Celularity Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted. Filed January 2, 2024.
Business context
Celularity develops placenta-derived cell therapies and sells placental biomaterials, alongside biobanking services. Its reported segments are Cell Therapy, Degenerative Disease and BioBanking. The company has no approved cellular therapies and has generated no revenue from their sale. In January 2023, it reprioritized operations, reduced its workforce by about one-third by March, and stopped actively recruiting patients into clinical programs.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.8 million | $4.1 million | $10.7 million | $13.8 million |
| Operating loss | $99.3 million | $5.6 million | $205.6 million | $43.1 million |
| Net income (loss) | $(93.9) million | $4.8 million | $(205.8) million | $(10.2) million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(34.3) million | $(108.3) million |
- Q3 revenue was down 8.4%; nine-month revenue declined 23.0%. Product sales and rentals increased, but license, royalty and other revenue fell, primarily after the loss of Evolution as a distribution partner. Nine-month Degenerative Disease revenue was $6.6 million and BioBanking revenue was $4.1 million; Cell Therapy generated no revenue.
- Gross profit was $0.2 million in Q3 (about 5% of revenue) and $4.3 million for the nine months (about 40%). Cost of revenue fell year over year; the prior-year comparison included a $4.5 million inventory-cost variance.
- Q3 operating loss included an $82.7 million goodwill impairment. Nine-month results also included $107.8 million of IPR&D impairment and $24.2 million of Palantir software cease-use costs. These items, along with a $104.3 million gain from the reduction in contingent consideration liability, materially affect comparisons and are not equivalent to recurring operating cash flows.
- At September 30, cash and cash equivalents were $0.3 million, versus $14.0 million at December 31, 2022; restricted cash was $14.8 million. Nine-month cash used in investing was $3.5 million, and financing provided $24.1 million. Cash, cash equivalents and restricted cash together declined $13.7 million.
- Current assets were $16.5 million and current liabilities $84.6 million. Reported short-term debt line items totaled approximately $35.0 million, including Yorkville debt carried at $14.0 million fair value ($16.6 million unpaid principal), related-party bridge loans, and other short-term borrowings. Total liabilities were $126.9 million.
Material changes and management outlook
- Revenue declined, while operating and net losses widened, principally reflecting impairment charges and other unusual expenses as well as reduced commercial revenue.
- R&D and SG&A fell year over year, reflecting the workforce reduction and discontinued or curtailed programs. Management expects these expenses to decrease in the near term, but also expects substantial ongoing expenditures and continued operating losses.
- The company terminated CYCART-19 development for B-cell malignancies in Q3, had already stopped CYNK-001 clinical development and fully impaired related IPR&D, and paused exosome development. It is not actively recruiting in clinical programs. APPL-001 development is described as ongoing in the filing.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern. As of the financial statement issuance date, it reported about $0.3 million of unrestricted cash and no additional outside capital secured or deemed probable. It said it may be unable to meet obligations without near-term financing, waivers or other action; potential alternatives include curtailing operations, selling assets or the company, or bankruptcy.
- Yorkville extended the PPA maturity to December 31, 2023, but Celularity missed required $2.0 million and $0.5 million payments and could not repay the outstanding note at maturity. Yorkville had not notified the company of a default as of the issuance date. Cash below the $3.0 million minimum liquidity covenant also triggered defaults under the RWI and C.V. Starr loan agreements; RWI agreed to forbear through December 31, 2023.
- A lease amendment reduced the letter of credit by about $4.9 million, releasing funds for general corporate use in October 2023, in exchange for roughly $0.4 million more annual rent. The company also entered a five-year Regeneron research-services agreement; the $0.75 million upfront payment was deferred at quarter-end, and future milestone payments were contingent.
Risks, contingencies and unusual items
- The FDA issued a Form 483 with seven observations after an August 2023 inspection concerning Interfyl and CentaFlex. Celularity responded that the products are subject to tissue-practice rather than drug/biologic cGMP rules; the outcome and timing remained uncertain.
- CMS claim rejections for Interfyl submitted by a distributor remained unresolved. A U.S. Attorney’s Office Civil Investigative Demand concerning claims for human tissue products, including Interfyl, was ongoing; potential liability was uncertain.
- Celularity sued former distributor Evolution to recover about $2.35 million plus interest for unpaid invoices. Subsequent to quarter-end, it settled its Palantir dispute for $3.5 million, payable in installments; no payments had been made as of the issuance date.
- Nasdaq granted an extension through March 11, 2024 to regain the minimum bid-price requirement, potentially through a reverse stock split. Delisting could impair trading liquidity and access to public financing.
- Disclosure controls were deemed ineffective as of September 30, 2023, with material weaknesses across control environment, risk assessment, control activities, information and communication, and monitoring. Remediation was in progress.
- Further equity or warrant issuance may dilute shareholders. The filing reported approximately 70.7 million outstanding warrants as of quarter-end, in addition to other potentially dilutive securities.
Key facts for investors to verify
- Current unrestricted cash, near-term cash requirements, and the status of additional financing and debt waivers.
- Yorkville’s repayment/default status and the terms and status of RWI and C.V. Starr forbearance or covenant remedies.
- Whether Celularity can sustain biomaterials and BioBanking revenue, resolve reimbursement and FDA issues, and collect Evolution receivables.
- Completion and payment status of the Palantir settlement, plus any further legal or regulatory developments.
- Nasdaq bid-price compliance, any reverse stock split, and progress remediating material weaknesses in internal controls.
- Effects of clinical-program reprioritization and impairments on the remaining pipeline, assets and future spending.