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Edited Transcript of CLSN earnings conference call or presentation 15-Nov-19 4:00pm GMT

Q3 2019 Celsion Corp Earnings Call

COLUMBIA Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Celsion Corp earnings conference call or presentation Friday, November 15, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey W. Church

Celsion Corporation - CFO, Executive VP & Corporate Secretary

* Michael H. Tardugno

Celsion Corporation - Executive Chairman, President & CEO

* Nicholas Borys

Celsion Corporation - Executive VP & Chief Medical Officer

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Conference Call Participants

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* Jason Howard Kolbert

Dawson James Securities, Inc., Research Division - Director of Research

* Kumaraguru Raja

Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst

* Matthew David Cross

JonesTrading Institutional Services, LLC, Research Division - Research Analyst

* Yichuan Yan

Oppenheimer & Co. Inc., Research Division - Associate

* Kim Sutton Golodetz

Lippert/Heilshorn & Associates, Inc. - SVP and Principal

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Presentation

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Operator [1]

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Good morning. My name is Emma. And I will be your operator today. At this time, I would like to welcome you all to Celsion's Third Quarter 2019 Financial Results Conference Call. (Operator Instructions) At this time, I would like to turn the call over to Kim Golodetz. Please go ahead, ma'am.

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Kim Sutton Golodetz, Lippert/Heilshorn & Associates, Inc. - SVP and Principal [2]

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Thank you, and good morning, everyone. This is Kim Golodetz with LHA. Welcome to Celsion Corporation's conference call to discuss its third quarter 2019 financial results. As has been Celsion's practice and as noted by the operator, prepared remarks will be followed by a question-and-answer period. Today's conference call will be archived, and the replay will be available beginning tomorrow through November 29, 2019, and the webcast will be available on Celsion's website for the next 90 days.

During this call, management will be making forward-looking statements regarding Celsion's expectations and projections about future events.

Generally, forward-looking statements can be identified by terminologies such as expects, anticipates, believes or other similar expressions.

These statements are based on current expectations and are subject to a number of risks and uncertainties, including those set forth in the company's periodic filings with the Securities and Exchange Commission. No forward-looking statement can be guaranteed, and actual results may differ materially from such statements.

I also caution that the content of this conference call is accurate only as of the date of the live broadcast, November 15, 2019. Celsion undertakes no obligation to revise or update comments made during this conference call, except as required by law.

With that said, I'd like to turn the call over to Michael Tardugno, Celsion's Chairman, CEO and President. Mike?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [3]

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Thank you, Kim, and good morning, everyone. Joining me today is Jeffrey Church, Celsion's Executive Vice President and Chief Financial Officer, who will provide a review of Celsion's recent financial results in a few minutes. Also on the call for the Q&A portion are Dr. Nicholas Borys, our Chief Medical Officer, and I hope Dr. Khursheed Anwer, who is attending by cell phone. Dr. Anwer is on his way to an investigator site to initiate it for the OVATION study and is dialing in by cell phone. So Khursheed, we hope you stay connected.

I'm going to apologize a little bit. I have a cold, if you can hear it. So I'll do my best here.

As always, it's a pleasure to be speaking with you, particularly now as we approach the conclusive milestones that have been made possible by the methodical and rigorous execution of our clinical development programs for ThermoDox and GEN-1.

Today's call will be mostly reassuring as most of our prepared remarks are in the public domain already.

I'm going to start with a comment that I've been making regularly over the past year, possible but not probable. And you've heard me say that.

This has been our guidance for the past year or so regarding the first interim analysis for our Phase III OPTIMA study. We've also said that there's a higher probability of success at the second interim analysis, now anticipated by June of next year, just 7 or 8 short months from now. We stand by that guidance. There is a higher probability, and I'll point it out to you in my remarks. I will, once again, remind you that our fundamentals are sound, and our overall -- and overall, you should expect no surprises from this management team.

Our meetings with various regulatory agencies have resulted in no significant issues. Our manufacturing strategy is solid. Our product cost is enviable. Our clinical trial strategy is unquestioned by the experts.

Our spending and cash management has been tight and focused, and our 2 investigational products both have blockbuster market potential by any standard of measure. Recent positive recommendations from the independent Data Monitoring Committee, or DMC, and the independent Data Safety Monitoring Board, or DSMB, for both our OPTIMA and OVATION 2 studies, respectively, are underpinned by our solid cash position. A position that's been sufficient -- that is sufficient to support an operating runway into the first quarter of 2021.

I'll also note that additional developments are expected during this time period that could be transformative for the company. Jeff will cover our current cash position, our financing strategy, and our ability to access funds in more detail during his report on this call.

So I wanted to acknowledge upfront that our stock has been under some undue pressure, I suggest, that defies reason. There's a great deal of misinformation out there. As some of you probably know, some purposely posted, I suspect, some misunderstanding and speculation, mostly. But I offer you this that your best source of information on Celsion and our trials comes from the company in our filings with the Securities and Exchange Commission, our quarterly conference calls and our press releases.

And I'll remind you that 2020 has the potential to be the pivotal year for Celsion.

On my formal remarks, I'd like to cover 4 important themes. The most important of which is number 4, we'll elaborate it, and that is our commission -- our commitment to shareholder value.

So let me start with the first one. I'd like to say again, we are well positioned to achieve our objectives.

We have the resources, relationships, personnel, technology, manufacturing capability and the capital to continue to deliver as we have been doing over the past few years.

Our lead product candidates are directed to large and underserved markets. I repeat that our lead drug candidates have excellent commercial potential.

Second, our clinical studies are showing promise. As we announced on November 4, the first interim review by the Data Monitoring Committee of the unblinded safety and survival data from the OPTIMA Study resulted in a unanimous recommendation that the study continue according to protocol.

I guess, as I said earlier, this is a recommendation that we had expected. We believe also that the accompanying blinded pool data are predictive of a successful study.

My view is that you'd have to purposely ignore the signals, the science and the published evidence to conclude otherwise.

The data show that pool progression-free survival, for example, appears to be tracking identically, if not better than PFS of the 285 patient HEAT study subgroup, a group that we followed prospectively for 3 years.

Let me explain that. This is not a retrospective subgroup coming from a prior study. This is a prospective group. It's a group that we identified following our research into the key driver of success of treating patients with radiofrequency ablation plus ThermoDox.

We now understand that to be a minimum of 45 minutes of RFA treatment in combination with ThermoDox.

Once we established that preclinically, we then identified a group of patients who were treated with a minimum of 45 minutes, a group of patients comprised of a control arm and an active arm. Virtually half of the patients were in the control arm, half of the patients were in the active arm. Then we followed these patients for 3 years, every quarter for 3 years, and we talked about it regularly, I mean, we had quarterly press releases. And I think if you followed our progress with this group, you'd know that this large well-balanced subgroup, followed prospectively for 3 years, well-balanced, demonstrated a median time to death of more than 7.5 years. That's curative by any standard of measure in oncology in more than 2 years of overall survival benefit over the RFA arm alone.

I want to remind you that sorafenib and other kinase inhibitors that are approved for advanced disease, advanced HCC, they've been approved with as little as 11 weeks survival. So the magnitude of the effect here by any standard of measure is remarkable. These findings have been confirmed by the NIH and an independent review of the intended treat population focusing on all single lesion patients. That's 432 single lesion patients. And they concluded, and this is a manuscript that's available to you, that, as you increase the heating time and add Thermodox to the procedure, survival improvements are of significance. It's also been confirmed by various prospective preclinically and computational studies and reinforced with data from the liver cancer studies being conducted by the researchers at Oxford University in England and also supported with our own 2 Phase II studies in breast cancer. It's in fluorescence imaging that we recently issued a press release on among other public research. Now to read it all, and it's available on our website, the science, the medical results and the preclinical evidence are all compelling. Yes, and I would venture even -- if you'll allow me, even to the skeptic members of the Flat Earth Society.

We also recently reported that our Phase I/II OVATION study with GEN-1 in newly diagnosed patients with advanced disease, that's Stage 3 and 4 brain cancer, is gaining momentum. After a very difficult startup, and you know, you've been with us, it has been a challenge to get started up for a variety of reasons, the most of which is a requirement -- a new requirement and initiated or established by the NIH that every investigator site have an independent review committee, a biological review committee, which took a great deal of time to establish in many of our sites. So that led to a very difficult startup.

We are now seeing enrollment rates that could very well be in line with if not better than our plan. Importantly, the independent Data Safety Monitoring Board recommended completing the Phase I dose escalation portion of the study at the current dose, which is 100 mg/m², after their review of the first 8 patients randomized in the study. I am happy to report that we now have a backlog of prospective patients in screening for the DSMB -- after the DSMB's green light to continue.

So obviously, and we meet with them regularly, our investigators are excited about the potential of GEN-1, about the potential for the trial and as are we, and I hope you are, too.

The turns of supply chain. Now we've taken the necessary steps to ensure a robust and cost-efficient supply chain for both GEN-1 and ThermoDox with multiple suppliers and redundant capacity. Gross margins, not only as a function of price but as a function of very competitive costs for -- gross margins for ThermoDox will be impressive no matter the market or the local economy. And remember, ThermoDox is being evaluated in HCC. HCC, or hepatocellular carcinoma, is primarily a disease of Southeast Asia and China, countries where disposable income is quite modest.

So keeping our costs down, extremely important to successful commercial launch.

So I expect our gross margins on average, and we've been saying this, should be very close to the 90s, if not in the 90s, when you look at a weighted average gross margin for the [group]. GEN-1, our interleukin 12 gene mediated immunotherapy, after an intense 2-year tech transfer, will be manufactured at a fraction of the cost of other plasma-based drugs.

This is important as patients treated with GEN-1 will receive as much plasma as all of the other patients combined in the world. Believe it or not, 17 doses at 100 mg/m² squared is an enormous amount of plasma. So getting the costs down in order to have an effective commercial strategy, along with gross margin is important. Your company has focused on that from the beginning, and we are now completing our tech transfer. And I'll remind you, a redundant high-quality low-cost supply chain is critical for a big pharma to evaluate and consider us as a license opportunity.

Now number 4, our commitment to shareholder value. And I would say, if you've been following us, it's uncompromising. Hand in glove with conducting successful trials is our focus on non-dilutive and uncomplicated sources of financing.

We've worked hard to establish a clean cap structure. No warrants, no convertible instruments and the like that can be used to leverage a short position.

We owe a great deal to Jeff Church, sitting on my right here, for his excellent negotiation to retire our warrants through a very creative stock exchange. And we know that, that stock was used to cover a short position.

Last I looked, the short interest in the company is less than 5 -- 0.5%, less than 1%. That's remarkable. And I challenge you to look for other micro-cap biotech companies with that kind of reported short position.

On the positive side, we renewed our common stock equity facility with Aspire Capital in late October. There's some misunderstanding about this line, let me try to clear it up. This new line is for $10 million, that compares with a $15 million line that we canceled. Important, it replaces the $15 million line. It's important to know that Celsion alone, at our sole discretion, controls the timing and the amount of stock that will be issued under this agreement, and our intention is to use this facility judiciously, I know it's a major mean to fund the company. We will use it judiciously and evaluate the market conditions. If they're not right, then we do not intend to use it.

This deal is both defensive and offensive and is constructive as one of many tools, Jeff will talk about these, that we have employed to avoid the toxic death-spiral financings that are all too common and all too typical in the micro-cap biotech space. We don't want to and you don't want us to enter into heavily discounted financings with heavy warrant coverage as we have seen recently be the norm for the micro-cap biotech sector.

If you look at deals over the last 18 months as we have, heavily discounted, heavy warrants.

Last but not least, I want to clear up something on our debt -- our use of debt. I believe we use our debt very smartly to leverage your equity investment, uncomplicated venture debt, interest-only for the first number of years. The repayment of this debt is fully accounted for in our spending plans.

Now, we ended the quarter with $19 million in cash on the balance sheet, and we look forward to adding another $4 million through the sale of our New Jersey net operating losses, including $2 million in the current quarter.

We have -- it will give us more than enough cash to see us through the important value drivers well into 2021.

And I've got to say, we are delighted to be a part of the New Jersey biotechnology pharmaceutical environment. You know that New Jersey is the cradle of civilization for the pharmaceutical industry. Their willingness to provide this kind of incentive for companies like ours to sell their nonoperating losses ahead of their commercial capability has been very good for the company and certainly good for our shareholders.

The last point I'd like to make is that the support from the international thought leaders should be reassuring to you. We continue to receive support from key opinion leaders and global leaders in their fields of medicine, largely focused in liver cancer and ovarian cancer. Requests for support for their trials of ThermoDox and GEN-1 are numerous. We sort through them regularly. We have a number of activities going on with a variety of researchers. Their interest in ThermoDox, driven by our results and the mechanism of action, the capability that it has to deal effectively with solid tumors, is very heartening. Another example of their interest is in presenting ThermoDox to their medical colleagues. As an example, we recently cosponsored a symposium focused on HCC at the conference of the International Liver Cancer Association in September. This symposium included 2 preeminent researchers in HCC, including Ghassan Abou-Alfa of Memorial Sloan Kettering and Professor Riccardo Lencioni from the University of Pisa. Professor Lencioni is the preeminent expert in radiofrequency ablation for HCC.

The program, I was there, was well attended and a lot of great questions, many of them focusing on the future treatment options for HCC. You know this is a very underserved indication, very, very difficult to deal with. The promise of Thermodox was explored quite thoroughly.

We also note that it's -- these kinds of medical education programs that can provide us with a template for introducing ThermoDox once the data is available to us but prior to formal market authorization, so we learned quite a bit from this and intend to use it once they have positive data from the trial.

I'll now turn to the positive news regarding the recommendation from the DMC from the OPTIMA study following a review of the unblinded data at the first prespecified interim efficacy analysis. The committee unanimously recommended that we continue the study as planned. For this analysis, the DMC reviewed data following 128 patient deaths which occurred early in August 2019. The committee found no evidence of futility or any safety issues of concern in this 556-patient study.

As I mentioned, what is particularly encouraging is that PFS events are tracking virtually identically now the -- through the 285 patient prospective subgroup seen in our earlier HEAT study.

Although the HEAT study trial did not succeed, the subgroup, who received 45 minutes more of RFA with ThermoDox, I'll say it again, demonstrated a 2-year overall survival advantage, a median time to death of more than 80 months. I want to emphasize that the bar for success for our OPTIMA study at the final analysis is only 70% of this survival benefit. So we have a great deal of margin here to conclude that our study would be successful.

So a far lower bar for success when compared to the prospective subgroup. I'll talk about the hazard ratios in a minute.

Although, we did not meet the required hazard ratio at the first interim analysis, the company data did provide the following information: number one, the OPTIMA study patient demographics and risk factors are consistent with the company observed in the prospective subgroup with data quality metrics meeting expectations, so it's very important. Controlling the study -- a high-quality study globally has been a life's commitment here for our clinical operations team and Dr. Borys. And we're delighted with the quality of the metrics -- quality metrics.

Number two, that the median PFS for overall -- for the OPTIMA study reached 17.3 months. These blinded pooled data compared favorably to the pooled data from the prospective subgroup, which showed a 16.8 month median time to progression.

Number three, the rate of patient deaths for the OPTIMA study appears to be tracking well with the HEAT study prospective subgroup. As we suspected, however, overall survival from the OPTIMA study was not sufficiently mature to draw any conclusions.

The study had a median follow-up -- the OPTIMA study events had a median follow-up of 25 months, whereas, the comparative prospective subgroup had a median follow-up of 67 months.

So I'd just give you a little suggestion here, if you'd like. The capital marker for the prospective subgroup of 285 patients is published in the HEAT manuscript, it's on our website, and I encourage you to take a look. Judge for yourself where a meaningful separation occurs.

And Number 4, the OPTIMA study has lost only 4 patients to follow-up, so about less than 2% of a patient per year. This kind of follow-up suggests -- and by the way, the study was designed with an allowance for 3% loss per year. And this suggests to us that patients and investigators believe in the study's potential, and their commitment is what's important to us in order to be able to properly evaluate the results for the trial.

So our next preplanned efficacy analysis will occur following a minimum of 158 patient events. The hazard ratio for success of 158 is 0.7. This compares favorably again to the observed -- the hazard ratio that was observed for the prospective subgroup. If you look at the Kaplan-Meier analysis, it's on our website in our corporate presentation, that hazard ratio is 0.65. So for success at the next interim, the hazard ratio is 0.7. And I'll also point out that the p-values are consistent with, what we believe, what gives an odds-on chance for the second interim to be successful.

Now the p-value in -- for the prospective subgroup was 0.02 -- sorry, yes, 0.02. The p-value allowed for, for it to be successful at the second interim is 0.0244. So we have some margin here both with the hazard ratio and the p-value. To conclude, that there is a potential here for success at the next interim.

Now recall that the largest incidence of HCC occurs in China, with more than 400,000 new cases diagnosed there each year. As I mentioned on the last call, the Chinese authorities have expressed an interest, and I have indicated it in patients, it's my view. In turn, it means to accelerate the data from the ThermoDox trial. This was stated during a meeting with Dr. Borys in 2016. We followed up. They asked us if there was a means to be able to evaluate the data sooner. We followed up this past October, I think it was October 23. The company met with the Director for the Center For Drug Evaluation at the National Medical Products Administration, or the NMPA, formerly known as the CFDA. So we met with the Director of the CDE and her team.

With respect to the possibility of unblinding the OPTIMA trial after the first interim efficacy analysis, they indicated that data maturity was not sufficient to support accelerated or conditional approval at that time, but they did indicate a preference to consider the data from the second interim analysis, which we think is encouraging. Even more encouraging was a suggestion that they made that the company should consider a compassionate use program in China. We see this as a positive, we certainly do, and are making plans under Dr. Borys' direction to launch a program in high volume, high quality clinical sites to participate in the OPTIMA study. It goes without saying that the compassionate use program, given what we know there's the potential to provide patients with a very unique opportunity to extend their lives.

Meanwhile, as I mentioned last quarter, we are continuing our work on the NDA for the ThermoDox and HCC. The goal is to position us to be able to file quickly once we have positive data. I can report to you and for those of you who are NDA wonkies, modules 2 and 3 are nearly completed.

In summary, we're very excited about the potential of ThermoDox and believe this could be an exceptionally valuable asset as more data are generated and not only for HCC but for other solid tumors.

While Thermodox and OPTIMA are of immediate interest for some and probably most investors at this point, we believe that GEN-1 holds an equally compelling promise.

Earlier in development, GEN-1 is being evaluated in the Phase I/II OVATION II study of newly diagnosed treatment-naive late-stage ovarian cancer patients. Patients are stage 3 and 4, typically with a malignancy that is heavy a tumor burden that fills their belly.

They're typically treated with neoadjuvant chemotherapy prior to surgery, in our study OVATION II, following OVATION I, which is similar in nature. In this study, we treat patients with GEN-1 in combination with chemotherapy prior to surgery. And after surgery, we'll continue to treat them with GEN-1, the goal of which is to delay progression. OVATION II is a randomized Phase I/II study designed to evaluate safety of up to a -- that's the one portion -- Phase I portion, up to 100 mg/m². We should have the answer to that before the end of the year. That's followed by continuation of the selected dose, we now believe that will be 100 mg/m². The Phase 2 is an open-label 1:1 randomized trial.

And only as open-label were allowed, as the investigators become confident, to report data from the trial, and we're happy to do that.

GEN-1 is designed using our proprietary Thermo -- I'm sorry, TheraPlas platform technology, that's comprised of an interleukin-12 plasma, DNA plasma, and we associated with our lipo polymeric nanoparticle delivery system, TheraPlas. This nanoparticle enables the cell to be transfected with the DNA plasma, resulting in a persistent local regional secretion of the cytokine or the inflammatory protein IL-12, and we know that IL-12 protein to be a potent anticancer recruiter of the entire immune system to fight malignancies.

We have every reason to believe it can be effective in ovarian cancer.

Last week, we reported to the independent Data Safety Monitoring Board, DSMB as I was calling it, completed its safety review from data from the first 8 patients enrolled in the Phase I portion of what will be 138 patients total.

Based on the unanimous recommendation, the study continues as planned, and we proceed with completing enrollment in the Phase I portion of the trial. The remaining patients in this portion of the trial will continue to receive the current 100 mg/m² of GEN-1. In all, we should have a 6 patients -- a minimum of 6 patients in the control arm and 6 patients in the GEN-1 arm by year-end, that's our target. Following that, we will be reporting data, surgical outcomes and objective response rates, followed by translational data once the tissue samples from these patients have been interrogated by researchers at Roswell Park Cancer Institute.

At this point, we have 16 active sites, expect 20 -- up to 25 sites up and running in January in the United State, and we will add 2 more in Canada for a total of 28 sites to recruit patients. Our goal is to complete enrollment by the end of next year, and we are very hopeful that we can do that particularly given the backlog that we've seen immediately once reopening the trial in the Phase I portion. The study is powered to show a 33% improvement PFS, which is the primary endpoint when comparing a GEN-1 to the -- with the standard of care to the standard of care alone. The PFS analysis will be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months, whichever is later.

Also, patients in the GEN-1 arm, as I mentioned earlier, will receive GEN-1 plus chemotherapy after their interval debulking surgery. Again, the goal here is to delay progression because we know, when a patient progresses, the prognosis is not that great. The first 2 portions is expected to begin in the first half of 2020.

I conclude by saying we're very optimistic that GEN-1 will ultimately find its place in the treatment arsenal for ovarian cancer and will be both competitive in the marketplace and a high margin product force. With margins and supply in mind, we also announced last week that we are finalizing our tech transfer, in fact, we produced a lot, one first lot for clinical use from -- actually 2 lots from our global manufacturers, Hisun Pharma and Poly Pharm -- Hainan Poly Pharm in China.

As I mentioned, our goal is to ensure an affordable treatment regardless of the market or the region. Once approved, the cost structure for GEN-1 is expected to support rapid market adoption and significant gross margins.

Now, before I turn the call over to Jeff to -- for his review of our third quarter financials, I want to emphasize that Celsion, again, is well-positioned to deliver significant developments in the coming year. Underpinning our fundamentals is a strong balance sheet, access to capital and a committed management team, while we continue to expect to create significant value for our shareholders and patients in the medical community. Now with that, I'll turn it over to Jeff. Jeffrey?

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Jeffrey W. Church, Celsion Corporation - CFO, Executive VP & Corporate Secretary [4]

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Thank you, Mike. Details of Celsion's third quarter 2019 financial results were included in the press release we issued yesterday evening and in our Form 10-Q, which we filed last night after the market closed.

As Mike stated, we made significant progress during the quarter in developing our lead products. Our ongoing focus on efficient cash management will allow us to reach key milestones over the near and intermediate term. As of September 30, 2019, Celsion's cash and investment balance was $18.8 million. In addition, the planned sale of $4 million of New Jersey State NOLs this year and next and the unused amounts available under our 2 existing equity facilities should allow us to extend our cash well into the first half of 2021.

This timing will take us past the final endpoint of the Phase III OPTIMA study, which is 197 events. If needed, our cap table is very clean and includes approximately 22 million common shares outstanding and only 600,000 warrants.

With respect to future funding flexibility, we have a $75 million shelf registration statement on file with the SEC to sell registered shares at the appropriate time. We also have 2 equity facilities that allows us to raise capital in an opportunistic fashion with no warrants and a very low commission or fee. The first facility is a $10 million common stock purchase agreement with Aspire Capital. You may have noticed their filing with the SEC, in which, we recently amended this agreement.

Note that we have registered 4.5 million shares under this agreement. The second facility is a traditional at the market equity line with Jones Trading. The use of either one of these facilities is under the complete control and discretion of the company.

Now turning to the third quarter financial results. Celsion reported a net loss for the third quarter of 2019 of $5.5 million or $0.25 per share, compared to a net loss of $4.7 million or $0.26 per share in the same period last year.

Operating expenses were $5.5 million in the third quarter of 2019, which represented a $1.4 million increase from the $4 million in the same period of 2018. Specifically, research and development expenses were $3.7 million in the current quarter, up from $2.2 million a year ago.

Clinical development costs for the Phase III OPTIMA study in the prior year was favorably impacted by an $800,000 onetime credit resulting from cost concessions negotiated with the study's lead CRO. Also contributing to the increase this year were higher costs to support the anticipated global registration filings for ThermoDox as well as higher costs associated with technology transfer of GEN-1 to a new contract manufacturing organization. The goal of which is to significantly reduce our manufacturing costs.

General and administrative expenses were $1.8 million in the third quarter of 2019 compared to $2 million in the same period of 2018. This decrease, which is primarily attributable to a $200,000 decline in noncash stock compensation expense in the current quarter.

During 2013, we recorded a gain of $86,000 from the reduction in the earn-out liability related to potential milestone payments. As we reported earlier this year, we renegotiated the earn-out milestones applicable to the ovarian cancer indication, resulting in a favorable impact on future milestone liability payments and cash flow.

Celsion realized $200,000 of interest income from short-term investments during the third quarter that compared to about $100,000 in interest income last year. In connection with the June 2018 venture debt facility with Horizon, we incurred interest expense of $400,000 during the third quarter of 2019, which is consistent with the interest we incurred last year for the same third quarter period. I'd like to remind you that the Horizon venture debt is interest-only through the second quarter of 2020. Net cash used for operating activities in the first 9 months of 2019 was $14.6 million, which compares to $13.1 million used to fund operations in the comparable period in 2018. Total cash provided by financing activities was $1.7 million during the third quarter of 2019 and $6.2 million for the first 9 months of 2019, which included opportunistic sales through the 2 equity facilities I mentioned earlier. On October 1, we announced our application to sell additional New Jersey State NOLs in the amount of $2 million to raise non-dilutive capital was approved by the New Jersey Economic Development Authority. We plan to complete the sale of these NOLs prior to the end of the year.

We anticipate that our net cash usage for the fourth quarter of 2019 will be approximately $5 million. Our 2020 budget calls for keeping expenses and cash utilization at approximately $4 million per quarter. Our current cash, together with additional NOL sale proceeds projected for 2019 and 2020, is expected to provide us with funds into the first half of 2021.

In closing, we believe that a successful clinical outcome for ThermoDox in a $1 billion commercial opportunity will result in a significant value inflection for the company as well as their shareholders. I'd now like to turn the call back to Mike.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [5]

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Thanks, Jeff. I'm always amazed how you can bring so much life to the numbers of the company. Thanks, Jeff. I just want to say, I'm so very proud of all of our employees, who continue to work for you and patients around the world, their tireless dedication, and I can attest to, to patient health, to our research, to finding a better way. I am confident we'll make a great difference in the lives of patients, their families and the medical community. I'll only close by saying we've been actively presenting the Celsion story to investors. And we're looking forward to January, where we'll be meeting with investors and analysts in San Francisco around the J.P. Morgan Healthcare Conference. We'd encourage you, if you'd like to meet with us, if you want to arrange a one-on-one meeting, please do contact LHA. Kim is available to you, our Investor Relations firm to book a slot. So with that, we'll now open the call to questions. Operator, please open the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jason Kolbert with Dawson James.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [2]

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By the way, thank you so much for supporting me and presenting Jeff down in Florida. You did a great job. There's been a lot of interest, and we're actually very excited to be covering Celsion.

Mike, you mentioned something that I just wanted to go back on, which is the potential for success at the next interim analysis, that's very exciting. Can you expand upon that comment?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [3]

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Yes, I can. I think all the signals point in the right direction. I'd start first with the hazard ratio of 0.7 is -- and the groups seem to be comparable, very comparable when we look at the demographics. The OPTIMA group and the subgroup that we planned this on. So the hazard ratio is somewhat better, quite a bit better, than the hazard ratio that we saw. I mean, better being it gives us a greater margin for success at 0.7 versus 0.65 from the subgroup. The p-value, we have a pretty tight p-value in these in these first interim looks in order to preserve alpha. The p-value that we saw with the subgroup was 0.2. The p-value allowed at the second interim analysis is 0.0244. So there is a hurdle here for success that seems, to us, to be achievable. So let's start there. When we look at the median time to follow-up. If you look at the Kaplan-Meier curves, in the published manuscript for the HEAT study, you see that at about 35, 36 months that the separation becomes pretty significant. And that's about the time -- the median follow-up would be about that time for the second interim analysis. So we're assuming, of course, that nothing has dramatically changed with the control arm. But everything seems to be moving in the right direction with -- in that regard. And then we also have the other soft indicators. PFS looks to be tracking almost perfectly with PFS in the subgroup. The best that we can tell, although it's immature, survival data, I mean, deaths tracking reasonably well. The trend is following the subgroup, the best we can tell, almost exactly so -- and the event rate. So the deaths are occurring as almost right on track with the subgroup. So that, for us, gives us some confidence that this next look has a greater potential to be successful. No guarantees, obviously, but much greater potential to be successful.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [4]

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Mike, given the desperate need in China and kind of the state of health care reform there. You must be in very active discussions not only with the FDA but with multiple partners in China. Can you talk a little bit about kind of what your sense is of the market and the ability to do a BD deal related to China?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [5]

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Yes. That's a great question. So we do have a lot of interest. We get a lot of incoming from not only from Chinese companies but also from multinationals. So just our business development person just came back from the BiO BB conference in Europe with -- again, a great deal of interest. As regional interest in China and the countries that are nearby is palpable, we haven't -- and there is some ongoing diligence, I can tell you that. We haven't seen any deal structure from the Chinese companies that would be -- we think would be appropriate. For the multinationals, I think they're taking a little bit more of a wait and see attitude. They're doing their diligence, but it won't -- before there's any real move, there's going to be the need for some positive data. But I can tell you this, if you open your medicine cabinet, you'd see the names of a lot of the companies that have asked for updates and signed confidentiality agreements with us.

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Operator [6]

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We'll take our next question from Matthew Cross with Jones Trading.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [7]

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Congrats on the recent progress for both programs. Starting out with GEN-1. I had a couple questions related to the upcoming readout from the OVATION 2 study as you progress through the Phase I portion. First off, is there any guidance you can provide on approximately how many patients we should have, response rate, surgical status, et cetera, on -- at this time point and maybe an average of how many cycles of GEN-1 these patients will have received by that time or if that's something that will be described at the time of presentation?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [8]

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Yes, I'm going to ask Nick to jump in here. It's going to be a minimum of 4 sites.

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Nicholas Borys, Celsion Corporation - Executive VP & Chief Medical Officer [9]

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Yes, this is Nick Borys. In regards to the number of patients we'll be looking at, we're randomizing this study from the beginning. So as Mike mentioned before, it's a 1:1 randomized design. So for the safety purposes, we'll be looking at, at least 6 patients to confirm our 100 mg/m² dose. And we'll be tracking our primary endpoint, which is progression-free survival out from there. And the median time to progression, at least in the biggest studies that we've seen until recently, would be about 12 months. So whether we have some PFS data at that point might not be too much. However, one nice indicator to keep a look -- to keep an eye on that we think is indicative is how many patients come out of surgery with no tumor in the margins, meaning the R0 effect. So we saw 100% R0 at our highest dose in the last study, which was 80 mg. In this study, we're looking at very good indicators, again, from the 2 patients that got surgery. And so that's something to keep an eye on when we make the announcement later on at that first analysis after the first 6 patients have 100 mg.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [10]

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So if I could add to that. So we'll have our first look at a comparator group that large at 6 and 6. This comparator group, if it shows what we expect that GEN-1 is providing some advantage, what we intend, as we had mentioned on an earlier call, to share that information with the FDA, and we are looking for ways to accelerate our program. And the agency has indicated to us in a type-D teleconference meeting that they would be interested in helping us find a way to do so.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [11]

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Perfect, that's great color. I appreciate it, Nick and Mike. And then kind of a follow-up to that. As we're lining up these initial results with what was seen in OVATION 1, clearly, part of the promise of OVATION 2 is the evaluation of further maintenance doses of GEN-1 following neoadjuvant chemo. And I wouldn't expect you to really be too far into this portion of the protocol by the time of readout this quarter. So if you're treating with a higher 100 mg/m² dose without really entering that maintenance dose period just yet, would you consider it fair to kind of more-or-less compare these initial results to those OVATION 1, apples-to-apples, of course, taking into account that these are still early insights in, as you just pointed out, just 6 patients in that group?

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Nicholas Borys, Celsion Corporation - Executive VP & Chief Medical Officer [12]

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Oh, yes. I think that's a great question. This is Nick Borys again. Of course, we'd like to compare to what we saw in the OVATION 1, what we saw. I think we're pretty excited to see activity continuing on and GEN-1 contributing to that anti-tumor activity during the maintenance period. I don't know if we emphasized enough that the drug really is very well tolerated by the patients, has minimal side effects, the DMC is very comfortable with that. And that seems to be a theme in immuno-oncology right now with the new generation of medicines, and I'm very glad that GEN-1 is a part of that. So we will be comparing the data. We'll probably learn a lot of what works well and what doesn't. So it's going to be interesting data in the future, I agree.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [13]

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I should also say, Matt, that the tissue samples taken at baseline and during surgery will be sent to Roswell Park for interrogation for the immune system activity, immunohistochemistry data as well as blood and fluid samples. So we'll be able to -- shortly thereafter, we should be able to report some translational data on these 12 patients.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [14]

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Great. Glad to hear it. And looking forward to that data and glad to hear that things are -- that the safety profile is still continuing to be quite well tolerated given that you're now increasing the dosage a little bit here, and obviously glad to see that. If I can squeeze in one more quick one on ThermoDox. Obviously, as we're coming up to the next interim readout from OPTIMA, which is, as you've communicated and we would agree, appears to be the first likely opportunity to be successful, could you give us and update on your take regarding the commercialization of ThermoDox? And maybe, kind of in relation to some of the earlier questions, I guess, you've spoken to the manufacturing efforts to entice large pharma licensing, but are -- do you consider all options on the table, specifically within the U.S. market? Or do you expect you'd only be comfortable bringing ThermoDox to market here with a partner given that you've guided to having cash through the first half of 2021? I'm kind of wondering if that factors in scaling up a commercial team here in The States? Or if that -- this also maybe indicates you prefer not to go it alone here? China, obviously, most likely a partnering opportunity, as you've alluded to.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [15]

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Yes. I can say with some confidence, outside of the United States, we know what we're good at, and we're also very conscious of what we're not. And marketing a product like ThermoDox outside of the United States would be a great channel for a little company like ours. So our complete expectation is that ThermoDox would be licensed either to a single agent for the global market outside of the U.S. or regionally. And I think there's a regional probability here that could be very beneficial to shareholders and the company.

For the United States, we're always going to do what's best for shareholders. I mean, I think, in our heart of hearts, so we think we could be the best stewards for ThermoDox and -- in the commercialization in the U.S. market. But that requires capital and risk and some hiring challenges that are always some -- have some difficulty. And a big pharma is a machine, when it comes to -- for bringing a drug like this to market, particularly in an underserved market. There is no competition. This is the first and only first-line therapeutic for HCC. So on the one hand, that makes it very attractive for us to think that we could do this alone.

On the other hand, I suspect it's going to be very attractive to commercial partners. Our objective really is to do what's best for shareholders. And if we get a good deal for the U.S., that's certainly would be the focus of the company. Does that make sense?

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [16]

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Yes. No. Absolutely. Got it.

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Operator [17]

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Our next question from Kumar Raja with Brookline Capital Markets.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [18]

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So with regard to the second interim analysis, obviously, I understand that it's going to be 158 events. So it would be very similar in terms of the DSMB would be doing a blinded analysis and, based on their findings, they would decide whether to unblind the study or continue further, that's the expectation there.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [19]

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Yes. So it's the DMC. So the DMC has access to unblinded data, Kumar. So they will be looking at the tables, listings and graphs for -- of the overall study, along with a number of different slices that they like to look at in order to determine the success of the trial. So they get a complete and comprehensive data set. So they're -- I mean -- and that's Dr. Borys' point of view. And so we need to give them everything that we could possibly believe that's important to making a good decision with regards to unblinding the study. Because let's assume that they do recommend unblinding the study, we want to be in a position to be able to present all of this information, which eventually would be acquired by the FDA.

They're going to be looking to slice and dice it on a number of things, regionally, by site, by gender, I mean, that's just the kind of work that they do, by tumor size.

So we want to be prepared to present to the agency a sufficient data set to make sure that we can go forward with an NDA without question.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [20]

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And in terms of the alpha spend, what was alpha spend in the first versus the second? And also in terms of the insight from the first interim analysis are in line -- are they all in line with the expectation in terms of what all data you were able to access and analyze?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [21]

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Yes. So the alpha spend is very, very small. I think, because we're not unblinding the study, and we're using this [land-the-mets] approach, if you're familiar with that. In the end, we will have something like 0.45 spending -- alpha spending available to us. So between the 2, I don't know how it breaks down off the top of my head. But between the 2, our spending is -- the hit is quite small. I can -- we can get you the detail on that separately and happy to make it available to anyone.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [22]

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And in terms of GEN-1, have you had any further impacts at the FDA since you upgraded last or no?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [23]

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I'm sorry, could you repeat that? In terms of?

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [24]

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Have you had any further interactions with the FDA with regard to GEN-1 since the last update, last quarter?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [25]

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Not since the last quarter, I think, what we reported on the last call is that we had a -- we submitted a briefing document to the agency, largely focused on how can we -- given the promise and the data that we saw in the Phase I portion, is there an opportunity for us to accelerate this program, either through breakthrough designation or otherwise. And what we reported at that time, and that's not too long ago. When did we have that meeting? Was it in July? The agency, I think we reported, what was supposed to be a 30-minute call turned into almost an hour. In their first opening salvo to us with this, they're very excited. They're very encouraged. They want us to continue. They've asked us to -- the only outlier here is, they'd like to see is some comparator information, that control, some control. So we asked if we could get back to them once we have some data from the current study with the control -- comparator control arm, so we're looking forward to that. As soon as we can show some comparison data from this study, we'll summarize it with the data that we sent to them previously, and I'm sure they'd be ready to take another call from us.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [26]

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And with regard to the investigator-sponsored trials in breast cancer in Netherlands. Any updates on that trial? I mean, in terms of data, when can we expect to see some data from that trial?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [27]

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Yes. So for the breast cancer study, for the most part we have -- in the interest of conserving cash, we have put that on hold. I think the company is in a -- not in a position to fund much more than we're currently talking about. It's -- we have a number of investigator sites in Europe who would be delighted to move forward. But right now, it's the cash resource. And we're not prepared to raise capital that to fund that research at this point.

I'm sorry. Nick has another comment on that. I'm sorry. You want to talk about Utrecht?

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Nicholas Borys, Celsion Corporation - Executive VP & Chief Medical Officer [28]

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I think you mentioned Netherlands, which I believe might have indicated you were interested in the progress at Utrecht, which is an investigator-driven study in breast cancer. And so that's moving on. They have a very long administrative and IRB process. But I think they've gotten all their approvals. They recently sent me a notification that they're looking to begin recruiting patients early in the New Year, so we're pretty excited about that as well.

As you know, this is involving high-intensive focused ultrasound therapy with ThermoDox. There's been very interesting clinical data and a great indication for breast cancer. So hopefully, in a year, you'll be hearing more okay.

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Operator [29]

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Our next question comes from Jackie Yan with Oppenheimer.

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [30]

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This is Jackie. (inaudible) Could you maybe talk a little bit more about the compassionate use in China, and any fast-to-market strategy there in China?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [31]

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Yes. So this compassionate use program, I think, is as exciting as it gets. So what we have is an installed base of investigators, I believe, it's at 16 sites that were active in the OPTIMA study. Virtually every site provided patients to the trial. One site, we weren't too happy with, so we probably won't include them, but 15 to 16 sites. And I -- we're going to take a slow roll on this because we want to make sure that the drug is being used properly. But do you want to mention how we're going to -- Nick Borys will talk to you a little bit more about how we're going -- how we plan to move forward with the compassionate use program.

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Nicholas Borys, Celsion Corporation - Executive VP & Chief Medical Officer [32]

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Yes, this is a brand new program in China. I think they're learning from the U.S. and European experience on this. And interestingly, going to the meeting with Mike a few weeks ago in China, one of our investigators was with us, and she brought up the need for compassionate use of the drug. So the regulators followed her lead and recommended to us that we do compassionate work. So we're looking to, as Mike said, start small, look at -- work with the investigators, see what populations that they would most benefit from ThermoDox use with their RFA. So we're going to take very deliberate steps on this, work closely with the regulators. Again, this is a new program in China. So we want to make sure it gets done correctly. We'll be collecting a lot of good safety information. We'll probably see potential areas of other interest with the investigators who've used our drug. And so it's hard to predict right now what kind of patients we'll be getting or how long it's going to take. But we're going to make very deliberate efforts in that direction.

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [33]

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All right. That's very helpful. I mean, and for the filing strategy, should we expect that you're going to file ThermoDox in China before you're filing in the U.S.?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [34]

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Yes. So that's been our strategy. And it will continue to be. It's going to be largely on the strength of the data, Jack. So the stronger the data, the more opportunity we have to get a -- and have a strategy that involves China first. So in our discussions with the Chinese authorities, they know that our plan is to file an NDA. They, actually, as I mentioned, they see 2 modules, 2 and 3, are virtually complete. So filing an NDA with a common technical document, it's not that difficult anymore to file globally in a relatively short period of time. But at the moment, it's China first, followed by the U.S., and then the European MAA filing.

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [35]

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Got it. And maybe if we switch gears to GEN-1. Any update on the scaling work being done with GEN-1, if there are any specific processes or you can comment on refining the further improve upon view?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [36]

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Refining what, I'm sorry? Refining...

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [37]

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Sorry. All right. Any scaling works have been done for GEN-1 like from Phase I to Phase II?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [38]

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Scaling work. You mean from a trial-design standpoint?

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [39]

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Yes.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [40]

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Yes. So the trial design is -- it's powered to show a 33% improvement. And I think we're -- the p here is 0.1 in a Phase II study. So we're looking at 130 patients. We're going from literally 16 patients to 130 patients, half of whom will be in a control arm, and the other half in the therapeutic arm. What we'd like to be able to do, in our heart of hearts here, is, if we have some positive data and the agency agrees, is just to expand this trial so that we have enough power to assume it's a registrational study.

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Yichuan Yan, Oppenheimer & Co. Inc., Research Division - Associate [41]

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Got it. And the last one is, how should we expect updates from the open-label Phase II portion of GEN-1?

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [42]

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So we would -- if it follows the way we presented data from the Phase I study, as soon as the investigators are comfortable with the results. It's the surgical results, the tumor responses. We have been -- and some of the other markers like CA 125 and the like. As soon as we have that information, we -- and the investigators are confident, we present it. So throughout the course of the year, we will -- and it's likely to come in groups so that there's enough comparator information that the investors and analysts, like yourself, can begin to draw some conclusions.

So I think, operator, we've exceeded our time here. So I think we'd like to close off the conference call at this point.

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Operator [43]

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Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

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Michael H. Tardugno, Celsion Corporation - Executive Chairman, President & CEO [44]

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I'm sorry. Before we -- I'd just like to say a couple of last words. I'm sorry, I just want to thank everybody for their time this morning. We could not be more excited about the prospect that Celsion holds in its 2 investigational programs. We look forward to keeping you updated because the potential here is that we will make a huge difference in the lives of cancer patients. Have a great afternoon.

Thank you, operator.