NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018
(Unaudited)
1.
|
Description of Company and Basis of Presentation
|
CytRx
Corporation (“CytRx,” “we,” “us” or “the Company”) is a biopharmaceutical research
and development company specializing in oncology. The Company’s focus is on the discovery, research and clinical development
of novel anti-cancer drug candidates that employ novel linker technologies to enhance the accumulation and release of cytotoxic
anti-cancer agents at the tumor.
During
2017, CytRx’s discovery laboratory, located in Freiburg, Germany, synthesized and tested over 75 rationally designed drug
conjugates with highly potent payloads, culminating in the creation of two distinct classes of compounds. To date, four lead candidates
have been selected based on
in vitro
and animal preclinical studies, stability, and manufacturing feasibility. Additional
animal efficacy and toxicology testing of these lead candidates is underway.
On
June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a private wholly owned subsidiary, and
transferred all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection
with said transfer, the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render
advisory, consulting, financial and administrative services to Centurion, for which Centurion shall reimburse the Company for
the cost of such services plus a 5% service charge. The Management Services Agreement may be terminated by either party at any
time. Centurion is focused on the development of personalized medicine for solid tumor treatment.
There
are two key elements to Centurion’s strategy:
|
1.
|
A
novel companion diagnostic, ACDx™ (albumin companion diagnostic), developed to
identify patients with cancer who are most likely to benefit from treatment with Centurion’s
lead assets.
|
|
|
|
|
2.
|
Development
of its four albumin binding, linker activated drug release (LADR) oncology candidates.
|
Personalized
medicine requires diagnostic and therapeutic approaches utilized together in order to select the right patients for treatment
and to treat with a highly effective therapy. ACDx™ utilizes new imaging agents to radiolabel albumin. When used in combination
with state-of-the art imaging techniques, the new agent facilitates detection of albumin uptake and distribution in the patient’s
tumor. Since the LADR™ drug candidates are albumin-binding drugs, the Company believes response rates to their therapeutic
compounds will be higher in patients who test positive with this personalized medicine companion diagnostic. In July 2018, Centurion
filed a U.S. provisional patent application for ACDx™.
The
LADR™ technology platform is a discovery engine combining CytRx’s expertise in linker chemistry and albumin biology
to create a pipeline of anti-cancer molecules that will avoid unacceptable systemic toxicity while delivering highly potent agents
directly to the tumor. The Company has created a “toolbox” of linker technologies that have the ability to significantly
increase the therapeutic index of ultra-high potency drugs (10-1,000 times more potent than traditional drugs) by controlling
the release of the drug payloads and improving drug-like properties. After infusion, these ultra-high potency drug conjugates
bind to circulating albumin for transport of the drug to the tumor. Subsequently, due to specific conditions within the tumor
environment, the linkers are cleaved and release the anti-cancer drug payload.
Centurion’s
current efforts are focused on two classes of ultra-high potency drug conjugates as well as its companion diagnostic. Its strategy
across these programs is to generate additional pre-clinical data that will allow it to make informed decisions regarding the
selection of one or both programs for moving into human clinical trials either independently or on a partnered basis.
The
lead drug candidates that are currently being advanced by Centurion are the next generation drugs following the proof-of concept
compound, aldoxorubicin, that CytRx had been developing. Aldoxorubicin is a conjugate of the commonly prescribed cytotoxic agent
doxorubicin that binds to circulating albumin in the bloodstream and concentrates the drug at the site of the tumor. It has been
tested in over 600 patients with various types of cancer.
Aldoxorubicin
has received Orphan Drug Designation (ODD) by the U.S. FDA for the treatment of soft tissue sarcoma (“STS”). ODD provides
several benefits including seven years of market exclusivity after approval, certain R&D related tax credits, and protocol
assistance by the FDA. European regulators granted aldoxorubicin Orphan designation for STS which confers ten years of market
exclusivity among other benefits.
On
July 27, 2017, CytRx entered into an exclusive worldwide license with NantCell, Inc. (“NantCell”), granting to NantCell
the exclusive rights to develop, manufacture and commercialize aldoxorubicin in all indications. As a result, the Company is no
longer directly working on development of aldoxorubicin. NantCell made a cash investment of $13 million in CytRx common stock
at $6.60 per share (adjusted to reflect the reverse stock split effective November 1, 2017), a premium of 92% to the market price
on that date. CytRx also issued NantCell a warrant to purchase up to 500,000 shares of common stock at $6.60 per share expiring
on January 26, 2019. The Company is entitled to receive up to an aggregate of $343 million in potential milestone payments, contingent
upon achievement of certain regulatory approvals and commercial milestones. CytRx is also entitled to receive ascending double-digit
royalties for net sales for soft tissue sarcomas and mid to high single digit royalties for other indications. On October 3, 2017,
CytRx entered into a Reimbursement Agreement with NantCell, Inc. whereby the Company agreed to reimburse it for payment obligations
under certain of the contracts assigned as part of the licensing agreement, up to a maximum of $4.2 million plus one half of any
amounts in excess thereof; the Company now anticipates the reimbursement will not exceed $3.4 million (see Note 3).
In
the first half of 2018, CytRx announced that NantCell was expanding aldoxorubicin’s use by combining it with immunotherapies
and cell based treatments, specifically in metastatic pancreatic cancer, in advanced squamous cell carcinoma of the head and neck
or non-small cell lung cancer and in triple negative breast cancer.
In
2011, CytRx sold the rights to arimoclomol to Orphazyme A/S (formerly Orphazyme ApS) in exchange for a one-time, upfront payment
and the right to receive up to a total of $120 million (USD) in milestone payments upon the achievement of certain pre-specified
regulatory and business milestones, as well as royalty payments based on a specified percentage of any net sales of products derived
from arimoclomol. Orphazyme is testing arimoclomol in three additional indications beyond ALS, including Niemann-Pick disease
Type C (NPC), Gaucher disease and sporadic Inclusion Body Myositis (sIBM). CytRx received a milestone payment of $250,000 in September
2018. Orphazyme has reported that, if arimoclomol is approved for NPC by the EMA and/or FDA, Orphazyme intends to commercialize
arimoclomol for the treatment of NPC during 2020. In such event, CytRx will be entitled to a milestone payment of $4 million upon
EMA approval and $6 million upon FDA approval, along with royalties and potential additional milestones.
The
accompanying condensed consolidated financial statements at September 30, 2018 and for the three-month and nine-month periods
ended September 30, 2018 and 2017, respectively, are unaudited, but include all adjustments, consisting of normal recurring entries,
that management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily
indicative of results for a full year. Balance sheet amounts as of December 31, 2017 have been derived from our audited financial
statements as of that date.
The
consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. The consolidated financial statements should be read in conjunction with the Company’s
audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2017.
2.
|
Foreign Currency Remeasurement
|
The
U.S. dollar has been determined to be the functional currency for the net assets of our German laboratory facility. The transactions
are recorded in the local currencies and are remeasured at each reporting date using the historical rates for nonmonetary assets
and liabilities and current exchange rates for monetary assets and liabilities at the balance sheet date. Exchange gains and losses
from the remeasurement of monetary assets and liabilities are recognized in other income (loss). The Company recognized a loss
of approximately $1,300 and $7,600, respectively, for the three-month and nine-month periods ended September 30, 2018 and a loss
of approximately $2,000 and $15,000, respectively, for the three and nine-month periods ended September 30, 2017, respectively.
The Company does not engage in currency hedging transactions.
3.
|
Recently Adopted Accounting Pronouncement
|
On
January 1, 2018 CytRx adopted Accounting Standards Update 2014-09,
Revenue from Contracts with Customers
(“ASC 606”)
using the modified retrospective method for contracts that were not completed as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue
to be reported under the accounting standards in effect for the prior period. The cumulative effect of initially applying ASC
606 was an adjustment to decrease the opening balance of Accumulated Deficit by $6.7 million as of January 1, 2018.
The
guidance provides for a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions
include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing
estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance
also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from
an entity’s contracts with customers.
Under
the new standard the NantCell Licensing Agreement, which was determined to be a functional license agreement, as the underlying
intellectual property had standalone functionality, was recognizable in 2017 when NantCell obtained the right to use the intellectual
property. The subsequent Reimbursement Agreement was determined to be a contract modification that introduced variable contra
revenue for the Company’s reimbursement obligations. In accordance with ASC 606, management estimated its obligations under
the Reimbursement Agreement to be $3.2 million which is recognized as a contract liability at the time of revenue recognition.
These costs were previously recognized as research and development expense in 2017 in accordance with prior accounting standards.
This contract liability was reduced to $0.3 million as of January 1, 2018 as a result of costs incurred under the Reimbursement
Agreement.
Additionally,
CytRx is eligible to receive tiered high single to low double-digit royalties on product sales. The royalty term is determined
on a licensed-product-by-licensed-product and country-by-country basis and begins on the first commercial sale of a licensed product
in a country and ends on the expiration of the last to expire of specified patents or regulatory exclusivity covering such licensed
product in such country or, with a customary royalty reduction, ten years after the first commercial sale if there is no such
exclusivity. These revenues will be recognized when earned.
In
January 2016, the FASB issued Accounting Standards Update 2016-01,
Recognition and Measurement of Financial Assets and Financial
Liabilities
(“ASU 2016-01”). ASU 2016-01 eliminates the requirement to disclose the methods and significant assumptions
used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance
sheet. The standard also clarifies the need to evaluate a valuation allowance on a deferred tax asset related to available-for-sale
securities in combination with our other deferred tax assets. The update 2016-01 is effective for annual reporting periods beginning
after December 15, 2017. The adoption of this standard did not have a material impact on our financial statements.
4.
|
Recent Accounting Pronouncements
|
In
June 2018, the FASB issued ASU 2018-07:
Compensation – Stock Compensation (Topic 718)
: Improvements to Nonemployee
Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially
aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal
year, early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating
the impact this new guidance will have on its financial statements and related disclosures.
In
February 2018, the FASB issued a new standard that would permit entities to make a one time reclassification from accumulated
other comprehensive income (AOCI) to retained earnings for the stranded tax effects resulting from the newly enacted corporate
tax rates under the Tax Cuts and Jobs Act (the “Act”), effective for the year ended December 31, 2017. The amount
of the reclassification is calculated on the basis of the difference between the historical tax rate and newly enacted tax rate.
The standard is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. We are
currently assessing the impact of this standard on our financial condition and results of operations.
In
January 2017, the FASB issued an ASU entitled “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” The objective of the ASU is to simplify how an entity is required to test goodwill for impairment by eliminating
Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a
reporting unit’s goodwill with the carrying amount of that goodwill. This ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not believe that the
adoption of this guidance will have a material impact on our financial statements
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires companies to recognize all
leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and
operating leases, and the classification criteria for distinguishing between finance leases and operating leases are
substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the
current accounting literature. The result of retaining a distinction between finance leases and operating leases is that
under the lessee accounting model in Topic 842, the effect of leases in a statement of operations and a statement of cash
flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Earlier adoption is permitted. The Company is
currently evaluating
the impact this new guidance will have on its financial statements and related
disclosures.
On
February 5, 2016, we entered into a loan and security agreement with Hercules Technology Growth Capital, Inc. (“HTGC”),
as administrative agent and lender, and Hercules Technology III, L.P., as lender (“Hercules”), pursuant to which the
lenders made term loans to us on February 8, 2016 in the aggregate principal amount of $25 million (the “Term Loans”).
The
Term Loans bear interest at the daily variable rate per annum equal to 6.0% plus the prime rate, or 11.0%, whichever is greater.
CytRx was required to make interest-only payments on the Term Loans through February 28, 2017, and beginning on March 1, 2017
blended equal monthly installments of principal amortization and accrued interest until the maturity date of the Term Loans on
February 1, 2020. As security under their obligations, the Company issued to the lenders warrants to purchase a total of 105,691
shares of its common stock at an exercise price of $12.30. These warrants are classified as equity warrants with a fair value
of $633,749. All outstanding principal and accrued interest on the term loans was paid in full on the maturity date of August
1, 2018.
As
a result of the NantCell exclusive licensing transaction, on July 28, 2017, CytRx entered into a First Amendment to Loan and Security
Agreement with Hercules to amend its existing long-term loan facility (the “Loan Agreement”). The amendment provided
for payment, on July 28, 2017, of $5.0 million in outstanding principal and unpaid interest due under the Loan Agreement, plus
a $100,000 prepayment charge, and for repayment, on or prior to September 30, 2017, of an additional $5.0 million outstanding
principal and unpaid interest due under the Loan Agreement, plus a second $100,000 prepayment charge. CytRx also agreed to an
updated schedule of monthly payments and a new maturity date of August 1, 2018. Pursuant to the amendment, a portion of the warrants
(representing 80% of the total number of shares issuable upon exercise of the warrants) was amended to change the exercise price
of that portion of the warrants from $12.30 per share to $4.62 per share, which was calculated based upon the 30-day volume-weighted
average price of our common stock over the 30-day period beginning 15 days before the July 28, 2017 announcement of the NantCell
license transaction. CytRx evaluated the amended debt agreement under ASC 470 and determined it to be a modification and that
in accordance with accounting guidance for debt modifications, the incremental fair value of the repriced warrants of $77,000
and the $200,000 fee paid to the lender was recorded as additional loan discount to be recognized using the interest method over
the remaining life of the loan.
|
|
December 31, 2017
|
|
Term Loan Principal
|
|
$
|
9,986,362
|
|
End Fee Payable
|
|
|
1,771,250
|
|
Issuance Cost/Loan Discount
|
|
|
(1,157,817
|
)
|
Term Loan, Net
|
|
$
|
10,599,795
|
|
The
interest expense on the loan for the three-month and nine-month periods ended September 30, 2018 was $363,086 and $1,715,733,
respectively, as compared to $828,120 and $2,999,230 for comparative 2017 periods.
6.
|
Basic and Diluted Net Loss Per Common Share
|
Basic
and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding. Common share
equivalents (which consist of options and warrants) are excluded from the computation of diluted net loss per common share where
the effect would be anti-dilutive. Common share equivalents that could potentially dilute net loss per share in the future, and
which were excluded from the computation of diluted loss per share, totaled 3.5 million shares for each of the three-month and
nine-month periods ended September 30, 2018, and 6.5 million shares for each of the three-month and nine-month periods ended September
30, 2017.
Liabilities
measured at fair value on a recurring basis include warrant liabilities resulting from our equity financings. In accordance with
ASC 815-40
, Derivatives and Hedging – Contracts in Entity’s Own Equity
(“ASC 815-40”), the warrant
liabilities are recorded at fair value until they are completely settled. The warrants are valued using the Black-Scholes method,
using assumptions consistent with the Company’s application of ASC 505-50,
Equity-Based Payments to Non-Employees
(“ASC 505-50”). The gain or loss resulting from the change in fair value is shown on the Condensed Statements of Operations
as gain (loss) on warrant derivative liability. We recognized a gain of $0 and $3.8 million for the three-month periods ended
September 30, 2018 and 2017, respectively, and a gain (loss) of $0.5 million and ($0.6 million) for the nine-month periods ended
September 30, 2018 and 2017, respectively. The following reflects the weighted-average assumptions for each of the nine-month
periods indicated:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Risk-free interest rate
|
|
|
—
|
|
|
|
1.31
|
%
|
Expected dividend yield
|
|
|
—
|
|
|
|
0
|
%
|
Expected lives
|
|
|
—
|
|
|
|
0.8
|
|
Expected volatility
|
|
|
—
|
|
|
|
120.8
|
%
|
Warrants classified as liabilities (in shares)
|
|
|
—
|
|
|
|
2,834,246
|
|
Our
computation of expected volatility is based on the historical daily volatility of our publicly traded stock. The dividend yield
assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention to do so. The
risk-free interest rate used for each warrant classified as a derivative is equal to the U.S. Treasury rates in effect at September
30 of each year presented. The expected lives are based on the remaining contractual lives of the related warrants at the valuation
date.
On
July 20, 2018, 2,834,246 warrants classified as liabilities expired.
8
.
|
Stock Based Compensation
|
We
have a 2000 Long-Term Incentive Plan, which expired on August 6, 2010. As of September 30, 2018, there were 28,897 shares subject
to outstanding stock options under this plan. No further shares are available for future grant under this plan.
We
also have a 2008 Stock Incentive Plan. As of September 30, 2018, there were approximately 2.7 million shares subject to outstanding
stock options and approximately 0.8 million shares outstanding related to restricted stock grants.
We
follow ASC 718,
Compensation-Stock Compensation,
which requires the measurement and recognition of compensation expense
for all stock-based awards made to employees.
For
stock options and stock warrants paid in consideration of services rendered by non-employees, we recognize compensation expense
in accordance with the requirements of ASC 505-50.
Non-employee
option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial
reporting period, the value of these options, as calculated using the Black-Scholes option-pricing model, is determined, and compensation
expense recognized or recovered during the period is adjusted accordingly. As a result, the amount of the future compensation
expense is subject to adjustment until the common stock options are fully vested.
The
following table sets forth the total stock-based compensation expense resulting from stock options and warrants included in our
Condensed Consolidated Statements of Operations:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Research and development — employee
|
|
$
|
28,683
|
|
|
$
|
(124,405
|
)
|
|
$
|
89,105
|
|
|
$
|
507,211
|
|
General and administrative — employee
|
|
|
243,673
|
|
|
|
479,330
|
|
|
|
799,832
|
|
|
|
1,348,815
|
|
Total employee stock-based compensation
|
|
$
|
272,356
|
|
|
$
|
354,925
|
|
|
$
|
888,937
|
|
|
$
|
1,856,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development — non-employee
|
|
$
|
—
|
|
|
$
|
11,600
|
|
|
$
|
—
|
|
|
$
|
11,600
|
|
General and administrative — non-employee
|
|
|
19,517
|
|
|
|
32,581
|
|
|
|
60,384
|
|
|
|
97,818
|
|
Total non-employee stock-based compensation
|
|
$
|
19,517
|
|
|
$
|
44,181
|
|
|
$
|
60,384
|
|
|
$
|
109,418
|
|
During
the nine-month period ended September 30, 2018, we granted stock options to purchase 1,667 shares of our common stock at an average
weighted exercise price of $1.89. During the nine-month period ended September 30, 2017, we granted stock options to purchase
35,000 shares of our common stock at a weighted average exercise price of $3.96. The fair value of the stock options was estimated
using the Black-Scholes option-pricing model, based on the following assumptions:
|
|
Nine
Months Ended September 30, 2018
|
|
|
Nine
Months Ended September 30, 2017
|
|
Risk-free interest rate
|
|
|
2.42
|
%
|
|
|
2.32
|
%
|
Expected volatility
|
|
|
91.6
|
%
|
|
|
90.7
|
%
|
Expected lives (years)
|
|
|
6
|
|
|
|
6 to 10
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Our
computation of expected volatility is based on the historical daily volatility of our publicly traded stock. We use historical
information to compute expected lives. In the nine-month period ended September 30, 2018, the contractual term of the options
granted was ten years. The dividend yield assumption of zero is based upon the fact we have never paid cash dividends and presently
have no intention to do so. The risk-free interest rate used for each grant and issuance is equal to the U.S. Treasury rates in
effect at the time of the grant and issuance for instruments with a similar expected life. On January 1, 2017, the Company adopted
ASU 2016-09 and made a policy election to recognize forfeitures as they occur. The adoption of ASU 2016-09 did not have a material
impact to the Company’s financial condition or results of operations. No amounts relating to stock-based compensation have
been capitalized.
As
of September 30, 2018, there remained approximately $0.7 million of unrecognized compensation expense related to unvested stock
options granted to current and former employees, directors, to be recognized as expense over a weighted-average period of 0.82
years. Presented below is our stock option activity:
|
|
Nine Months Ended September 30, 2018
|
|
|
|
Number
of Options
(Employees)
|
|
|
Number
of Options
(Non-Employees)
|
|
|
Total
Number of Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at January 1, 2018
|
|
|
2,492,179
|
|
|
|
373,333
|
|
|
|
2,865,512
|
|
|
$
|
10.62
|
|
Granted
|
|
|
1,667
|
|
|
|
—
|
|
|
|
1,667
|
|
|
$
|
1.89
|
|
Exercised, Forfeited or Expired
|
|
|
(135,168
|
)
|
|
|
—
|
|
|
|
(135,168
|
)
|
|
$
|
9.42
|
|
Outstanding at September 30, 2018
|
|
|
2,358,678
|
|
|
|
373,333
|
|
|
|
2,732,011
|
|
|
$
|
10.67
|
|
Options exercisable at September 30, 2018
|
|
|
1,906,571
|
|
|
|
373,333
|
|
|
|
2,279,904
|
|
|
$
|
12.22
|
|
The
following table summarizes significant ranges of outstanding stock options under our plans at September 30, 2018:
Range
of Exercise Prices
|
|
Total
Number of Options
|
|
|
Weighted-Average
Remaining Contractual Life (years)
|
|
|
Weighted-Average
Exercise Price
|
|
|
Total Number of Options
Exercisable
|
|
|
Weighted-Average
Remaining Contractual Life (years)
|
|
|
Weighted-Average
Exercise Price
|
|
$1.75 - $5.00
|
|
|
1,271,809
|
|
|
|
8.83
|
|
|
$
|
2.14
|
|
|
|
849,696
|
|
|
|
8.80
|
|
|
$
|
2.19
|
|
$5.01 – $11.00
|
|
|
178,335
|
|
|
|
4.19
|
|
|
$
|
10.98
|
|
|
|
178,335
|
|
|
|
4.19
|
|
|
$
|
10.98
|
|
$11.01 – $15.00
|
|
|
766,292
|
|
|
|
6.44
|
|
|
$
|
13.91
|
|
|
|
736,715
|
|
|
|
6.41
|
|
|
$
|
13.88
|
|
$15.01 – $98.28
|
|
|
515,575
|
|
|
|
4.84
|
|
|
$
|
26.80
|
|
|
|
515,158
|
|
|
|
4.84
|
|
|
$
|
26.81
|
|
|
|
|
2,732,011
|
|
|
|
7.10
|
|
|
$
|
10.67
|
|
|
|
2,279,904
|
|
|
|
6.77
|
|
|
$
|
12.22
|
|
There
was no aggregate intrinsic value to the outstanding options and vested options as of September 30, 2018.
There
were 734,864 and 3,980,781 warrants outstanding at September 30, 2018 and December 31, 2017, respectively at a weighted-average
exercise price of $7.90 and $4.26, respectively.
Restricted
Stock
In
December 2017, the Company granted to its Chairman and Chief Executive Officer, 387,597 shares of restricted common stock, pursuant
to the 2008 Plan. This restricted stock vests in equal annual instalments over three years. The fair value of the restricted stock
is based on the market price of the Company’s shares on the grant date less the par value received as consideration. The
fair value of the restricted stock on the grant date was $679,000. In December 2016, the Company granted to its Chairman and Chief
Executive Officer, 387,597 shares of restricted common stock, pursuant to the 2008 Plan. This restricted stock vests in equal
annual instalments over three years. The fair value of the restricted stock is based on the market price of the Company’s
shares on the grant date less the par value received as consideration. The fair value of the restricted stock on the grant date
was $1,000,000. The Company recorded an employee stock-based compensation expense for restricted stock of $140,827 and $417,889
respectively, for the three and nine-month periods ended September 30, 2018 as compared to $83,943 and $249,089 respectively,
for the three and nine-month periods ended September 30, 2017.
9.
|
Fair
Value Measurements
|
Assets
and liabilities recorded at fair value on the balance sheets are categorized based upon the level of judgment associated with
the inputs used to measure the fair value. Level inputs are as follows:
Level
1 – quoted prices in active markets for identical assets or liabilities.
Level
2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement
date.
Level
3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use
to price the assets or liabilities at the measurement date.
The
following table summarizes fair value measurements by level at September 30, 2018 for assets and liabilities measured at fair
value on a recurring basis:
(In thousands)
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
21,462
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,462
|
|
The
following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value
on a recurring basis:
(In thousands)
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
35,834
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,834
|
|
Warrant liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
(527
|
)
|
|
|
(527
|
)
|
Liabilities
measured at market value on a recurring basis include warrant liabilities resulting from recent debt and equity financings. In
accordance with ASC 815-40, the warrant liabilities are marked to market each quarter-end until they are completely settled. The
warrants are valued using the Black-Scholes method, using assumptions consistent with our application of ASC 505-50. The $0.5
million decrease in fair value of the warrant liabilities is due to the expiry of the warrants (see Note 7).
We
consider carrying amounts of accounts receivable, accounts payable and accrued expenses to approximate fair value due to the short-term
nature of these financial instruments.
Our
non-financial assets are measured at fair value when there is an indicator of impairment and recorded at fair value only when
an impairment charge is recognized. Our non-financial assets were not material at September 30, 2018 or 2017.
10
.
|
Liquidity
and Capital Resources
|
At
September 30, 2018, the Company had cash and cash equivalents of approximately $24.7 million. Management believes that our current
cash and cash equivalents will be sufficient to fund our operations for the foreseeable future. The estimate is based, in part,
upon our currently projected expenditures for the remainder of 2018 and the first ten months of 2019 of approximately $9.2
million
,
which includes approximately $0.6 million for our contract liabilities, approximately $1.7 million
for the development of a novel companion diagnostic and the preclinical development of the new drug candidates at Centurion BioPharma,
approximately $6.9 million for other general and administrative expenses. These projected expenditures are also based upon numerous
other assumptions and subject to many uncertainties, and our actual expenditures may be significantly different from these projections.
If
NantCell and Orphayzme obtain marketing approval and successfully commercialize aldoxorubicin and arimoclomol, respectively,
we anticipate it could take several years, for them to generate significant recurring revenue. We will be dependent on future
financing and possible other strategic partnerships until such time, if ever, as they can generate significant recurring revenue.
We have no commitments from third parties to provide any additional financing, and we may not be able to obtain future financing
on favorable terms, or at all. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate
all or a portion of our development programs, seek to license to other companies our product candidates or technologies that we
would prefer to develop and commercialize ourselves, or seek to sell some or all of our assets or merge with or be acquired
by another company.
On
May 15, 2018, we issued 5.6 million shares of our common stock in a public offering and raised net proceeds of approximately $6.5
million.
At
December 31, 2017, we had federal and state net operating loss carryforwards as of $310.6 million and $285.0 million,
respectively, available to offset against future taxable income, which expire in 2018 through 2037, of which $236.2 million
and $285.0 million, respectively, are not subject to limitation under Section 382 of the Internal Revenue Code.
13.
|
Commitments
and contingencies
|
Commitments
We
have an agreement with Vergell Medical (formerly KTB Tumorforschungs GmbH, or KTB) (“Vergell”) for the Company’s
exclusive license of patent rights held by Vergell for the worldwide development and commercialization of aldoxorubicin. Under
the agreement, we must make payments to Vergell in the aggregate of $7.5 million upon meeting clinical and regulatory milestones
up to and including the product’s second final marketing approval. We also have agreed to pay:
|
|
●
|
commercially
reasonable royalties based on a percentage of net sales (as defined in the agreement);
|
|
|
|
|
|
|
●
|
a
percentage of non-royalty sub-licensing income (as defined in the agreement); and
|
|
|
|
|
|
|
●
|
milestones
of $1 million for each additional final marketing approval that we obtain.
|
In
the event that we must pay a third party in order to exercise our right to the intellectual property under the agreement, we will
deduct a percentage of those payments from the royalties due Vergell, up to an agreed upon cap.
Contingencies
We
applied the disclosure provisions of ASC 460,
Guarantees
(“ASC 460”) to our agreements that contain guarantees
or indemnities by us. We provide (i) indemnifications of varying scope and size to certain investors and other parties for certain
losses suffered or incurred by the indemnified party in connection with various types of third-party claims; and (ii) indemnifications
of varying scope and size to officers and directors against third party claims arising from the services they provide to us.
Shareholder
Derivative Actions in Delaware
. There are two competing derivative complaints pending in the Delaware Court of Chancery alleging
claims related to our alleged retention of DreamTeamGroup and MissionIR. On December 14, 2015, a shareholder derivative complaint,
captioned
Niedermeyer et al. v. Kriegsman et al.
, C.A. No. 11800, was filed against certain of our officers and directors,
for which a second amended complaint was filed on October 12, 2016. On September 6, 2016, one of the plaintiffs in the California
litigation (discussed above) effectively refiled his complaint in the Delaware Court of Chancery, with the case captioned
Taylor
v. Kriegsman
, C.A. No. 12720. Following competing motions for appointment of a lead plaintiff and lead counsel, on February
22, 2017, the Court of Chancery appointed
Niedermeyer et al.
as lead plaintiffs in the complaint. On May 3, 2017, the parties
entered into negotiations with a mediator and on June 2, 2017, the parties entered into a Memorandum of Understanding (“MOU”)
to settle the entire action. On June 15, 2017, the MOU was submitted to the Court and the parties are now seeking Court approval.
The Stipulation of Settlement was filed with the Court on January 22, 2018, which was preliminarily approved by the Court. A Final
Approval hearing and hearing on the application for an attorney fee award was held on April 19, 2018. On May 10, 2018, the Court
approved the settlement and a determination of attorneys’ fees was made. A third party appeal was made by an objecting shareholder
regarding the attorney fee award only, which is currently pending before the Delaware Supreme Court. The appeal is fully briefed
and the Court has indicated it will decide the appeal without oral argument. The Company was not involved in the briefing, but
will continue to monitor until final resolution.
Class
Action in California.
On July 25 and 29, 2016, nearly identical class action complaints were filed in the U.S. District Court
for the Central District of California, titled
Crihfield v. CytRx Corp., et al.
, Case No. 2:16-cv-05519 and
Dorce v.
CytRx Corp.
, Case No. 2:16-cv-05666 alleging that we and certain of our officers violated the Securities Exchange Act of 1934
by allegedly making materially false and/or misleading statements, and/or failing to disclose material adverse facts to the effect
that the clinical hold placed on the Phase 3 trial of aldoxorubicin for STS would prevent sufficient follow-up for patients involved
in the study, thus requiring further analysis, which could cause the trial’s results and/or FDA approval to be materially
adversely affected or delayed. The plaintiffs allege that such wrongful acts and omissions caused significant losses and damages
to a class of persons and entities that acquired our securities between November 18, 2014 and July 11, 2016, and seek an award
of compensatory damages, costs and expenses, including counsel and expert fees, and such other and further relief as the Court
may deem just and proper. On October 26, 2016, the Court entered an Order consolidating the actions titled
In re: CytRx Corporation
Securities Litigation
, Master File No. 16-cv-05519-SJO and appointing a Lead Plaintiff and Lead Counsel. Following the filing
of a first amended complaint on January 13, 2017, on March 14, 2017 we and the individual defendants filed a Motion to Dismiss.
Plaintiff filed an Opposition thereto on April 28, 2017. We and the individual defendants filed a Reply on May 30, 2017 and the
matter was heard by the Court on June 12, 2017. On June 14, 2017, the Court issued an Order granting the Motion to Dismiss with
leave to amend. Plaintiff filed a Second Amended Complaint and the Individual Defendants filed a renewed Motion to Dismiss. Plaintiff
filed an Opposition thereto on July 24, 2017. We and the Individual Defendants filed a Reply on July 31, 2017. On August 14, 2017,
the Court issued an Order granting in part and denying in part the motion to dismiss. On September 18, 2017, the Court issued
an Order setting a schedule for the case. On January 30, 2018, the parties entered into negotiations with a mediator and on February
1, 2018, the parties entered into a confidential Term Sheet to settle the Class Action. On February 7, 2018, the Court stayed
the action for all purposes until May 2, 2018, to provide the parties sufficient time to prepare and submit a stipulation of settlement.
On May 4, 2018, the Motion for Preliminary Approval of Settlement was filed. On June 20, 2018 the Court granted the Motion for
Preliminary Approval of Settlement. A Final Approval hearing was held on September 17, 2018, after which the Court issued an order
approving the settlement and thereafter issue a final judgment.
Shareholder
Derivative Action in Delaware (Zyontz).
On October 17, 2017, a shareholder derivative complaint was filed against certain
current and former directors in the Delaware Court of Chancery, entitled
Zyontz v. Kriegsman et al.,
Case No. 2017-0738-JRS.
The complaint essentially sets forth the allegations pled in the federal securities class action in California, asserts a claim
for breach of fiduciary duty, and seeks damages, fees and costs, and other and further relief as the Court may deem just and proper.
On December 18, 2017, we and individual defendants filed a motion to dismiss for failure to make a demand on the Board and for
failure to state a claim, and a motion to stay the proceedings pending resolution of the federal securities class action. On January
30, 2018, the parties participated in a mediation. On March 15, 2018, the parties executed a memorandum of understanding for a
settlement, subject to shareholder notice and court approval. The Company also reached a settlement agreement with two potential
objectors who had made shareholder demands. A final approval hearing on both settlements collectively is scheduled for December
10, 2018, at which time the Court will consider the motion to approve the settlements and the motions for attorneys’ fees
and costs.
The
Company intends to vigorously defend against the foregoing complaints. CytRx has directors’ and officers’ liability
insurance, which is being utilized in the defense of these matters. The liability insurance may not cover all of the future liabilities
the Company may incur in connection with the foregoing matters. These claims are subject to inherent uncertainties, and management’s
view of these matters may change in the future.
The
Company evaluates developments in legal proceedings and other matters on a quarterly basis. The Company records accruals for loss
contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of
the related loss can be reasonably estimated. The Company has accrued $5.8 million of litigation settlement related to a Shareholder
Class action, of which the entire amount is recorded as a receivable from the Company’s insurance carriers on its Consolidated
Balance Sheet.
We
evaluate developments in legal proceedings and other matters on a quarterly basis. If an unfavorable outcome becomes probable
and reasonably estimable, we could incur charges that could have a material adverse impact on our financial condition and results
of operations for the period in which the outcome becomes probable and reasonably estimable.