Celularity Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless stated otherwise, amounts below are in U.S. dollars and converted from the filing’s thousands. The filing is unaudited.
Business context
Celularity is a clinical-stage biotechnology company developing placental-derived cell therapies. It reported three active clinical trials and also operates biobanking and degenerative-disease product businesses. It has no approved cellular therapies and has generated no revenue from therapeutic sales.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.1m | $10.6m | $13.8m | $16.5m |
| Operating loss (income) | $(5.6)m | $10.9m | $(43.1)m | $(94.1)m |
| Net income (loss) | $4.8m | $49.9m | $(10.2)m | $(96.1)m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(108.3)m | $(78.1)m |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $4.5m | $3.9m |
- Gross loss was $3.1m in Q3 2022, compared with gross profit of $8.3m a year earlier. Nine-month gross loss was $0.6m versus gross profit of $11.5m. The filing does not provide a consolidated gross-margin percentage.
- Q3 net income was not indicative of operating profitability: results included a $33.2m noncash gain from remeasurement of acquisition-related contingent consideration and $9.3m of warrant-liability fair-value gains. Nine-month results included $73.4m and $31.6m, respectively, from these noncash remeasurements.
- At September 30, cash and cash equivalents were $42.6m; restricted cash was $14.8m. Cash, cash equivalents and restricted cash totaled $57.5m. Accumulated deficit was $669.9m.
- Current liabilities were $69.2m versus current assets of $63.1m. The company reported $39.3m fair value of Yorkville short-term debt, with $40.0m unpaid principal, due within 12 months. Total liabilities were $272.9m, including $158.8m of long-term acquisition-related contingent consideration.
- Net cash used in operating activities increased by $30.2m year over year to $108.3m for the nine months, with inventory build contributing to cash use. Financing provided $118.2m, including warrant exercises, a PIPE, Yorkville borrowing and ATM sales.
Changes versus prior comparable periods
- Q3 revenue fell 61.1%, largely because Q3 2021 included $6.8m of deferred Sanuwave license revenue recognized after termination of that agreement. Nine-month revenue declined 16.0% for similar reasons.
- Q3 cost of revenue rose $4.9m, including $4.5m of previously deferred inventory cost variances tied to changed production plans and lower-than-forecast degenerative-disease sales. Nine-month cost of revenue rose $9.4m, also reflecting product mix, distribution sales, and higher material and labor costs.
- Nine-month R&D expense increased 5.8% to $67.4m, while SG&A fell 19.3% to $46.9m, mainly due to lower stock-based compensation and the absence of the prior-year CTH legal-settlement charge.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. It expects September 30 cash to fund operations only into Q1 2023 and says cash is insufficient for the next 12 months. Additional financing is not assured; absent funding, it may postpone development activities or reduce spending.
- Financing: The September 2022 Yorkville pre-paid advance provided $39.2m net from a $40.0m gross advance. The agreement permits additional advances by mutual agreement, subject to an $150m aggregate limit; advances carry 6% annual interest, rising to 15% on default, and mature in 12 months. The company also established an ATM program of up to $150m; it sold $4.6m gross of shares through September 30.
- Development: FDA requested additional information on the CYCART-19 IND in May 2022. The company was working to resolve the questions and expected to begin the trial in 2023 if the IND is cleared. The first CYNK-101 Phase 1 patient was treated in July 2022. Management was reassessing development priorities in light of capital-market conditions and liquidity and said efficiency measures could include headcount reductions.
- Key risks: Need for substantial additional capital; clinical and regulatory uncertainty; reliance on third-party trial, manufacturing and supply arrangements, including Sorrento for CYCART-19; potential product reimbursement challenges; customer concentration; and possible operational disruption from COVID-19. Two customers accounted for 69% of gross receivables at quarter-end; the filing recorded a $1.1m reserve relating to CMS claim rejections for Interfyl submitted by one customer.
- Controls and contingencies: Disclosure controls were assessed as ineffective due to material weaknesses involving staffing and accounting for contingent consideration, deferred taxes and warrants. Remediation was underway. The company recorded $0.4m of potential stock consideration tied to a settlement procurement target; the timing and amount remain uncertain. Management said it was not aware of litigation expected to have a material adverse effect.
Investor verification priorities
- Confirm cash runway, cash burn assumptions and any financing or spending actions after the filing date.
- Review Yorkville advance, repayment and conversion provisions, and any subsequent draws or cash prepayment obligations.
- Track FDA resolution of CYCART-19 IND questions and clinical-trial progress, including any program reprioritization.
- Assess the sustainability of commercial revenue and margins, inventory levels, customer concentration and Interfyl reimbursement issues.
- Evaluate the assumptions behind material noncash fair-value gains, contingent consideration and warrant liabilities, and progress in remediating internal-control weaknesses.