs in the 2013 period, offset by increased costs associated with the clinical development of ENMD -2076 in the U.S. and China during 2013.

At March 31, 2013, accumulated direct project expenses for 2ME2 were $58,043,000; direct ENMD-1198 project expenses totaled $13,259,000; and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $22,320,000 and for MKC-1, accumulated project expenses totaled $10,194,000. Our research and development expenses also include non-cash stock-based compensation totaling $64,000 for the three months ended March 31, 2013 and $14,000 for the corresponding 2012 period. The balance of our research and development expenditures includes facility costs and other departmental overhead, and expenditures related to the non-clinical support of our programs.

We expect the majority of our research and development expenses in 2013 to be devoted to the development of our ENMD-2076 program. We expect our ENMD-2076 expenses in 2013 to increase based on the availability of additional financial resources from our 2013 Financing and our clinical development plan. We will continue to conduct research on ENMD-2076 in order to comply with stipulations made by the FDA, as well as to increase understanding of the mechanism of action and toxicity parameters of ENMD-2076 and its metabolites.  Completion of clinical development may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

We test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain indications in order to focus our resources on more promising indications.

Our proprietary product candidates have also not yet achieved regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, regulatory agencies must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

Our business strategy includes being opportunistic with 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 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 capital requirements.

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. 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. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. There can be no assurance that we will be able to successfully access external sources of financing in the future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Overall research and development expenses decreased to $506,000 in 2013 from $561,000 in 2012.

The fluctuations in research and development expenses were specifically impacted by the following:

General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services and facilities.

General and administrative expenses decreased to $630,000 in the three-month period ended March 31, 2013 from $1,097,000 in the corresponding 2012 period. The decrease in the 2013 period is primarily related to the reduction in personnel costs of $138,000, a decrease in stock-based compensation expense of $95,000, and a reduction in Board of Directors fees of $58,000, as well as lower professional fees compared to the 2012 period, in addition to the continuation of cost savings initiatives during 2013.

Interest Expense. Interest expense for the three month period ended March 31, 2012 was approximately $876,000. All of the interest expense was non-cash interest (including $188,000 related to amortization of deferred financing costs, $593,000 related to amortization of debt discount and $95,000 related to accrued interest on our Notes payable which was converted to shares of common stock on May 1, 2012). There was no interest expense for the three months ended March 31, 2013.

Dividends on Series A Convertible Preferred Stock. The Consolidated Statement of Operations for the three months ended March 31, 2012 reflects accrued, but unpaid, dividends of $251,250 relating to Series A Convertible Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. Celgene, the holder of Series A Preferred Stock accumulated dividends at a rate of 6% and participated in dividends declared and paid on the common stock, if any. In connection with the stockholder approval of the 2012 Financing on April 30, 2012, Celgene waived all accrued dividends on the Series A Preferred Stock, and is no longer entitled to any liquidation preference on its shares. There are no outstanding shares of Series A Convertible Preferred Stock and the Series A class of preferred stock has been eliminated.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have been engaged primarily in research and development activities. As a result, we have incurred and expect to continue to incur operating losses in 2013 and the foreseeable future before we commercialize any products. Based on our current plans, we expect our current available cash and cash equivalents to meet our cash requirements for at least the next twelve months.

We will require significant additional funding to fund operations until such time, if ever, we become profitable. We intend to augment our cash balances by pursuing other forms of capital infusion, including strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our potential product candidates that we intend to pursue to commercialization. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, to raise further financing, we may need to relinquish rights to certain of our existing product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our product candidates on terms that are not favorable to us.

We will continue to seek to raise additional capital to fund our research and development and advance the clinical development of ENMD-2076 and new product candidates, if any. We intend to explore one or more of the following alternatives to raise additional capital:

We also will continue to manage our cash resources prudently and cost-effectively.

There can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all. If additional funds are raised by issuing equity securities, dilution to existing shareholders may result, or the equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we fail to obtain additional capital when needed, we may be required to delay or scale back our Phase 2 plans for ENMD-2076 or plans for other product candidates, if any.

At March 31, 2013, we had cash of $18,270,729, with working capital of $17,614,331.

INFLATION AND INTEREST RATE CHANGES

Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.

The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents. Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact on the total fair market value of our portfolio as of March 31, 2013.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of March 31, 2013 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 1.   LEGAL PROCEEDINGS

We are subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. Management does not believe such legal proceedings, except as otherwise disclosed herein, are material.

ITEM 1A.   RISK FACTORS

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of EntreMed’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and the information under “Special Note Regarding Forward-Looking Statements” included in this report. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.   REMOVED AND RESERVED

ITEM 5.   OTHER INFORMATION

Not applicable.

ITEM 6.  EXHIBITS

* Management compensatory plan or agreement

** This exhibit is furnished and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

* Management compensatory plan or agreement

** This exhibit is furnished and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.