Celcuity Inc. — 2018 Form 10-K
Business context and reporting period: Annual report for the fiscal year ended December 31, 2018, compared with 2017. Celcuity is a pre-commercial cellular analysis company developing CELx cancer diagnostic tests that assess signaling activity in living tumor cells. The filing reports annual results; it does not provide a clear standalone 2018 fourth-quarter financial value.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | None to date | None to date |
| Research and development expense | $6.33 million | $4.98 million |
| General and administrative expense | $1.61 million | $0.97 million |
| Total operating expenses / operating loss | $7.93 million | $5.95 million |
| Net loss | $7.48 million | $6.25 million |
| Basic and diluted net loss per share | $0.74 | $0.84 |
| Net cash used in operating activities | $6.08 million | $4.95 million |
| Cash, cash equivalents and investments at year-end | $24.90 million | $31.40 million |
| Total assets | $26.03 million | $31.97 million |
| Total liabilities | $0.68 million | $0.58 million |
Margins are not meaningful because the company had no revenue. Year-end cash and cash equivalents were $15.94 million, with a further $8.95 million in investments. Debt was not material at year-end; the 2017 convertible notes converted to common stock in connection with the IPO. Management said current cash was expected to fund operations and obligations for at least the next 24 months, based on its business plan.
Material changes versus 2017
- Net loss increased by $1.23 million, or 20%; operating expenses rose 33%. R&D increased 27%, primarily for compensation, CELx MP development and validation, clinical and laboratory work, and patent costs. G&A increased 65%, largely reflecting a full year of public-company costs and higher compensation.
- Operating cash use rose approximately $1.13 million. Cash and investments declined about $6.5 million, while cash and cash equivalents rose due largely to converting investments into cash.
- Interest income increased to $448,834 from $152,879; interest expense fell to $111 from $451,664 after conversion of the 2017 notes.
Outlook, developments and risks
- The company reported no revenue and expects continued operating losses and increased R&D, clinical-trial, commercialization and public-company expenses. It anticipates future revenue from pharmaceutical collaborations, clinical-trial testing, milestone payments, and, potentially, test sales and royalties; these are expectations, not established revenue streams.
- Two CELx HSF-selected breast cancer trials were in progress. The Genentech/NSABP FACT 1 trial planned 54 patients; slower-than-expected enrollment led NSABP to plan up to 16 additional sites, potentially increasing Celcuity’s trial cost by up to $650,000. Interim results were expected in late 2019, with final results about nine months later. The 27-patient Puma/West Cancer Center FACT 2 trial was expected to activate in early 2019, with interim results in late 2019 or early 2020 and final results about 12 months later.
- Celcuity completed development of a second breast-cancer test in Q1 2018 and planned to combine it with the HER2 test as the CELx Multi-Pathway test. The company also reported 12 additional potential cancer sub-types in development. These findings and anticipated test capabilities are based on company research and require validation.
- Key risks include clinical-trial enrollment, timing and results; obtaining pharmaceutical partners and drug-indication approvals; adoption and reimbursement; the possibility of future FDA regulation of laboratory-developed tests; need for additional capital; and dependence on a single Minneapolis laboratory.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to limited segregation of duties, identified as a material weakness. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- No material legal proceedings or off-balance-sheet arrangements were reported. The company had lease and clinical-study commitments, including potential milestone-based clinical costs.
Important facts for investors to verify
- Actual cash burn and whether the stated minimum 24-month runway remains supportable as trial and development costs rise.
- FACT 1 enrollment, expanded-site costs, and reported trial endpoints and results; and FACT 2 activation, enrollment and outcomes.
- Independent clinical validation of CELx findings, test performance and clinical utility, as well as partner commitment and any resulting commercial agreements.
- Progress toward reimbursement, pricing and physician adoption; the stated $4,000–$7,000 test price range is an estimate, and no tests had generated revenue.
- Remediation of the material weakness in internal controls and maintenance of CLIA certification and laboratory operations.