Celularity Inc. 2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021. Celularity is a clinical-stage biotechnology company developing off-the-shelf, placenta-derived cell therapies. Its five principal programs target cancer, infectious and degenerative diseases. It also generates limited revenue from biobanking and tissue-based products, including Biovance and Interfyl; it had no cell therapies approved for sale.
Celularity completed its business combination with GX Acquisition Corp. on July 16, 2021, and began trading as CELU. The transaction was accounted for as a reverse recapitalization, so the financial statements continue Legacy Celularity’s reporting history.
Financial and liquidity highlights
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $21.3 million | $14.3 million |
| Operating loss | $109.1 million | $151.9 million |
| Net loss | $100.1 million | $208.2 million |
| Cash used in operating activities | $110.1 million | $63.2 million |
| Cash and cash equivalents at year-end | $37.2 million | $54.3 million |
- Revenue increased 49.4%. Reported gross profit was $11.7 million, approximately 55% of revenue.
- Revenue included $12.0 million of license, royalty and other revenue, up from $1.9 million. The increase included $6.8 million of deferred revenue recognized after Celularity terminated the Sanuwave license agreement, as well as higher revenue from distribution and supply agreements. Product sales and rentals fell 44.5% to $3.8 million; biobanking services were broadly flat at $5.5 million.
- Research and development expense rose 67.6% to $88.4 million; selling, general and administrative expense rose 127.7% to $71.3 million. Stock-based compensation was $40.0 million, versus $4.4 million in 2020.
- The smaller 2021 net loss does not by itself indicate improved underlying performance: 2020 included a $129.4 million impairment of the PDA-001 asset and a $58.7 million warrant-related loss. 2021 included a $13.5 million warrant-related gain and a $41.1 million gain from the remeasurement of contingent consideration.
- Year-end current assets were $59.1 million and current liabilities $26.2 million. Restricted cash of $14.8 million was non-current and primarily supported letters of credit. Total liabilities were $314.7 million, including $232.2 million of acquisition-related contingent consideration and $31.1 million of facility financing obligations. The filing states there was no debt outstanding at year-end.
- Cash, cash equivalents and restricted cash totaled $52.1 million at year-end; cash used in investing activities was $5.9 million and cash provided by financing activities was $98.6 million. Financing included $83.4 million from the PIPE, $20.0 million from Palantir and $5.4 million from the GX trust account, offset in part by transaction costs.
- After year-end, investors exercised warrants for approximately $46.5 million in gross proceeds. Management nevertheless stated that available cash, including these proceeds, was not expected to fund operating expenses and capital needs for the next 12 months. Management and the auditor cited substantial doubt about the company’s ability to continue as a going concern.
Material changes and operating developments
- The company reported three active clinical trials: CYNK-001 in AML and glioblastoma, and CYNK-101 in HER2-positive gastric and gastroesophageal cancers. It reported initiating the CYNK-101 Phase 1 trial in the fourth quarter.
- Celularity reported no dose-limiting toxicities to date in its ongoing CYNK-001 AML trial and described MRD-negative status at the highest dose level. These are early clinical observations, not evidence of established efficacy.
- The CYNK-001 COVID-19 trial stopped enrolling and its sites closed in July 2021. The company also terminated its Lung Biotechnology license in 2021.
- Commercial operations changed: Celularity terminated the Sanuwave license after an uncured breach and entered new U.S. distribution agreements with Arthrex and Evolution. It sold the MIST/UltraMIST assets in 2020, contributing to lower product-sales revenue in 2021.
- The business combination converted preferred stock into common stock and provided financing, but also resulted in public-company costs and significant stock-based compensation. Class A shares outstanding were 124.3 million at December 31, 2021.
Outlook, commentary, risks and unusual items
Management planned to submit two additional IND applications in 2022, including for CYCART-19 and APPL-001, and intended to begin a CYCART-19 Phase 1 trial in the first half of 2022. These were plans, not assurances of regulatory clearance or trial commencement. The company expected continuing losses and higher R&D, administrative and commercialization-readiness costs, and stated it would need additional financing.
- FDA granted CYNK-001 fast track designation for AML in December 2021; it had granted fast track designation for recurrent GBM and orphan drug designation for GBM earlier in 2021. CYNK-101 received fast track designation in January 2022. Designations do not ensure approval or commercial success.
- Key risks include clinical failure or serious adverse events, lengthy regulatory review, manufacturing scale-up and quality, donor-placenta supply, reliance on third parties, competition, and the need for substantial additional capital. The CYCART-19 program relies on licensed technology from Sorrento; a supply agreement was still being negotiated.
- Potential future payments under the Celgene contingent value rights include up to $50 million in regulatory milestones, $125 million in commercial milestones, and specified royalties for covered programs. No payments had been made as of the filing.
- The company recognized $5.3 million of legal settlement expense in 2021 and issued 743,771 shares in connection with its CTH Biosourcing settlement. A former employee’s compensation-related lawsuit remained pending; management said it intended to defend the claim.
- Revenue and receivables were concentrated: one customer represented 38% of 2021 revenue and approximately 47% of year-end accounts receivable.
- Management concluded disclosure controls and internal control over financial reporting were not effective at year-end, citing material weaknesses involving finance resources and accounting for contingent consideration, deferred taxes and warrants. Remediation was underway. Deloitte issued an unqualified opinion on the financial statements but emphasized the going-concern uncertainty; it did not audit internal control effectiveness.
Important facts for investors to verify
- Current cash runway, financing plans and the effect of the post-year-end warrant exercise on liquidity and dilution.
- Updated trial enrollment, safety, efficacy and regulatory timelines for CYNK-001, CYNK-101, CYCART-19 and planned ASC programs.
- How much of 2021 revenue reflects recurring product or service activity versus the one-time Sanuwave deferred-revenue recognition, and whether new distribution agreements are producing sustained sales.
- Progress on the Sorrento supply agreement and the scope and potential cost of Celgene CVR and other contingent obligations.
- Remediation of internal-control weaknesses, customer concentration, and the status or financial exposure of legal matters.