Celularity Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 16, 2022. Celularity is a clinical-stage biotechnology company developing placenta-derived cell therapies. Its operating segments are Cell Therapy, Degenerative Disease, and BioBanking. The 2021 comparative period reflects Legacy Celularity’s continuing operations following the July 2021 business combination.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $5.935 million | $2.660 million; up 123.1% |
| Operating loss | $41.614 million | $44.395 million |
| Net loss | $62.867 million | $81.539 million |
| Operating cash flow | $(34.253) million | $(25.080) million |
| Cash and cash equivalents | $48.039 million at March 31 | $37.240 million at Dec. 31, 2021 |
- Revenue growth was driven mainly by license, royalty and other revenue, which rose to $4.001 million from $0.556 million, largely reflecting increased sales to distribution partners. Product sales and rentals declined 22.5%; services were nearly flat.
- Reported gross profit was $1.909 million, or approximately 32% of revenue. Costs of revenue increased to $4.026 million from $1.242 million, including $2.604 million of license, royalty and other costs.
- Research and development expense increased 27.6% to $21.673 million; selling, general and administrative expense increased 115.8% to $16.460 million. The latter included higher personnel, professional-services and public-company insurance costs.
- Quarter-end cash, cash equivalents and restricted cash totaled $62.864 million, including $14.825 million of restricted cash. Financing activities generated $46.495 million, primarily from warrant exercises; operating and investing activities used $34.253 million and $1.454 million, respectively.
- Acquisition-related contingent consideration was $237.071 million; warrant liabilities were $46.894 million. The company reported no financing obligations at quarter-end, while operating lease liabilities were $30.463 million. These obligations are not equivalent to funded debt.
- Noncash fair-value movements materially affected reported results: the warrant-liability change was a $20.932 million expense, and contingent consideration generated a $4.849 million operating expense.
Material changes and business developments
- Net loss improved year over year, in part because warrant-related expense and contingent-consideration expense were lower than in Q1 2021. Operating cash use nevertheless increased by $9.173 million.
- On March 1, 2022, certain investors amended and restated legacy warrants, reducing their exercise price from $7.53 to $3.50, and exercised 13,281,386 warrants for $46.485 million of gross proceeds.
- Celularity adopted lease accounting standard ASC 842 on January 1, 2022, recording operating right-of-use assets and lease liabilities. The adoption did not materially affect net loss or operating cash flow.
- The company said the FDA requested additional information on the CYCART-19 IND before the planned Phase 1/2 trial can proceed. Management expected formal FDA communication by late May and anticipated a possible trial start in the second half of 2022, subject to IND clearance.
Outlook, risks and contingencies
- Management stated that quarter-end cash was not expected to fund operating and capital requirements for the next 12 months. The filing concludes that substantial doubt exists about the company’s ability to continue as a going concern; additional equity or debt financing may be needed and may not be available on acceptable terms.
- The company had three active clinical trials, no approved cellular therapy candidates, and expected continued operating losses and increased R&D, SG&A and capital spending. It provided no quantified financial guidance.
- Key risks include clinical and regulatory uncertainty, dependence on third parties and placental tissue supply, manufacturing requirements, competition, intellectual-property protection, financing needs, and potential effects of COVID-19.
- The CYCART-19 program relies on a Sorrento license; the companies were negotiating a related supply agreement. The filing also describes milestone, earn-out and royalty obligations, including contingent consideration whose valuation depends on significant assumptions.
- Management concluded disclosure controls were not effective at the reasonable-assurance level because of material weaknesses involving the control environment and accounting for contingent consideration, deferred taxes and warrants. Remediation efforts were ongoing.
Important facts for investors to verify
- Near-term financing plans, cash runway assumptions and any subsequent financing or liquidity developments.
- FDA feedback and timing for CYCART-19, alongside trial progress and spending for the other clinical programs.
- Revenue quality and sustainability, particularly distribution-partner sales and the contribution of legacy commercial businesses.
- Assumptions and potential cash or equity impact of contingent consideration, warrants and lease obligations.
- Reconciliation of share and warrant counts: the filing gives differing figures for common shares outstanding and reports 29,494,809 warrants in one passage, while the listed warrant components total 29,404,809.
- Progress in remediating the disclosed material weaknesses and whether disclosure controls are later determined effective.