Celularity Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. The report was signed October 16, 2024. Dollar amounts below are in USD millions unless stated otherwise.
Business context
Celularity develops and sells placenta-derived biomaterial products, operates a biobanking business, and has a cellular-therapy pipeline. Its commercial revenue is primarily from biomaterials and biobanking; it has no approved cell therapies. Management says cell-therapy development is not active given the company’s liquidity constraints. The company effected a 1-for-10 reverse stock split on February 28, 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $14.681 | $3.935 |
| Cost of revenues | $1.640 | $2.003 |
| Gross profit / margin | $13.041 / 88.8% | $1.932 / 49.1% |
| Research and development | $5.843 | $16.951 |
| Selling, general and administrative | $14.028 | $13.934 |
| Operating loss | $(7.376) | $(63.870) |
| Net loss | $(22.013) | $(64.017) |
| Net loss per share, basic and diluted | $(1.03) | $(4.12) |
| Net cash used in operating activities | $(4.403) | $(14.995) |
Product sales were $12.843 million, versus $1.043 million; services revenue was $1.287 million, versus $1.357 million; license, royalty and other revenue was $0.551 million, versus $1.535 million. Revenue growth was principally attributed to higher Biovance 3L sales. The reported gross margin is calculated from total revenue less the three cost-of-revenue categories.
At March 31, cash and cash equivalents were $1.902 million; restricted cash was $10.046 million. Current assets were $22.855 million and current liabilities $66.044 million, implying negative working capital of $43.189 million. Total debt was $39.800 million, including $34.699 million of related-party short-term debt. Total liabilities were $112.571 million, against stockholders’ equity of $31.245 million. Operating, investing and financing cash flows were $(4.403) million, $(0.039) million and $6.227 million, respectively; cash, cash equivalents and restricted cash increased by $1.785 million.
Material changes versus the prior period
- Revenue increased 273%, largely from product sales; cost of revenues fell as a percentage of revenue to about 11% from 51%, reflecting a higher mix of Biovance 3L sales.
- R&D expense decreased 65.5%, reflecting lower personnel and clinical-trial costs and the absence of the prior-year $3.0 million acquired IPR&D charge.
- The smaller operating loss also reflects the absence of prior-year unusual items: $23.675 million of software cease-use costs and $29.633 million of goodwill impairment. The prior-year period also included a $18.932 million gain from a reduction in contingent consideration.
- Net loss included $8.875 million of warrant-liability fair-value expense and a $3.908 million loss on debt extinguishment. These non-cash or transaction-related items, alongside higher interest expense, contributed to other expense of $14.637 million, versus $0.147 million a year earlier.
- Financing included a $6.0 million January PIPE, a $15.0 million RWI bridge-loan advance, and a $3.0 million net Yorkville note advance; the company also repaid $17.374 million under the Yorkville PPA. The RWI loan carried a $3.75 million original issue discount and warrants.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. As of the financial-statement issuance date, it said it lacked sufficient unrestricted cash and had not secured additional capital deemed probable. Without near-term financing, management said the company may be unable to meet obligations over the next 12 months and may need to curtail operations, sell assets or the company, or seek bankruptcy protection.
- Debt and liquidity: At the issuance date, the company reported approximately $44.2 million of debt, all due or due within one year. Substantially all outstanding debt was subject to forbearance; lenders may have remedies, including seizure of assets, if agreements are breached or debt is not repaid. The loans are secured, and RWI and C.V. Starr received higher interest rates and warrant-related consideration under forbearance arrangements.
- Yorkville financing conditions: The $10 million SEPA was not available for advances until a resale registration statement became effective. The filing says the required statement had not been filed by the filing date; this was an event of default and the Yorkville note’s rate increased to 18% beginning May 1, 2024 after a separate filing default. The note’s conversion price reset to $2.7546 in September 2024.
- Nasdaq and reporting: The company was delinquent in filing reports and received Nasdaq notices for failure to meet timely-filing requirements. Nasdaq accepted a compliance plan and extended the filing deadline to October 14, 2024; at the filing date, management expected a delisting determination and intended to appeal. Delisting could adversely affect financing and going-concern prospects.
- Controls: Management concluded disclosure controls were ineffective and reported material weaknesses involving staffing and competence, risk assessment, control activities, information and communication, and monitoring. Remediation was underway but not yet complete.
- Pipeline and cost outlook: Management expects R&D and SG&A to decrease in the near term following reprioritization. Cellular-therapy work remains constrained by funding; the filing provides no revenue or earnings guidance.
- Legal and commercial exposures: A federal Civil Investigative Demand concerns claims involving human tissue products, including Interfyl; the filing says potential liability is uncertain. The company is pursuing approximately $2.35 million in unpaid invoices from Evolution Biologyx. Palantir arbitration was settled and dismissed in June 2024 after $3.5 million in payments and share issuance. A separate $0.5 million TCWGlobal settlement was agreed in May 2024.
- Subsequent event: In October 2024, the company agreed to acquire Sequence LifeScience’s Rebound allograft assets for stated consideration of $5.5 million, including $1.0 million upfront cash and up to $4.0 million in sales-based milestone payments, plus a $0.5 million credit for prior payments.
Key facts for investors to verify
- Unrestricted cash available after quarter-end, near-term cash needs, and any financing actually secured.
- Current principal, maturity, and forbearance status of each debt facility, including lender rights and required payments.
- Status and consequences of the Yorkville resale registration default, note conversion terms, and SEPA availability.
- Nasdaq listing status, appeal outcome, and progress remediating material weaknesses and filing delays.
- Whether the product-sales surge is sustainable; customer concentration, receivable collection, and the Interfyl reimbursement and federal inquiry risks.
- Funding and operational plans for the paused cell-therapy pipeline and the cash commitments associated with the Rebound acquisition.