Celcuity Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. The financial statements are unaudited. Celcuity is a development-stage cellular analysis company developing CELx cancer diagnostic tests; it has not generated revenue.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.71m | $1.60m | $4.77m | $4.69m |
| General and administrative expense | $0.38m | $0.38m | $1.14m | $1.29m |
| Total operating expenses | $2.09m | $1.98m | $5.91m | $5.98m |
| Net loss | $1.98m | $1.87m | $5.55m | $5.66m |
| Basic and diluted loss per share | $0.19 | $0.18 | $0.54 | $0.56 |
| Operating cash flow | Not presented for the quarter | $(4.29)m | $(4.56)m |
Gross margin is not applicable because the company reported no revenue. At September 30, 2019, cash and cash equivalents were $16.27m and short-term investments were $4.18m, or about $20.45m combined. Total assets were $21.74m; total liabilities were $1.03m, consisting primarily of lease liabilities and operating obligations. The filing reports no conventional funded debt; finance lease liabilities were $21,314. Current assets were $20.61m versus current liabilities of $0.91m.
For the first nine months, investing activities provided $4.39m, primarily from investment maturities/sales, while financing activities provided $0.23m. Cash and cash equivalents increased by $0.32m. The company had an accumulated deficit of $15.04m at the corporate level; MD&A also refers to a separate Celcuity LLC accumulated deficit of approximately $12.6m.
Changes versus comparable periods
- Q3 operating expenses rose 6% year over year, mainly because R&D increased 7%; quarterly net loss widened 6% to $1.98m.
- For the nine-month period, operating expenses declined 1% and net loss improved 2%. Lower G&A and stock-based compensation offset higher clinical validation and laboratory activity.
- Nine-month operating cash use declined to $4.29m from $4.56m.
- Cash and cash equivalents were $16.27m at September 30, 2019, versus $15.94m at December 31, 2018; investments declined from $8.95m to $4.18m, largely reflecting investment sales/maturities.
Outlook, programs, and risks
- Management said current cash was expected to fund operations and obligations for at least the next 24 months, based on its current business plan. It expects R&D and G&A spending to rise and anticipates increased sales and marketing costs as commercialization approaches. No revenue or earnings guidance was provided.
- The CELx HSF Test is intended to identify HER2-negative breast cancer patients with abnormal HER2 signaling. Trials with Genentech/NSABP and Puma/West Cancer Center were underway; interim results were expected in mid-2020. A separate 35-patient colorectal cancer study was expected to finish in late 2020; Celcuity said it would not be paid for that testing.
- Celcuity planned further development of its CELx MP Test, combining HER-family and c-Met pathway analysis, and development of tests for additional potential cancer sub-types. These plans and timelines are forward-looking and subject to clinical, regulatory, commercial, and financing risks.
- Clinical research agreements include estimated potential milestone payments of up to approximately $2.69m under one agreement and approximately $150,000 under another, subject to milestones. Additional capital may be needed; financing may be unavailable on acceptable terms or could dilute shareholders.
- The company adopted lease accounting standard ASC 842 effective January 1, 2019, recognizing operating lease assets and liabilities; adoption did not affect reported operating results or cash flows.
- Disclosure controls and procedures were considered ineffective because of a continuing material weakness involving limited segregation of duties. Management described remediation efforts, including adding transaction-approval controls and using an outside resource to review and test controls.
- Celcuity reported no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether cash use remains consistent with management’s stated at-least-24-month runway, given expected increases in development and commercialization spending.
- Clinical trial enrollment, interim and final results, and whether the CELx tests demonstrate clinical utility and obtain required regulatory and reimbursement support.
- Whether pharmaceutical collaborations produce paid testing, milestones, or other revenue; the colorectal study described in the filing is unpaid.
- Amounts and timing of clinical-study milestone commitments and any future financing needs or dilution.
- Progress in remediating the segregation-of-duties material weakness and whether disclosure controls become effective.