Celularity Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing was signed March 31, 2023; it is an annual report, not a standalone Q4 report. Financial amounts below are in U.S. dollars unless noted.
Business context
Celularity is a clinical-stage biotechnology company developing off-the-shelf, placenta-derived cell therapies. It has no cellular therapies approved for sale and has generated no revenue from therapeutic sales. Its commercial businesses sell placental biomaterials, principally Biovance and Interfyl, and provide biobanking services. It reports Cell Therapy, Degenerative Disease, and BioBanking segments.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $18.0 million | $21.3 million |
| Operating loss | $25.6 million | $109.1 million |
| Net income (loss) | $14.2 million | $(100.1) million |
| Cash used in operating activities | $137.9 million | $110.1 million |
| Cash and cash equivalents at year-end | $14.0 million | $37.2 million |
- Revenue comprised $3.7 million of product sales and rentals, $5.5 million of services, and $8.7 million of license, royalty and other revenue. Total revenue fell 15.7%, primarily because FY2021 included $8.0 million of Sanuwave license revenue; higher distribution-partner product sales partly offset the decline.
- Cost of revenue was $19.7 million, exceeding revenue by $1.7 million; implied gross margin was approximately negative 9.5%. Celularity cited production and materials costs incurred ahead of degenerative-disease sales that did not materialize.
- FY2022 reported net income does not indicate operating profitability: it included a $126.3 million noncash gain from revaluing acquisition-related contingent consideration and $42.1 million of gains from warrant-liability fair-value changes. The company still recorded a $25.6 million operating loss and used substantial operating cash.
- Research and development expense was $78.4 million, down 11.3%; selling, general and administrative expense was $66.0 million, down 7.5%. The decreases largely reflected lower stock-based compensation compared with FY2021.
- At December 31, 2022, total assets were $401.1 million, total liabilities $202.2 million, and accumulated deficit $645.5 million. Yorkville debt had $37.0 million unpaid principal and a $37.6 million fair value carrying amount. Year-end cash excludes $14.8 million of restricted cash.
- Cash from financing activities was $119.8 million, including warrant exercises, a private placement, Yorkville advances and ATM share sales. This was more than offset by operating and investing cash outflows.
Material changes and subsequent developments
- Degenerative Disease revenue declined to $12.5 million from $15.8 million; the segment recorded a $3.7 million gross loss, versus $9.8 million gross profit in FY2021. Celularity impaired $3.6 million of goodwill in this segment, citing lower sales and growth forecasts.
- Inventory rose to $28.3 million from $12.3 million, including $22.9 million classified as noncurrent; the company also recorded a $1.1 million inventory reserve. The cash-flow statement reflects a $16.9 million inventory build.
- In January 2023, Celularity announced reprioritization and a workforce reduction of approximately one-third by March. Management expected near-term R&D and SG&A reductions. It also announced plans to stop recruiting in its glioblastoma trial while continuing solid-tumor research.
- After year-end, Yorkville declared a triggering event under the pre-paid advance agreement. Repayments of $6.0 million per month, plus a 5% premium and accrued interest, were required. Celularity paid approximately $2.0 million on March 24, 2023 and reported seeking a waiver for approximately $11.0 million then remaining due; no waiver had been secured by the filing date.
- Post-year-end financing included a $5.0 million senior secured Starr loan, bearing 12% annual interest and maturing March 2025, and a March private placement that raised approximately $9.0 million. Celularity also paid $3.0 million cash and issued $1.0 million of stock under a binding term sheet for a sublicense.
Outlook, risks and unusual items
- Going concern: Management and the auditor stated that substantial doubt exists about Celularity’s ability to continue as a going concern. As of the financial-statement issuance date, unrestricted cash was approximately $8.6 million, and management said it had no additional outside capital secured or considered probable to fund operations for the following 12 months. The financial statements were prepared on a going-concern basis and do not reflect potential adjustments from this uncertainty.
- Funding and debt: Failure to raise capital, obtain Yorkville relief, or meet obligations could require further operating cuts, asset sales, a sale of the company, or bankruptcy proceedings. The filing also reports Nasdaq’s March 2023 notice that the share price had failed the $1.00 minimum bid requirement, with a compliance deadline of September 11, 2023.
- Clinical and regulatory: FDA requested additional information on the CYCART-19 IND submitted in Q1 2022; the proposed Phase 1/2 trial was expected in the second half of 2023 only if the IND cleared and funding was available. CYNK-001 remained in a Phase 1 AML trial; clinical outcomes and trial timing remain uncertain.
- Commercial and legal exposure: CMS had rejected certain Interfyl reimbursement claims submitted by a distribution partner, with a $1.8 million reserve against that customer’s receivable. A U.S. Attorney’s Office Civil Investigative Demand sought information about claims involving injectable human tissue products, including Interfyl; the inquiry was preliminary and potential liability was unclear.
- Other unusual items: Celularity stopped using Palantir’s Foundry platform and disputed the contract. It expected to recognize approximately $27 million of remaining contract costs in Q1 2023. Sorrento, whose licensed technology is used for CYCART-19, filed for Chapter 11 in February 2023; the impact on performance under the license was uncertain.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses involving accounting resources, contingent consideration, deferred taxes and warrants. Remediation was underway.
Investor facts to verify
- Cash runway and the status of new financing, Yorkville repayment demands, any waiver, and the September 2023 debt maturity.
- Whether management’s going-concern plans are sufficient to fund operations and whether further restructuring or asset-sale measures are needed.
- Progress on FDA questions for CYCART-19 and clinical data, enrollment and development priorities for the remaining programs.
- Resolution of Interfyl reimbursement denials, the U.S. Attorney’s inquiry, and the disputed Palantir contract costs.
- Remediation of material weaknesses and the accuracy of fair-value estimates that materially affected reported FY2022 net income.
- Nasdaq listing compliance and the potential effect of subsequent equity issuances and warrants on dilution.