CASI Pharmaceuticals, Inc (DE) - Quarter Report: 2016 September (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 September 30, 2016

¨       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

CASI PHARMACEUTICALS, 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)

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

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

YES   x     NO     ¨

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

YES    x    NO    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

CASI PHARMACEUTICALS, 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 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; risks relating to interests of our largest stockholders that differ from our other stockholders; the risk of substantial dilution of existing stockholders in future stock issuances, including as a result of the closing of the private placement offering; 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 candidates 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

CASI Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying condensed notes.

CASI PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016 (unaudited)

The accompanying condensed consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc. and its subsidiaries (“CASI” or “the Company”), Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”). The Company previously operated under a different name prior to restructuring its business in 2012 in connection with an investment led by one of the Company’s largest stockholders. CASI China is a non-stock Chinese entity with 100% of its interest owned by CASI. CASI 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 condensed 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 condensed 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 adjustments) considered necessary for a fair presentation have been included. The accompanying December 31, 2015 financial information was derived from the Company’s audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the three and nine month periods ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in its Form 10-K for the year ended December 31, 2015.

Liquidity Risks and Management’s Plans

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $439.3 million.   The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy. The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In September 2015, the Company entered into stock purchase agreements for a $25.1 million strategic financing, the closing of which was subject to certain regulatory and customary conditions. In January 2016, the Company completed the first closing and received approximately $10.3 million (“First Closing”). In June 2016, the Company completed the second closing and received approximately $6.0 million (“Second Closing”). In July 2016, the Company completed the third closing and received $1.0 million (“Third Closing”). In October 2016, the Company completed the final closing and received $7.8 million (“Final Closing”), together these closings are referred to as the Closings (see Note 5). The Final Closing included an investment from ETP Precision Medicine, LLC, a healthcare investment fund of which the Company’s Chairman serves as managing member. On October 24, 2016, the Company entered into and closed on a stock purchase agreement in a private placement with an accredited investor and received $3.0 million (“October Offering”) (see Note 5). Net proceeds of the Closings and the October Offering will be used to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and commercial planning activities. As a result of the Closings and the October Offering, the Company believes that it has sufficient resources to fund its operations for at least the twelve months subsequent to September 30, 2016. As of September 30, 2016, approximately $6.2 million of the Company’s cash balance was held by CASI China. The Company intends to 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.

In September 2014, the Company acquired certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together referred to as “Spectrum”) to develop and commercialize the following commercial oncology drugs and drug candidates in the greater China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):

CASI is responsible for developing and commercializing these three drugs in the Territories, including the submission of import drug registration applications and conducting confirmatory clinical trials as needed.

The Company is in various stages of the regulatory and development process to obtain marketing approval for MARQIBO^®, ZEVALIN^® and EVOMELA^® in its territorial region, with ZEVALIN^® commercially available in Hong Kong. In January 2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration application for MARQIBO^® and currently is in the quality testing phase of the regulatory review. On March 10, 2016, Spectrum received notification from the U.S. Food and Drug Administration (FDA) of the grant of approval of its New Drug Application (NDA) for EVOMELA^® primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma. The Company is working with its partner to finalize the CFDA submission for EVOMELA^® and expects to file by the end of 2016.

As consideration for the acquisition from Spectrum, the Company issued a total 5,405,382 shares of its common stock, a $1.5 million 0.5% secured promissory note originally due in March 2016, and certain contingent rights (“Contingent Rights”) to purchase additional shares of its common stock, which Contingent Rights expire upon the occurrence of certain events. The note was subsequently amended to extend the due date to March 2017 (see Note 3). The Company accounted for the acquisition of the product rights and licenses as an asset acquisition and, accordingly, recorded the acquired product rights and licenses at their estimated fair values based on the fair value of the consideration exchanged (including transaction costs) of approximately $19.7 million. Because the products underlying the acquired product rights and licenses have not reached technological feasibility and have no alternative uses, they are considered “in-process research and development” costs; as such, the Company expensed the total purchase price at the acquisition date as acquired in-process research and development in the consolidated statement of operations for the year ended December 31, 2014.

The fair value of the common stock issued was based on the closing market price of the Company’s common stock on the acquisition date. The fair value of the promissory note was measured using Level 3 unobservable inputs (see Note 4) including primarily the Company’s estimated incremental borrowing rate as provided by a commercial lending institution.

The Contingent Rights provide Spectrum with the option to acquire, at a strike price of par value, a variable number of additional shares of common stock that allows Spectrum to maintain its fully-diluted ownership percentage for a certain time period and under certain terms and conditions. These Contingent Rights will expire on the earlier of raising an aggregate of $50 million or September 17, 2019 (subject to possible extension only for certain outstanding derivative securities). Based on the terms and conditions of the Contingent Rights, the Company has determined that the Contingent Rights are a derivative financial instrument that is not indexed to its common stock and therefore is required to be accounted for at fair value, initially and on a recurring basis. The fair value of the Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates of the Company’s future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs. The total estimated fair value of the Contingent Rights was $6,167,142 and $9,395,222 as of September 30, 2016 and December 31, 2015, respectively; the change in fair value (see Note 4) is reflected as change in fair value of contingent rights in the accompanying condensed consolidated statements of operations.

As a result of the First Closing (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum 1,688,877 shares of common stock in February 2016. As a result of the Second Closing (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum 980,732 shares of common stock in July 2016. As a result of the Third Closing (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum 164,526 shares of common stock in July 2016. The Company recorded a reduction to the contingent rights derivative liability and an increase to additional paid-in capital of $3,232,502 related to the partial settlement of the contingent rights derivative as a result of the First Closing, Second Closing and Third Closing, which is reflected in the accompanying condensed consolidated balance sheet as of September 30, 2016.

As a result of the Final Closing and the October Offering (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum 1,789,062 shares of common stock in October 2016. In October 2016, the Company will record a reduction to the contingent rights derivative liability and an increase to additional paid-in-capital of $2,047,243 which will be reflected in the Company’s December 31, 2016 consolidated financial statements.

As part of the license arrangements with Spectrum (see Note 2), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally due March 17, 2016. The promissory note was recorded initially at its fair value, giving rise to a discount of approximately $136,000; the promissory note is presented as note payable, net of discount in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2016 and 2015, the Company recognized $21,015 and $67,950 of non-cash interest expense, respectively, related to the amortization of the debt discount, using the effective interest method. On September 28, 2015, the Company entered into a First Amendment to Secured Promissory Note (the “Amendment”) with Spectrum. Pursuant to the Amendment, the Company and Spectrum agreed to extend the maturity date of the note to March 17, 2017. All other terms remain the same.

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company performs a detailed analysis of its assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair values are based on period-end statements supplied by the various banks and brokers that held the majority of the Company’s funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current assets and liabilities) approximates their carrying values because of their short-term nature.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The Contingent Rights issued to Spectrum in connection with the license arrangements (see Note 2) are considered derivative liabilities and were recorded initially at their estimated fair value, and are marked to market each reporting period until settlement. The fair value of the Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates of the Company’s future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs. Generally, if the estimates of the size and probability of the Company’s future capital requirements increase, the fair value of the Contingent Rights will also increase.

The following table presents the Company’s financial liabilities accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy:

The following table presents the changes in the Company’s financial liabilities accounted for at fair value on a recurring basis using Level 3 unobservable inputs:

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:

The promissory note issued to Spectrum in connection with the license arrangements (see Notes 2 and 3) was initially recorded at its fair value using Level 3 unobservable inputs including primarily the Company’s estimated incremental borrowing rate as provided by a commercial lending institution.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The Company does not have any non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:

The Company measures its long-lived assets, including property and equipment, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized for the nine months ended September 30, 2016 and 2015.

Securities Purchase Agreements

As described in Note 1, on September 20, 2015, the Company entered into stock purchase agreements with certain institutional and accredited investors (the “Investors”) for a $25.1 million financing. Pursuant to these agreements, the Company agreed to sell to the Investors in a private placement an aggregate of 20,658,434 shares of the Company’s common stock, at $1.19 per share, based on the closing bid price of the Company’s common stock on the Nasdaq Capital Market on September 18, 2015, and a total of 4,131,686 warrants, representing a 20% warrant coverage, with a purchase price of $0.125 per whole warrant share. The warrants become exercisable three months after issuance at $1.69 per share exercise price, and expire three years from the date the warrants become exercisable.

The offering closed after satisfaction of certain regulatory and customary closing conditions, with the net proceeds subject to payment of offering expenses, including fees and expenses.

On January 15, 2016, the Company completed the First Closing and received approximately $10.3 million and yielded approximately $10.2 million after offering expenses. The First Closing resulted in the issuance of 8,448,613 shares of Common Stock, priced at $1.19 per share, and 1,689,722 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on April 15, 2016 at $1.69 per share exercise price, and will expire on April 15, 2019. The fair value of the warrants issued is $321,047, calculated using the Black-Scholes-Merton valuation model value of $0.19 with a contractual life of 3.25 years, an assumed volatility of 70.1%, and a risk-free interest rate of 1.08%.

On June 24, 2016, the Company completed the Second Closing and received approximately $6.0 million. The Second Closing resulted in the issuance of 4,906,118 shares of Common Stock, priced at $1.19 per share, and 981,223 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on September 23, 2016 at $1.69 per share exercise price, and will expire on September 23, 2019. The fair value of the warrants issued is $431,738, calculated using the Black-Scholes-Merton valuation model value of $0.44 with a contractual life of 3.25 years, an assumed volatility of 70.4%, and a risk-free interest rate of 0.76%.

On July 5, 2016, the Company completed the Third Closing and received $1.0 million. The Third Closing resulted in the issuance of 823,045 shares of Common Stock, priced at $1.19 per share, and 164,609 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on October 4, 2016 at $1.69 per share exercise price, and will expire on October 4, 2019. The fair value of the warrants issued is $67,490, calculated using the Black-Scholes-Merton valuation model value of $0.41 with a contractual life of 3.25 years, an assumed volatility of 70.6%, and a risk-free interest rate of 0.66%.

On October 3, 2016, the Company completed the Final Closing and received $7.8 million. The Final Closing resulted in the issuance of 6,480,655 shares of Common Stock, priced at $1.19 per share, and 1,296,129 warrants, with a purchase price of $0.125 per warrant. The warrants will become exercisable on January 2, 2017 at $1.69 per share exercise price, and will expire on January 2, 2020. The fair value of the warrants issued is $544,374, calculated using the Black-Scholes-Merton valuation model value of $0.42 with a contractual life of 3.25 years, an assumed volatility of 71.4%, and a risk-free interest rate of 0.91%. The Company received approximately $6.3 million of the $7.8 million proceeds from the Final Closing as of September 30, 2016 which is reflected as common stock to be issued on the September 30, 2016 condensed consolidated balance sheet.

 The Company granted registration rights to the Investors and agreed to file a resale registration statement covering the shares of common stock and the shares of common stock underlying the warrants within 120 days of the Final Closing.

As described in Note 1, on October 24, 2016, the Company entered into and closed on a stock purchase agreement with an accredited investor, pursuant to which the Company agreed to sell to the investor in a private placement an aggregate of 2,469,135 shares of the Company’s Common Stock, priced at $1.190 per share, and 493,827 warrants, representing a 20% warrant coverage, with a purchase price of $0.125 per whole warrant share, for aggregate gross proceeds to the Company of $3.0 million. The warrants will become exercisable on January 23, 2017 at $1.69 per share exercise price, and will expire on January 23, 2020. The fair value of the warrants issued in the October Offering is $306,173, calculated using the Black-Scholes-Merton valuation model value of $0.62 with a contractual life of 3.25 years, an assumed volatility of 72.2%, and a risk-free interest rate of 1.00%.

The Company granted registration rights to the investor and agreed to file a resale registration statement covering the shares of common stock and the shares of common stock underlying the warrants within 120 days of the closing of the transaction.

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 June 2016, the Company’s shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares reserved for issuance from 8,230,000 to 11,230,000 shares of common stock to be available for grants and awards. As of September 30, 2016, there are 9,067,244 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $0.86 to $17.38. In 2016, the Company awarded options to officers and employees, covering up to 873,000 shares, in which vesting is subject to achievement of certain performance milestones. 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 September 30, 2016, 2,554,019 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. For the nine months ended September 30, 2016, $10,100 was expensed for share awards with performance conditions that became probable during that period. There was no expense recorded for share awards with performance conditions during the nine months ended September 30, 2015.

The Company’s net loss for the nine months ended September 30, 2016 and 2015 includes non-cash compensation expense of $2,201,401 and $1,193,419, 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 during the nine-month periods ended September 30, 2016 and 2015:

* - 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 nine-month periods ended September 30, 2016 and 2015, forfeitures were estimated at 3%.

The weighted average fair value of stock options granted during the nine-month periods ended September 30, 2016 and 2015 were $0.75 and $1.02, respectively.

A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the nine months ended September 30, 2016 is as follows:

There were no option exercises during the three or nine months ended September 30, 2016 or 2015.

At December 31, 2015, the Company had a $3.1 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, 2015.

During the nine months ended September 30, 2016, 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 September 30, 2016. 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 June 2016, under a supply agreement with Spectrum, the Company received a shipment of MARQIBO^® in China for quality testing purposes to support CASI’s application for import drug registration. The CEO of Spectrum is also a board member of CASI. The total cost of the materials was $133,770 which is included in research and development expense for the nine months ended September 30, 2016.

In 2015, the Company began utilizing the services of Crown Biosciences, Inc. (“Crown Bio”) to perform certain research and development testing. The CEO of Crown Bio is also a board member of CASI. The total value of the services is $66,545, of which $16,648 was payable as of September 30, 2016. The research and development expense recognized for the services provided for the nine months ended September 30, 2016 and 2015 was $28,648 and $24,750, respectively.

In October 2015, the Company entered into a material transfer and research agreement with Origene Technologies, Inc. (“Origene”) for certain research materials.  The CEO of Origene is also the Chairman of the Board of CASI.  No materials have been purchased as of September 30, 2016, and there is no minimum commitment associated with this agreement.

As described in Note 1, in January, June, July and October 2016, the Company conducted a series of closings for a $25.1 million financing previously announced in September 2015. Participants in the offering included ETP Precision Medicine, LLC, a healthcare investment fund. The managing member of ETP Precision Medicine, LLC is also the Chairman of the Company.

The Company has implemented all new accounting pronouncements that are in effect and that may impact the Company’s condensed consolidated financial statements.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern. The new standard requires management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity’s ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial doubt,” 2) requires an evaluation every reporting period, interim periods included, 3) provides principles for considering the mitigating effect of management’s plans to alleviate the substantial doubt, 4) requires certain disclosures if the substantial doubt is alleviated as a result of management’s plans, 5) requires an express statement, as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires an assessment period of one year from the date the financial statements are issued.  The standard is effective for the Company’s reporting year beginning January 1, 2017 and early adoption is not permitted. The Company does not expect that this new accounting pronouncement will have an impact on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. In July 2015, the FASB delayed the effective date of this standard by one year. The new standard will be effective for the Company’s reporting year beginning on January 1, 2018, and early adoption of the standard as of January 1, 2017 is permitted. In March 2016, the FASB issued an accounting standard update to clarify the implementation guidance on principal versus agent considerations.  In April 2016, the FASB issued an accounting standard update to clarify the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.  In May 2016, the FASB issued an accounting standard update to clarify guidance in certain areas and add some practical expedients to the guidance.  The amendments in these 2016 updates do not change the core principle of the previously issued guidance in May 2014. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.

In November 2015, the FASB issued new guidance on the balance sheet classification of deferred taxes. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The accounting standard is effective for public business entities for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is permitted. The Company has not yet adopted this pronouncement but does not expect it to have any impact on its consolidated financial statements.

In January 2016, the FASB issued a new accounting standard on recognition and measurement of financial assets and financial liabilities. The accounting standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.  In addition, it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact, if any, that the pronouncement will have on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 supersedes existing lease guidance, including Accounting Standards Codification (ASC) 840 - Leases. Among other things, the new standard requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The standard must be applied using a modified retrospective approach. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

In March 2016, the FASB issued an accounting standard update which simplified several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company does not expect that the adoption of this ASU will have a material impact on its financial statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows where diversity in practice exists. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and earlier adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements.

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

OVERVIEW

We are a late-stage biopharmaceutical company focused on the acquisition, development and commercialization of innovative therapeutics addressing cancer and other unmet medical needs for the global market, with a focus on delivering innovative drugs to China. We intend to execute our plan to become a leading fully-integrated pharmaceutical company conducting clinical development activities internationally, primarily in China, U.S. Canada, and commercialize in China, and with partners for the rest of the world.

Our pipeline features (1) our lead proprietary drug candidate, ENMD-2076, in multiple Phase 2 clinical trials, (2) MARQIBO^®, ZEVALIN^® and EVOMELA^®, all FDA approved drugs in-licensed from Spectrum for China regional rights, and currently in various stages in the regulatory process for market approval in China, and (3) proprietary early-stage candidates in preclinical development. We believe our pipeline reflects a risk-balanced approach between products in various stages of development, and between products that we develop ourselves and those that we develop with our partners for the China regional market. We intend to continue building a significant product pipeline of innovative drug candidates that we will commercialize alone in China and with partners for the rest of the world. For ENMD-2076, our current development is focused on niche and orphan indications. For in-licensed products, the Company uses a market-oriented approach to identify pharmaceutical candidates that it believes have the potential for gaining widespread market acceptance, either globally or in China, and for which development can be accelerated under the Company’s drug development strategy.

Our primary research and development focus is on oncology therapeutics. Our strategy is to develop innovative drugs that are potential first-in-class or market-leading compounds for treatment of cancer. 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 China market.

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $439.3 million.  The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy.  The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In September 2015, the Company entered into stock purchase agreements for a $25.1 million strategic financing, the closing of which was subject to certain regulatory and customary conditions. In January 2016, the Company completed the first closing and received approximately $10.3 million (“First Closing”). In June 2016, the Company completed the second closing and received approximately $6.0 million (“Second Closing”). In July 2016, the Company completed the third closing and received $1.0 million (“Third Closing”). In October 2016, the Company completed the final closing and received $7.8 million (“Final Closing”), together these closings are referred to as the Closings. On October 24, 2016, the Company entered into and closed on a stock purchase agreement in a private placement with an accredited investor and received $3.0 million (“October Offering”). Net proceeds of the Closings and the October Offering will be used to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and commercial planning activities.

As a result of the Closings and the October Offering, the Company believes that it has sufficient resources to fund its operations for at least the twelve months subsequent to September 30, 2016. We intend to 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 candidates 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.

Additional funds raised by issuing equity securities may result in dilution to existing stockholders.

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 condensed 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 valuation 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, risk free interest rate 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 and Nine Months Ended September 30, 2016 and September 30, 2015.

Revenues and Cost of Product Sales. Revenues for the nine months ended September 30, 2015 were approximately $48,000. There was no revenue recorded for the three months ended September 30, 2015 and the three and nine months ended September 30, 2016. Our product sales in 2015 related to the dosing of Zevalin to patients in Hong Kong. The cost of sales for the nine months ended September 30, 2015 was $6,274 and includes the cost of the Zevalin Kit and Isotope purchase.

Research and Development Expenses. Our research and development expenses for the three and nine months ended September 30, 2016 totaled approximately $1,014,000 and $3,395,000, respectively. Research and development expenses for the corresponding 2015 periods were $942,000 and $3,031,000, respectively. Included in our R&D expenses for the three-month period ended September 30, 2016 are direct project costs of $452,000 for ENMD-2076, $65,000 for drugs in-licensed from Spectrum, and $229,000 for preclinical development activities in China. The 2015 research and development expenses for the comparable period included $328,000 for ENMD-2076, $115,000 for drugs in-licensed from Spectrum, and $176,000 for preclinical development activities in China. Research and development expenses totaling $3,395,000 for the nine-month period ended September 30, 2016 included direct project costs of $1,269,000 related to ENMD-2076, $375,000 for drugs in-licensed from Spectrum, and $585,000 for preclinical development activities in China. The 2015 research and development expenses for the comparable period totaled $3,031,000 and included $1,144,000 for ENMD-2076, 258,000 for drugs in-licensed from Spectrum, and $584,000 for preclinical development activities in China. The overall increase in research and development costs in the three and nine month periods ended September 30, 2016, as compared to same periods in 2015, reflects increased patient enrollment costs associated with our Phase 2 clinical trial in fibrolamellar carcinoma (FLC).

At September 30, 2016, and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $27,229,000, $761,000 for drugs in-licensed from Spectrum, and for preclinical development activities in China, accumulated project expenses totaled $1,798,000. Our research and development expenses also include non-cash stock-based compensation totaling $61,000 and $579,000 for the three and nine months ended September 30, 2016, respectively, and $148,000 and $570,000 for the corresponding 2015 periods, respectively. 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 2016 to be devoted to the development of our ENMD-2076 program, our early-stage candidates in preclinical development, and advancing our in-licensed products towards market approval in China. We expect our expenses in 2016 to increase based on our clinical development plan. 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 $1,014,000 during the three-months ended September 30, 2016 from $942,000 for the corresponding period in 2015. Research and development expenses increased to $3,395,000 during the nine months ended September 30, 2016 from $3,031,000 for the corresponding period in 2015. The fluctuations in research and development expenditures during the three and nine months ended September 30, 2016 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, board of directors, professional services, patent costs and facilities.

General and administrative expenses increased slightly to $677,000 in the three-month period ended September 30, 2016 from $674,000 in the corresponding 2015 period. The increase in the third quarter of 2016, compared to the 2015 period, is primarily related to an increase in salary and benefits associated with a new business development employee in the U.S. during the 2016 period, offset by a decrease in outside professional fees. For the nine-month period ended September 30, 2016, general and administrative expenses increased in 2016 to $3,357,000 from $2,459,000 for the corresponding 2015 period. The increase in the 2016 period, compared to the 2015 period is primarily related to an increase in stock-based compensation expense of $999,000 primarily related to stock options awarded in connection with the closings of the Company’s strategic financing in 2016, as well as an increase in salary and benefits associated with a new business development employee in the U.S. during the 2016 period. This increase was offset by decreases in outside professional fees and travel related costs associated with business development and investor relations activities during the 2015 period.

Interest expense, net. Interest expense, net for three months ended September 30, 2016 and 2015 was $5,614 and $24,346, respectively. This includes interest on our note payable of $1,875 for both periods; non-cash interest of $7,005 and $22,650, respectively, representing the amortization of the debt discount; offset by interest income of $3,266 and $179, respectively. Interest expense, net for the nine months ended September 30, 2016 and 2015 was $23,140 and $72,836, respectively. This includes interest on our note payable of $5,625 for both periods; non-cash interest of $21,015 and $67,950, respectively, representing the amortization of the debt discount; offset by interest income of $3,500 and $739, respectively.

Change in fair value of contingent rights. The Contingent Rights issued to Spectrum in connection with the license arrangements are considered derivative liabilities and were recorded initially at their estimated fair value, and are marked to market each reporting period until settlement. The change in fair value of the Contingent Rights for the three and nine months ended September 30, 2016 was $2,978 and $4,422, respectively. The change in fair value of the Contingent Rights for the three and nine months ended September 30, 2015 was $35,690 and $17,346, respectively.

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 2016 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 twelve months subsequent to September 30, 2016.

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 stockholders 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 September 30, 2016, we had cash of $24,137,329 with working capital of $21,971,554. As of September 30, 2016, approximately $6.2 million of the Company’s cash balance was held by CASI China.

FINANCING ACTIVITIES

As discussed above, on January 15, 2016, the Company completed the First Closing and received approximately $10.3 million and yielded approximately $10.2 million after offering expenses. The First Closing resulted in the issuance of 8,448,613 shares of Common Stock, priced at $1.19 per share, and 1,689,722 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on April 15, 2016 at $1.69 per share exercise price, and will expire on April 15, 2019. The fair value of the warrants issued is $321,047, calculated using the Black-Scholes-Merton valuation model value of $0.19 with a contractual life of 3.25 years, an assumed volatility of 70.1%, and a risk-free interest rate of 1.08%.

On June 24, 2016, the Company completed the Second Closing and received approximately $6.0 million. The Second Closing resulted in the issuance of 4,906,118 shares of Common Stock, priced at $1.19 per share, and 981,223 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on September 23, 2016 at $1.69 per share exercise price, and will expire on September 23, 2019. The fair value of the warrants issued is $431,738, calculated using the Black-Scholes-Merton valuation model value of $0.44 with a contractual life of 3.25 years, an assumed volatility of 70.4%, and a risk-free interest rate of 0.76%.

On July 5, 2016, the Company completed the Third Closing and received $1.0 million. The Third Closing resulted in the issuance of 823,045 shares of Common Stock, priced at $1.19 per share, and 164,609 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on October 4, 2016 at $1.69 per share exercise price, and will expire on October 4, 2019. The fair value of the warrants issued is $67,490, calculated using the Black-Scholes-Merton valuation model value of $0.41 with a contractual life of 3.25 years, an assumed volatility of 70.6%, and a risk-free interest rate of 0.66%.

On October 3, 2016, the Company completed the Final Closing and received $7.8 million. The Final Closing resulted in the issuance of 6,480,655 shares of Common Stock, priced at $1.19 per share, and 1,296,129 warrants, with a purchase price of $0.125 per warrant. The warrants will become exercisable on January 2, 2017 at $1.69 per share exercise price, and will expire on January 2, 2020. The fair value of the warrants issued is $544,374, calculated using the Black-Scholes-Merton valuation model value of $0.42 with a contractual life of 3.25 years, an assumed volatility of 71.4%, and a risk-free interest rate of 0.91%.

On October 24, 2016, the Company completed the October Offering and received $3.0 million. The October Offering resulted in the issuance of 2,469,135 shares of Common Stock, priced at $1.19 per share, and 1,296,129 warrants, with a purchase price of $0.125 per warrant. The warrants will become exercisable on January 23, 2017 at $1.69 per share exercise price, and will expire on January 23, 2020. The fair value of the warrants issued in the October Offering is $306,173, calculated using the Black-Scholes-Merton valuation model value of $0.62 with a contractual life of 3.25 years, an assumed volatility of 72.2%, and a risk-free interest rate of 1.00%.

INFLATION AND INTEREST RATE CHANGES

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 September 30, 2016.

ITEM 4. CONTROLS AND PROCEDURES

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 September 30, 2016 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.

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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 September 30, 2016 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

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, unless 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 CASI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 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, 2015.

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

* Filed Herewith

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

* Filed Herewith