CASI Pharmaceuticals, Inc (DE) - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2014

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 in the market price 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; risks associated with our product candidates; risks associated with any early-stage products under development; the risk that 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 

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, 2014 (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 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. The accompanying December 31, 2013 financial information was derived from our audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2013. Operating results for the three month period ended March 31, 2014 is not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

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 $400.5 million.  The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. 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 2). As a result of this transaction, along with on-going cost containment measures, the Company believes that it 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 capital raising arrangements in China to support the Company’s dual-country approach to drug development.

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 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 transaction registered under the Securities Act of 1933, as amended, 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 Warrants”).  The 2013 Warrants cover a number of shares of common stock equal to 50% of the number of shares purchased by each 2013 Investor.  The 2013 Warrants have an exercise price of $2.91 per share and became 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 per share of common stock (the “Agent’s Warrant”). The Agent’s Warrant became exercisable 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%.

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. In May 2013, the Company’s shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares reserved for issuance from 1,730,000 to 4,230,000 shares of common stock to be available for grants and awards. As of March 31, 2014, there are 3,586,394 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $1.59 to $34.10. 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 one to three years, are not transferable and generally expire ten years from the date of grant. As of March 31, 2014, 1,110,876 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 over the requisite service period, which is generally the option vesting term of up to three years. Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. As of March 31, 2014, no expense has been recorded for share awards with performance conditions.

The Company’s net loss for the three months ended March 31, 2014 and 2013 includes non-cash compensation expense of $372,452 and $218,903, 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. There were no stock options granted to employees during the three-month periods ended March 31, 2014 and March 31, 2013.

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, 2014 is as follows:

Cash received from option exercises under all share-based payment arrangements for the three months ended March 31, 2013 was $7,190. There were no option exercises during the three months ended March 31, 2014.

At December 31, 2013, 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, 2013.

During the three months ended March 31, 2014, 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, 2014; no changes in settled tax years have occurred through March 31, 2014. 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.

In April 2014, the Company entered into an asset purchase agreement to acquire certain laboratory equipment assets in Beijing, China for approximately $108,000.

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 that leverages resources in both North America and in China to develop therapeutics for the treatment of cancer and other diseases. We are currently conducting activities in both China and North America 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 under FDA regulations. In parallel, we will include ENMD-2076 in clinical sites in China as an import drug as well as develop ENMD-2076 in China locally under the CFDA. 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, collaborations, and strategic acquisitions, 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 including ovarian, breast, liver, renal and sarcoma, as well as in leukemia and multiple myeloma. EntreMed is completing a Phase 2 trial of ENMD-2076 in ovarian cancer. In addition, EntreMed is currently conducting a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast cancer, a Phase 2 study in advanced/metastatic soft tissue sarcoma, and a Phase 2 study in advanced ovarian clear cell carcinoma.

Clinical Phase 1 results were published (Clin Cancer Res 2011;17:849-860) and data from the leukemia and myeloma studies were first 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 July 2012, we commenced a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast cancer. The study is being conducted at the University of Colorado Cancer Center, with a second sited added in December 2012 at Indiana University Melvin & Bren Simon Cancer Center.

In November 2012, 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 filed a new drug clinical trial application with the CFDA to conduct global clinical trials in triple-negative breast cancer patients using our proprietary drug candidate, ENMD-2076. The CFDA has accepted our application package and we are working with the CFDA to move the process forward towards approval. The CFDA’s approval of our application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2 triple-negative breast cancer trial currently underway at the University of Colorado and Indiana University.

In January 2013, we commenced a single-center Phase 2 study of Oral ENMD-2076 administered to patients with advanced/metastatic soft tissue sarcoma. The study is being conducted at Princess Margaret Hospital in Toronto, Canada.

In June 2013, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2 clinical trial of ENMD-2076 in advanced/metastatic sarcoma. The CFDA has accepted our application package and we are working with the CFDA to move the process forward towards approval. The CFDA’s approval of our application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2 advanced/metastatic sarcoma trial currently underway at Princess Margaret Hospital.

In July 2013, we initiated a crossover bioavailability and food effect study of ENMD-2076. The study was to be a single-blind, randomized, single-dose, crossover study with a food effect arm to investigate the safety and relative bioavailability of two dosage forms of ENMD-2076 administered as escalating doses in two cohorts of healthy subjects. The study was expected to enroll approximately 29 healthy adult volunteers and be conducted in Tempe, Arizona by a clinical research organization. The pharmacokinetic data from the first cohort (compared the two dosage forms in fasted state), demonstrated ENMD-2076’s relative bioavailability, and EntreMed took the position that continuing the study would be unnecessary. The data was submitted for review by the FDA, and the FDA gave EntreMed permission to stop the study after the first cohort. Cohort 1 involved 14 healthy volunteers that were dosed with the two dosage forms. The final clinical study report was completed in May 2014.

In October 2013, we commenced a multi-center Phase 2 study of Oral ENMD-2076 administered to patients with ovarian clear cell carcinomas. The study is being conducted at Princess Margaret Hospital in Toronto, Canada with participation of up to seven additional cancer centers in Canada and the United States.

In January 2014, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2 clinical trial of ENMD-2076 in advanced ovarian clear cell carcinoma. The CFDA has accepted our application package, and we are working with the CFDA to move the process forward towards approval. The CFDA’s approval of our application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2 ovarian clear cell carcinoma trial currently underway at Princess Margaret Hospital.

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

ENMD-2076 is our only program currently under active clinical evaluation. Our other product candidates in the pipeline include 2-methoxyestradiol (2ME2) for autoimmune diseases, for which we have an approved IND in RA treatment, and MKC-1. We own or have exclusive licenses to these products.

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 development and commercialization in the Chinese market.

Since inception, we have incurred significant losses from operations and have incurred an accumulated deficit of $400.5 million.  We expect to continue to incur operating losses for the foreseeable future due to, among other factors, our continuing clinical activities. 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 Ended March 31, 2014 and March 31, 2013.

Revenues. There were no revenues recorded during the quarters ended March 31, 2014 or March 31, 2013. Based on the previous year and the recent trend, we expect annual sales of Thalomid^® in 2014 to remain at 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 2014 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 $560,000 for the three months ended March 31, 2014 and $506,000 for the corresponding 2013 period. Reflected in our R&D expenses for the three-month period ended March 31, 2014 are direct project costs of $261,000 for ENMD-2076, $90,000 for our new formulation development initiative that we began in late 2013 in China, and $0 for 2ME2. The 2013 research and development expenses for the comparable period included $332,000 for ENMD-2076 and $20,000 for 2ME2. The overall increase in research and development costs in the three-month period ended March 31, 2014, as compared to same period in 2013, primarily reflects the increase of costs associated with our research and development operations in China during 2014.

At March 31, 2014, accumulated direct project expenses for 2ME2 were $58,087,000; and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $23,701,000, and for our new formulation development projects, accumulated project expenses totaled $159,000. Our research and development expenses also include non-cash stock-based compensation totaling $95,000 for the three months ended March 31, 2014 and $64,000 for the corresponding 2013 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 2014 to be devoted to the development of our ENMD-2076 program. We expect our ENMD-2076 expenses in 2014 to increase based on 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:

Global FDA Trial:

Local CFDA Trial:

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 increased to $560,000 in 2014 from $506,000 in 2013.

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 increased to $891,000 in the three-month period ended March 31, 2014 from $630,000 in the corresponding 2013 period. The increase in the 2014 period is related to an increase in professional fees of $141,000 primarily associated with business development and investor relations services, as well as an increase in non-cash stock-based compensation expense of $122,000, compared to the 2013 period.

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 2014 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, 2014, we had cash of $14,199,485 with working capital of $13,724,153.

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, 2014.

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, 2014 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, 2014 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, 2013 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, 2013.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

* 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

* 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.