Celcuity Inc. — Q2 2018 Form 10-Q
Business context and period. This unaudited quarterly filing covers the three and six months ended June 30, 2018. Celcuity develops functional cancer diagnostics using its CELx platform. It has not generated revenue and remains a development-stage, loss-making company.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $1.55 million | $1.30 million | $3.09 million | $2.21 million |
| General and administrative | $0.38 million | $0.30 million | $0.91 million | $0.39 million |
| Total operating expenses | $1.93 million | $1.61 million | $4.01 million | $2.60 million |
| Net loss | $1.82 million | $1.78 million | $3.78 million | $2.76 million |
| Basic and diluted loss per share | $0.18 | $0.28 | $0.37 | $0.43 |
Margins: Not meaningful because the company reported no revenue. Interest income was $113,000 for Q2 and $221,000 for the first half of 2018; there was no interest expense in 2018, compared with approximately $187,000 in the first half of 2017.
Cash flow: First-half operating cash use was $2.78 million, versus $2.21 million in 2017. Investing activities provided $3.05 million, mainly reflecting net investment maturities and purchases, partly offset by $372,000 of property and equipment purchases. Financing provided $264,000, primarily from warrant exercises and employee stock purchases. Cash, cash equivalents and restricted cash increased $533,000 to $3.22 million.
Liquidity and debt: At June 30, cash and cash equivalents were $3.17 million and investments totaled $25.33 million, for combined cash and investments of approximately $28.5 million. Current assets were $21.79 million and current liabilities were $963,000. Total liabilities were $986,000, including $28,932 of capital lease obligations. The prior convertible notes had converted to common stock in the September 2017 IPO.
Changes, outlook and risks
- First-half operating expenses increased 54% year over year; R&D rose 40%, reflecting platform development, clinical validation work and laboratory supplies. G&A rose 136%, partly due to public-company costs, compensation and insurance.
- Net loss increased 37% for the first half, although Q2 net loss rose only 2%. The lower loss per share versus 2017 reflects the larger weighted-average share count after the IPO, not improved profitability.
- Management expects R&D and G&A spending to increase, and expects to add sales and marketing costs in anticipation of commercializing the CELx HSF Test. Management believes existing cash will fund operations and obligations for at least the next 24 months, based on its current business plan; this is not a guarantee.
- The company completed development of a second breast-cancer test in Q1 2018 and plans to combine it with its HER2-signaling test as the CELx Multi-Pathway Test. It expects interim results from its Genentech/NSABP prospective trial in early to mid-2019, with final results six to nine months later. A separate 35-patient colorectal cancer study is expected to finish in late 2020; Celcuity will not be paid for its testing in that study.
- Clinical research commitments include scheduled payments of $100,000 in 2018 and $50,000 in 2019, plus up to approximately $2.04 million in additional milestone payments. Operating lease commitments totaled $524,547 at quarter-end.
- Key risks include clinical and regulatory uncertainty, commercial viability and adoption, reimbursement, dependence on pharmaceutical partners, competition, intellectual-property protection, and the potential need for additional financing. The filing reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether clinical validation supports the CELx HSF and planned Multi-Pathway tests, and whether trial timelines and results meet management’s expectations.
- Whether Celcuity can secure pharmaceutical partnerships and establish regulatory, reimbursement and market-acceptance pathways that generate revenue.
- Whether the stated 24-month cash runway remains valid as R&D, clinical-trial and planned commercialization spending rise.
- The timing and potential size of clinical-study milestone payments, and the company’s ability to fund them without additional capital.
- Progress toward commercialization, including actual sales and marketing costs, and any dilution or senior claims if additional financing is needed.