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 The leading web portal for pharmacy resources, news, education and careers December 19, 2018
Pharmacy Choice - Pharmaceutical News - CASI PHARMACEUTICALS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - December 19, 2018

Pharmacy News Article

 11/14/18 - CASI PHARMACEUTICALS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We are a U.S. based biopharmaceutical company dedicated to the development and delivery of high quality, cost-effective pharmaceutical products and innovative therapeutics to patients in the U.S., China and throughout the world. We intend to execute our plan to become a leading pharmaceutical company with a substantial market share in China. We are headquartered in Rockville, Maryland and have a wholly owned subsidiary and R&D operations in Beijing, China.

Our product pipeline features the following: (1) EVOMELA, MARQIBO, and ZEVALIN, all U.S. FDA approved drugs in-licensed from Spectrum Pharmaceuticals, Inc. for China regional rights, and currently in various stages in the regulatory process for market approval in China, and (2) an acquired portfolio of 25 FDA-approved abbreviated new drug applications ("ANDAs") and four pipeline ANDAs that are pending FDA approval, from which we will prioritize a select subset for product registration and commercialization in China. The Company also recently announced entering into an agreement with Laurus Labs Limited to purchase an ANDA for tenofovir disoproxil fumarate (TDF) indicated for hepatitis B virus. In addition to these advanced products, our pipeline includes a proprietary Phase 2 drug candidate, ENMD-2076, that the Company has determined not to pursue as a single agent and is exploring feasibility of combination as a clinical strategy, and also CASI-001 and CASI-002, proprietary early-stage candidates in immuno-oncology 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 high quality, cost-effective pharmaceuticals, as well as innovative drug candidates that we will commercialize alone in China and with partners for the rest of the world. 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. For our FDA-approved ANDAs, we intend to select and commercialize certain products from the portfolio that offer unique market and cost-effective manufacturing opportunities in China and/or in the U.S.

Our primary research and development focus is to acquire high quality, cost-effective medicines, as well as to in-license clinical-stage and late-stage drug candidates so that we can immediately employ our U.S. and China drug development model to accelerate commercialization, and clinical and regulatory progress. In addition to our high quality, cost-effective medicines, and our clinical-and late-stage approach for innovative products, we have other potential drug candidates in preclinical development which we will continue to evaluate through 2018 and 2019. 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, we are doing business in China through our wholly-owned China-based subsidiary that will execute the China portion of our drug development strategy, including conducting clinical trials in China, pursuing local funding opportunities and strategic collaborations, and implementing our transition to a commercial enterprise.



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Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $469.7 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 and development activities. In September 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement (the "September 2018 Financing"). The Company held its initial closing on September 24, 2018 (the "September 2018 Closing") and second closing on October 10, 2018 (the "October 2018 Closing"). The Company has received gross proceeds of $37.5 million and expects to receive additional gross proceeds of $11 million. Additionally, in March 2018, the Company entered into securities purchase agreements pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement (the "March 2018 Financing"). The March 2018 Financing closing included an investment from ETP Global Fund, L.P., a healthcare investment fund. The managing member of Emerging Technology Partners, LLC, which is the general partner of ETP Global Fund, L.P., is also the Executive Chairman of the Company. The March 2018 Financing also included an investment from IDG-Accel China Growth Fund III L.P. ("IDG-Accel Growth") and IDG-Accel China III Investors L.P. ("IDG-Accel Investors"). A director and shareholder of IDG-Accel China Growth Fund GP III Associates Ltd., which is the ultimate general partner of IDG-Accel Growth and IDG-Accel Investors, is also a member of the Company's Board of Directors. Net proceeds from the September 2018 Closing, the October 2018 Closing, and the March 2018 Financing are being used to prepare for the anticipated launch of the Company's first commercial product in China, to support the Company's business development activities, to advance the development of the Company's pipeline, to support its marketing and commercial planning activities, and for other general corporate purposes.

As a result of the September 2018 Closing, October 2018 Closing, and the March 2018 Financing, the Company believes that it has sufficient resources to fund its operations at least through November 14, 2019. As of September 30, 2018, approximately $15.2 million of the Company's cash balance was held by CASI China. 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.

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 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:

- Research and Development - Research and development expenses consist primarily

of compensation and other expenses related to research and development

personnel, research collaborations, costs associated with pre-clinical testing

and clinical trials of the Company's product candidates, including the costs of

manufacturing drug substance and drug product, regulatory maintenance costs,

and facilities expenses, along with the amortization of acquired ANDAs.

Research and development costs are expensed as incurred.




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- Expenses for Clinical Trials - Expenses for clinical trials are incurred from

planning through patient enrollment to reporting of the data. We estimate

expenses incurred for clinical trials that are in process based on patient

enrollment and based on clinical data collection and management. Costs that are

associated with patient enrollment are recognized as each patient in the

clinical trial completes the enrollment process. Estimated clinical trial costs

related to enrollment can vary based on numerous factors, including expected

number of patients in trials, the number of patients that do not complete

participation in a trial, and when a patient drops out of a trial. Costs that

are based on clinical data collection and management are recognized in the

reporting period in which services are provided. In the event of early

termination of a clinical trial, we accrue an amount based on estimates of the

remaining non-cancelable obligations associated with winding down the clinical

   trial.



- Stock-Based Compensation - All stock-based payment transactions are recognized

in the consolidated financial statements at their fair values. Compensation

expense associated with service and performance condition-based stock options

and other equity-based compensation is recorded in accordance with provisions

of authoritative guidance. The fair value of awards for which fair values are

calculated using the Black-Scholes-Merton option pricing model is generally

being amortized on a straight-line basis over the requisite service period and

is recognized based on the proportionate amount of the requisite service period

that has been rendered during each reporting period. Share-based awards granted

to employees with a performance condition are measured based on the probable

outcome of that performance condition during the requisite service period. Such

an award with a performance condition is expensed when it is probable that a

performance condition will be achieved. There was minimal expense recorded for

share awards with performance conditions during the nine months ended September

30, 2018 and 2017. Using the straight-line expense attribution method over the

requisite service period, which is generally the option vesting term ranging

from immediately to one to five years, share-based compensation expense

recognized for the nine months ended September 30, 2018 and 2017 totaled

approximately $3,517,000 and $516,000, respectively.

The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes-Merton 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 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 and Nine Months Ended September 30, 2018 and 2017.

Revenues and Cost of Product Sales. There were no revenues recorded for the three or nine months ended September 30, 2018 and 2017.

Research and Development Expenses. Our research and development expenses for the three and nine months ended September 30, 2018 totaled approximately $1,806,000 and $5,233,000, respectively. Research and development expenses for the corresponding 2017 periods were $971,000 and $3,748,000, respectively. Included in our research and development expenses for the three-month period ended September 30, 2018 are direct project costs of $398,000 related to our ANDAs acquired in January 2018, $90,000 for ENMD-2076, $242,000 for drugs in-licensed from Spectrum, and $433,000 for preclinical development activities primarily in China. The 2017 R&D expenses for the comparable period are direct project costs of $148,000 for ENMD-2076, $188,000 for drugs in-licensed from Spectrum, and $279,000 for preclinical development activities in China. Research and development expenses totaling $5,233,000 for the nine-month period ended September 30, 2018 included direct project costs of $1,227,000 related to our ANDAs acquired in January 2018, $324,000 related to ENMD-2076, $558,000 for drugs in-licensed from Spectrum, and $1,319,000 for preclinical development activities primarily in China. The 2017 research and development expenses for the comparable period included direct project costs of $697,000 related to ENMD-2076, $1,100,000 for drugs in-licensed from Spectrum, and $837,000 for preclinical development activities in China. The overall increase in research and development costs in the three and nine months ended September 30, 2018, as compared to same periods in 2017, primarily reflects higher costs associated with regulatory costs of the ANDAs in 2018.



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At September 30, 2018, and, since acquired, accumulated direct project expenses for our ANDAs acquired in January 2018 totaled $1,227,000; $28,835,000 for ENMD-2076; $5,094,000 for drugs in-licensed from Spectrum; and for preclinical development activities primarily in China, accumulated project expenses totaled $4,675,000. Our research and development expenses also include non-cash stock-based compensation totaling $70,000 and $232,000 for the three and nine months ended September 30, 2018, respectively, and $54,000 and $225,000 for the corresponding 2017 periods, respectively. The balance of our research and development expenditures includes facility costs and other departmental overhead, expenditures related to the non-clinical support of our programs, and non-cash amortization expense of acquired ANDAs.

We expect the majority of our research and development expenses for the rest of 2018 and 2019 to be devoted to advancing our in-licensed products towards market approval in China, the technology transfer activities and regulatory support associated with our ANDA portfolio, and our early-stage candidates in preclinical development. We expect our expenses for the remainder of 2018 and 2019 to increase based on our commercial and 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:



                                            ESTIMATED
                                            COMPLETION
                           CLINICAL PHASE     PERIOD
                           Phase 1          1-2 Years
                           Phase 2          2-3 Years
                           Phase 3          2-4 Years




Local CFDA Trial:



                                             ESTIMATED
                                            COMPLETION
                         CLINICAL PHASE       PERIOD
                         Phase 1          1 Year
                         Phase 2          2 Years
                         Phase 3          2-3 Years



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:

- the number of patients that ultimately participate in the trial;

- the duration of patient follow-up that seems appropriate in view of the

   results;



- the number of clinical sites included in the trials; and

- the length of time required to enroll suitable patient subjects.




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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, facilities expenses, and amortization expense of acquired ANDAs. Overall research and development expenses increased to $1,806,000 during the three months ended September 30, 2018 from $971,000 for the corresponding period in 2017. Research and development expenses increased to $5,233,000 during the nine-months ended September 30, 2018 from $3,748,000 for the corresponding period in 2017. The fluctuations in research and development expenditures during the three and nine months ended September 30, 2018 were specifically impacted by the following:

- Outside Services - We utilize outsourcing to conduct our product development

activities. In the three-month period ended September 30, 2018, we expended

$176,000 on outside service activities versus $82,000 in the same 2017 period.

For the nine-month period ended September 30, 2018 outside services were

$622,000 compared to $314,000 for the same 2017 period. The increase in 2018 as

compared to 2017 primarily reflects regulatory costs associated with our ANDAs

acquired in January 2018.




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- Clinical Trial Costs - Clinical trial costs, which include clinical site fees,

monitoring costs and data management costs, decreased to $24,000 in the three

months ended September 30, 2018 from $50,000 in the three-month period ended

September 30, 2017. Clinical trial costs for the nine-month period ended

September 30, 2018 decreased to $127,000 from $375,000 for the comparable 2017

period. This decrease primarily relates to higher patient costs and clinical

trial management costs associated with our Phase 2 clinical trial in advanced

fibrolamellar carcinoma (FLC) during the 2017 period compared to the 2018

period as enrollment has completed.

- Lab Supplies - Laboratory supplies associated with our pre-clinical activities

for the three-month period ended September 30, 2018 increased to $110,000 from

$36,000 during the same period in 2017. Laboratory supplies associated with our

pre-clinical activities for the nine-month period ended September 30, 2018

increased to $274,000 from $176,000 during the same period in 2017. The

variance in both periods is due to the increase in activities at our China

research and development lab.

- Contract Manufacturing Costs - The costs of manufacturing the material used in

clinical trials for our product candidates is reflected in contract

manufacturing. These costs include bulk manufacturing, encapsulation and fill

and finish services, product release costs and storage fees. Contract

manufacturing costs for the three months ended September 30, 2018 increased to

$104,000 from ($4,000) during the same period in 2017 due to pre-manufacturing

costs associated with the Company's Cilostazol ANDA incurred during the 2018

period. For the nine-month period ended September 30, 2018, manufacturing costs

decreased to $148,000 from $620,000 for the comparable 2017 period. The

decrease primarily reflects costs associated with the purchase of EVOMELA in

China for quality testing purposes to support CASI's application for import

drug registration in the second quarter of 2017.

- Personnel Costs - Personnel costs increased to $779,000 in the three-month

period ended September 30, 2018 from $591,000 in the corresponding 2017 period.

For the nine-month period ended September 30, 2018, personnel costs increased

in 2018 to $2,142,000 from $1,583,000 for the corresponding 2017 period. This

variance is primarily attributed to increased salary and benefit costs

associated with new employees hired in China.

- Also reflected in our 2018 research and development expenses for the

three-month period ended September 30, 2018 are outsourced consultant costs of

($27,000), facility and related expenses of $196,000, and amortization of

acquired ANDAs of $347,000. In the corresponding 2017 period, these expenses

totaled $36,000, $125,000, and $0, respectively. For the nine-month period

ended September 30, 2018, outsourced consultant costs were $164,000, facility

and related expenses were $576,000, and amortization of acquired ANDAs of

$945,000. In the corresponding 2017 period, these expenses totaled $177,000,

$346,000, and $0, respectively. The variance in outsourced consultant costs

reflect the timing of services related to regulatory activities. The increase

in facilities and related expenses is due to new leased lab space in China in

February 2017 and new leased office space in China in April 2018. The increase

in amortization of acquired ANDAs is due to the January 2018 acquisition of

   ANDAs.



General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services, investor relations and facilities. General and administrative expenses increased to $6,905,000 in the three-month period ended September 30, 2018 from $626,000 in the corresponding 2017 period. This variance relates to an increase in non-cash stock-based compensation expense totaling $1,524,000, primarily associated with stock option awards issued to the Company's Executive Chairman; an increase in salary, benefits and recruitment expense totaling approximately $475,000 in China, primarily related to sales and marketing efforts to prepare for the anticipated launch of the Company's first commercial product in China, as well as other general and administrative functions; approximately $510,000 related to increased professional services fees and investor and public relations activities; and increased facility costs of $121,000 due to new leased office space in China. The increase in general and administrative costs also includes $1,380,000 associated with our Executive Chairman's services in connection with the September 2018 Financing; and approximately $1,581,000 associated with business development and exploratory acquisition activities during the period, including $1.5 million related to due diligence and related services for certain business development activities incurred by ETP, in which we benefited by having access to the results of those services and did not have to incur such expense on our own. The Company's Executive Chairman is the founder and managing member of ETP. The Company's Audit Committee authorized and directed to the Company to reimburse ETP $1.5 million for the expenses incurred in connection with these services.



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General and administrative expenses increased to $12,250,000 during the nine months ended September 30, 2018 from $1,961,000 for the corresponding period in 2017. The increase in expenses in the nine-month period in 2018, compared to the same period in 2017 reflects an increase in non-cash stock-based compensation expense totaling $2,994,000, primarily associated with stock option awards issued to the Company's Executive Chairman; an increase in salary, benefits and recruitment expense totaling $979,000 in China primarily related to sales and marketing efforts to prepare for the anticipated launch of the Company's first commercial product in China, as well as other general and administrative functions; approximately $901,000 associated with additional professional services fees and investor and public relations activities; and increased facility cost of $229,000 due to new leased office space in China. The increase in general and administrative expenses for the 2018 nine-month period also reflects $1,380,000 associated with our Executive Chairman's services in connection with the September 2018 Financing and increased costs of approximately $2,546,000 associated with business development and exploratory acquisition activities, including the $1.5 million of expenses associated with ETP as described above.

Acquired In-process Research and Development. In January 2018, we acquired a portfolio of 29 ANDAs, including 25 FDA-approved ANDAs and four pipeline ANDAs that are pending FDA approval, limited quantities of API, and certain manufacturing and other information related to the products (collectively, the ANDAs, API and other information are referred to as the "Acquired Assets"). The total purchase price for the Acquired Assets was $18.0 million in cash. We accounted for the purchase of the Acquired Assets as an asset acquisition (consisting of a concentrated group of similar identifiable assets, including ANDAs and API). The total purchase price, along with approximately $1.2 million of transaction expenses, was allocated to the Acquired Assets based on their relative fair values. Of the total value allocated to the ANDAs, approximately $553,000 was immediately expensed as acquired in-process research and development since the underlying ANDAs have not been approved by the FDA, and of the total value allocated to the API, approximately $134,000 was immediately expensed as acquired in-process research and development since the Company does not intend to use all the API.

Interest (income) expense, net. Interest (income) expense, net for the three months ended September 30, 2018 and 2017 was $(10,652) and $546, respectively. This includes interest on our note payable of $1,875 for both periods; non-cash interest of $177 and $1,869, respectively, representing the amortization of the debt discount; offset by interest income of $12,704 and $3,198, respectively. Interest (income) expense, net for the nine months ended September 30, 2018 and 2017 was $(30,453) and $476, respectively. This includes interest on our note payable of $5,625 for both periods; non-cash interest of $531 and $5,607, respectively, representing the amortization of the debt discount; offset by interest income of $36,609 and $10,756, respectively.

Other expense. Other expense for the three and nine months ended September 30, 2018 was $55,941 and $67,266, respectively, representing unrealized losses on the Company's equity investment securities.

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 Contingent Rights were fully settled during 2017, so there was no change in the fair value of the Contingent Right for the three and nine months ended September 30, 2018. The change in fair value of the Contingent Rights for the three and nine months ended September 30, 2017 was $16,110 and $12,665, respectively.



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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 2018 and the foreseeable future before we commercialize any products and penetrate significant markets such as China. Based on our current plans, we expect our current available cash and cash equivalents to meet our cash requirements for at least through November 14, 2019.

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 commercialization efforts, expansion of our operations, research and development, and for the acquisition of new product candidates, if any. We intend to explore one or more of the following alternatives to raise additional capital:

selling additional equity securities;

out-licensing product candidates to one or more corporate partners;

completing an outright sale of non-priority assets; and/or

engaging in one or more strategic transactions.

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 commercialization efforts, our advancement of the Spectrum products, and the ANDA products, or plans for other product candidates, if any.

At September 30, 2018, we had cash and cash equivalents of approximately $98.9 million, with working capital of approximately $94.5 million. As of September 30, 2018, approximately $15.2 million of the Company's cash balance was held by the Company's wholly-owned subsidiary in China.

As a result of the Company's acquisition of a portfolio of ANDAs, we believe that this transaction provides significant and permanent changes to our operations in China, and that may allow our subsidiary in China to generate operating revenues from the China marketplace in the future and potentially to sustain its own operations without the necessity of parent support. Accordingly, effective January 1, 2018, the functional currency of the Company's subsidiary based in China has been changed to the local currency of the China RMB. The change in functional currency did not have a material impact on the consolidated financial statements.



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FINANCING ACTIVITIES



"Shelf" Registration Statement

On December 13, 2017, we filed a Form S-3 registration statement with the SEC utilizing a "shelf" registration process. On December 22, 2017, the Form S-3 registration statement was declared effective by the SEC. Pursuant to this shelf registration statement, we may sell debt or equity securities in one or more offerings up to a total public offering price of $100 million. We believe that this shelf registration statement currently provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or our financial condition may require.

Securities Purchase Agreements

As discussed above, in September 2018, the Company entered into securities purchase agreements the ("Securities Purchase Agreements") with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement. The purchase price for each share of common stock and warrant was $5.36. The warrants will become exercisable on March 23, 2019 at a $7.19 per share exercise price and will expire on September 24, 2021. On September 24, 2018, the Company completed its first closing and issued 6,809,699 shares of its common stock with accompanying warrants to purchase 2,042,907 shares of its common stock and received $36.5 million in gross proceeds. The fair value of the warrants issued is $6,087,863, or $2.98 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 3 years, an assumed volatility of 88.39%, and a risk-free interest rate of 2.89%. On October 10, 2018, the Company completed its second closing for an additional $1 million in gross proceeds, which was received in September 2018. The Company expects to close on the remaining $11 million of the September 2018 Financing. The Securities Purchase Agreements and warrants each include additional customary representations, warranties and covenants. The Company also agreed to file a resale registration within 120 days following the closing covering the shares of common stock issued and the shares of common stock underlying the warrants.

Additionally, in March 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement. The purchase price for each share of common stock and warrant was $3.24. The warrants became exercisable on September 17, 2018 at a $3.69 per share exercise price, and will expire on March 21, 2023. The fair value of the warrants issued is $15,062,000, or $2.44 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 5 years, an assumed volatility of 75.4%, and a risk-free interest rate of 2.69%. The securities purchase agreements and warrants each include additional customary representations, warranties and covenants. The Company has filed a resale registration covering the shares of common stock issued and the shares of common stock underlying the warrants on Form S-3 (File No. 333-226206) which became effective on August 8, 2018.




Common Stock Sales Agreement



On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the "Sales Agreement") with H.C. Wainwright & Co., LLC ("HCW"). Pursuant to the terms of the Sales Agreement, the Company may sell from time-to-time, at its option, shares of the Company's common stock through HCW, as sales agent, with an aggregate sales price of up to $25 million (the "Shares").

Any sales of Shares pursuant to the Sales Agreement will be made under the Company's effective "shelf" registration statement (the "Registration Statement") on Form S-3 (File No. 333-222046) which became effective on December 22, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the "SEC") on February 23, 2018.

In March 2018, the Company issued 143,248 Shares under the Sales Agreement resulting in net proceeds to the Company of approximately $475,000. As of September 30, 2018, approximately $24.5 million remained available under the Sales Agreement.



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INFLATION AND INTEREST RATE CHANGES

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




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