Business context and reporting period
Celularity Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2023. It is a clinical-stage biotechnology company developing placental-derived cell therapies, with commercial biomaterials and biobanking businesses. Unless noted, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $3.94 | $5.94; down 33.7% |
| Gross profit / margin | $1.93 / 49.1% | $1.91 / 32.2% |
| Research and development | $16.95 | $21.67 |
| Operating loss | $(63.87) | $(41.61) |
| Net loss | $(64.02) | $(62.87) |
| Basic and diluted loss per share | $(0.41) | $(0.48) |
| Cash used in operating activities | $(15.00) | $(34.25) |
Revenue included $1.04 product sales and rentals, $1.36 services, and $1.54 license, royalty and other revenue. The decline primarily reflected lower sales to distribution partners. Gross margin improved as cost of revenue fell faster than revenue.
At March 31, cash and cash equivalents were $8.53; restricted cash was $14.83. Current assets were $25.00 versus current liabilities of $66.46, a working-capital deficit of approximately $41.45. Short-term Yorkville debt had a $30.95 fair value and $32.38 unpaid principal; long-term debt was $4.75. The company reported $206.79 total liabilities.
Material changes and unusual items
- Results included a $23.68 Palantir software cease-use charge, following the company’s decision to stop using the platform and dispute the agreement.
- A $29.63 goodwill impairment was recorded for the Cell Therapy reporting unit. A $18.93 reduction in the fair value of acquisition-related contingent consideration partly offset operating costs.
- Operating cash use decreased year over year, but included significant noncash adjustments and a $23.68 increase in accrued R&D software liability. Financing provided $12.76, including $9.00 from a March PIPE and $5.00 from the Starr bridge loan; the company also paid $1.62 of Yorkville principal.
- Shares outstanding rose to 165.03 million at quarter-end from approximately 148.92 million at year-end. Further equity issuances and warrants create potential dilution.
Outlook, risks and contingencies
Management stated that substantial doubt exists about the company’s ability to continue as a going concern. At the financial-statement issuance date, it reported approximately $5.7 million of unrestricted cash and no additional financing then secured or considered probable to fund operations for the next 12 months. Management warned that without near-term capital it may be unable to meet obligations and could need to curtail operations, sell assets or the company, or seek bankruptcy protection.
Yorkville had required monthly trigger repayments after a contractual triggering event. Subsequent to quarter-end, Celularity used $5.5 million of net proceeds from an April registered direct offering and proceeds from a May $6.0 million RWI bridge loan to make payments. The filing said approximately $21.8 million of Yorkville principal remained at issuance, with an approximately $6.6 million trigger payment due June 14, 2023. The RWI loan also matures June 14 and is secured by company assets, pari passu with the Starr loan. A May private placement raised approximately $3.7 million. These transactions did not eliminate the disclosed going-concern uncertainty.
After preliminary Phase 1 data, the company announced that the CYNK-001 AML trial would close to further enrollment and expected a full $89.1 million impairment of its acquired IPR&D asset in the quarter ending June 30, 2023; further goodwill and long-lived-asset impairment remained under evaluation. The company had already planned to stop recruitment in its GBM and HER2+ gastric trials. It said CYCART-19 could potentially begin a Phase 1/2 trial in the second half of 2023, conditional on FDA clearance of the IND and sufficient funding. Management anticipates lower R&D and SG&A costs following reprioritization and a workforce reduction of about one-third; no quantified earnings or revenue guidance was provided.
Other notable risks include Nasdaq’s notice of noncompliance with the $1 minimum bid-price requirement, with a September 11, 2023 deadline to regain compliance; Palantir arbitration seeking damages equal to the contract value, with Celularity asserting counterclaims; a company lawsuit seeking about $2.35 million in unpaid biomaterials invoices; and an ongoing U.S. Attorney’s Office Civil Investigative Demand concerning claims involving human tissue products, including Interfyl. Management also reported disclosure controls were not effective due to material weaknesses in the control environment and accounting for contingent consideration, deferred taxes and warrants.
Most important facts for investors to verify
- Current cash runway, access to further financing, and ability to meet Yorkville and bridge-loan obligations as they fall due.
- Status and terms of any Yorkville waivers, required repayments, stockholder approvals, and Nasdaq bid-price compliance.
- Timing and amount of the expected CYNK-001 impairment and any additional impairment charges.
- Clinical-trial decisions, FDA progress on CYCART-19, and the funding available to support retained programs.
- Outcome and potential exposure from Palantir arbitration, the federal investigative demand, and the Evolution Biologyx collection lawsuit.
- Progress remediating internal-control material weaknesses and the scale of potential dilution from issued shares, warrants and future financing.