Celularity Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted. Celularity completed its business combination with GX Acquisition Corp. on July 16, 2021, accounted for as a reverse recapitalization.
Business context
Celularity is a clinical-stage biotechnology company developing placental-derived cell therapies, alongside commercial degenerative-disease products and biobanking services. It reported four active clinical trials and described plans for additional investigational new drug applications. No cellular therapeutics had been approved or generated product-sales revenue.
Financial highlights
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $10.6m | $3.4m | $16.5m | $11.0m |
| Gross profit | $8.3m | $2.3m | $11.5m | $7.3m |
| Operating income (loss) | $10.9m | ($4.8m) | ($94.1m) | ($163.0m) |
| Net income (loss) | $49.9m | ($46.3m) | ($96.1m) | ($212.1m) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $78.1m | $46.4m |
- Q3 gross margin was approximately 78%; the comparable 2020 margin was approximately 69%. The reported Q3 profit does not reflect recurring operating performance: it included a $48.5m gain from revaluing contingent consideration and $39.9m of income related to warrant liabilities.
- Nine-month R&D expense rose 64% to $63.7m, while SG&A rose 129% to $58.1m. Stock-based compensation was $38.1m for the nine-month period, versus $3.4m in 2020.
- Cash and cash equivalents were $72.7m at September 30, 2021, compared with $54.3m at December 31, 2020; restricted cash was another $14.7m. Current assets were $91.3m and current liabilities $29.2m.
- Financing activities provided $99.6m for the nine months, including $108.8m of business-combination, PIPE and Palantir proceeds, partly offset by $9.4m of transaction-cost payments. Investing activities used $3.6m.
- Reported financing obligations were $31.1m, including $3.0m current and $28.0m long-term. The company stated it had no debt outstanding; these financing obligations principally relate to its facility lease arrangement.
Changes, outlook and risks
- Revenue increased year over year, largely because termination of the Sanuwave license agreement resulted in recognition of $6.8m of previously deferred revenue. The company also recorded about $1.4m from supply and distribution agreements. Product sales and rentals declined, partly reflecting the 2020 sale of the MIST/UltraMIST business.
- Despite reporting Q3 net income, Celularity recorded a nine-month net loss of $96.1m and an accumulated deficit of $659.6m. Management expects continuing losses and increased R&D, SG&A and capital spending. It concluded that September 30 cash would not fund operations and capital needs for the next 12 months and disclosed substantial doubt about its ability to continue as a going concern; additional financing may not be available on acceptable terms or at all.
- Management’s stated development plans included a CyCART-19 IND filing in Q1 2022 and a Phase 1 trial in Q2 2022; an APPL-001 IND and Phase 1/2a study in the first half of 2022 and during 2022, respectively; and a planned CYNK-101 IND submission in 2021. These are plans, not assured milestones.
- Key risks include clinical and regulatory uncertainty, trial enrollment and safety, manufacturing and supply challenges, competition, financing needs, and possible COVID-19 disruption. The company said COVID-19 had not materially affected oncology trial accrual during the first nine months of 2021.
- Other notable items: the $255.5m acquisition-related contingent-consideration liability is based on Level 3 estimates and may change; a CTH Biosourcing dispute resulted in a recorded estimated $5.3m settlement liability; and a $4.0m-face-value Sanuwave convertible note remained unpaid at September 30, with a reported fair value of $1.9m.
- Management concluded disclosure controls were ineffective because of material weaknesses involving the control environment and accounting for intangible impairment, contingent consideration, deferred taxes and warrants. Remediation efforts were underway.
Investor verification priorities
- Assess cash runway and the timing, availability and dilution or other terms of any required financing, given the going-concern disclosure and operating cash use.
- Separate recurring business performance from noncash fair-value gains, one-time deferred-revenue recognition and merger-related stock compensation.
- Verify clinical-trial progress, regulatory filing timelines, enrollment, safety and manufacturing readiness for the named programs.
- Review assumptions behind the $255.5m contingent-consideration estimate, the status and recoverability of the Sanuwave note, and resolution of the CTH matter.
- Track remediation of the disclosed material weaknesses and any subsequent changes in internal-control effectiveness.