Celcuity Inc. (CELC) Q1 2019 Earnings Report, Transcript and Summary

Please stand by. Your program is about to begin. Good day, everyone, and welcome to the Celcuity release of First Quarter 2019 Financial Results. [Operator Instructions] Please note that this call may be recorded. And I will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Mr. Brian Sullivan, CEO. Please go ahead, sir.

Thank you, and good afternoon, everyone. We announced the financial results for our first quarter ended March 31, 2019 a few minutes ago. Before we begin, though, I'd like to remind listeners that our comments today will include some forward-looking statements. And these statements involve a number of risks and uncertainties, which are outlined in today's press release and in our reports and filings with the SEC. Actual results may differ materially from those in the forward-looking statements. On this call, we'll also refer to non-GAAP financial measures. You can find a table reconciling the non-GAAP financial measures to GAAP financial statements in our earning release for the 3 months ended March 31, 2019, which was included in today's press release. Today's press release is available on our website, www.celcuity.com under the Investors section. I also have with me on the call today, Vicky Hahne, our CFO. I'd like first to make some comments on our first quarter results as well as then provide a general outlook for 2019. Vicky will follow with more details on a few items and then we'll open the line for questions. On our last call, we disclosed NSABP's decision to activate up to 16 additional sites to offset the lower-than-expected enrollment rate for the FACT 1 clinical trial, which would result in 30 total sites. You may recall that the FACT 1 trial is evaluating the safety and efficacy of Genentech's drugs, Herceptin and Perjeta and chemotherapy in early-stage breast cancer patients selected with Celcuity's CELx HSF Test. The process to identify additional sites began in late 2018. During the first quarter, NSABP met its goal of getting 16 new clinical sites to begin the activities required to participate in the FACT 1 trial. And these new sites are now at various stages of obtaining institutional review board and other related approvals. And these approval-related activities are expected to take between 3 to 9 months depending on each site's internal processes. The addition of these sites would more than double the current number of activated sites enrolling patients for this trial. We expect interim results will be available from this trial in late 2019 and final results approximately 9 months later. The FACT 1 -- FACT 2 clinical trial was activated as planned in early April and will evaluate Puma Biotechnology's targeted therapy, Nerlynx, in patients our CELx HSF Test selects. We expect interim results from this trial in late 2019 or early 2020 and final results approximately 12 months later. With the FACT 2 trial underway, we now have 2 trials to evaluate the efficacy of 2 different anti-HER2 treatment regimens in HER2-negative breast cancer patients with hyperactive HER2 signaling. Each trial represents an independent opportunity for a CELx Signaling Function test to become a companion diagnostic for a new targeted therapy indication. And this is consistent with our goal of working with multiple targeted therapeutics for each new hyper-signaling cancer subtype of CELx test diagnosis. And with multiple therapies positioned to potentially obtain a new indication for the patient population our CELx test identifies, this enhances, we believe, the probability of achieving our goal of improving the standard of care for breast cancer patients. We also continue to advance development of a new test in breast cancer that diagnoses a new subtype of breast cancer not currently detected with a molecular test. Our approach in breast cancer and all subsequent tumor types we may work with is to analyze multiple pathways in each patient's tumor. If this current development project is successful, we would increase the proportion of breast cancer patients whose tumor cells have a hyper-signaling pathway activity identified by a CELx test. And this is consistent with our goal of identifying the signaling dysfunction driving 30% to 40% of the patient tumors we analyze. Achieving this goal would have, we believe, a profound impact on how cancer patients are diagnosed and treated. In addition, we continue to make progress developing tests for 2 new tumor types, CELx tests for each of these tumor types with further increase the opportunities for us to collaborate with pharmaceutical companies to provide companion diagnostics for their matching targeted therapies. If successful, these collaborations, could, we believe, enable pharmaceutical companies to obtain new drug indications for the cancer subtypes our tests diagnose. We also continue progressing towards the clinical collaboration with a pharmaceutical company to study breast cancer patients with hyperactive and co-activated HER family and c-MET signaling activity identified with our CELx MP Test. Such a collaboration would first evaluate the efficacy of the targeted therapeutics in the new patient subgroups our CELx MP Test identifies and if successful, we believe it would lead to helping these therapies gain FDA approval to treat this patient population. We're excited about the advance the CELx MP Test represents because it demonstrates the capability of our platform to assess the crosstalk between different signaling pathways in a very powerful way. And this enables us to not only identify patients through c-MET and HER family pathways are hyperactive, but also to determine the best drug combination approach to treat it. So overall, we're very excited about the progress we made during the quarter. I'd now like to turn to Vicky Hahne, who will review our financial results.

Thank you, Brian. Our first quarter net loss was $1.85 million or $0.18 per share compared to a $1.97 million net loss or $0.19 per share for the first quarter of 2018. Because these quarterly net losses include a significant noncash item, stock-based compensation, we also included in our press release non-GAAP adjusted net loss for the quarter. Our non-GAAP adjusted net loss was $1.66 million or $0.16 per share for the first quarter of 2019 compared to non-GAAP adjusted net loss of $1.63 million or $0.16 per share for the first quarter of 2018. R&D expenses increased approximately $0.05 million during the first quarter 2019 compared to the first quarter of 2018 primarily due to legal expenses related to patent costs and other operational and business development activities. The approximately $0.15 million decrease in G&A during the first quarter of 2019 compared to the first quarter of 2018 primarily resulted from noncash stock-based compensation. We ended the quarter with approximately $23.4 million of cash, cash equivalents and investments.

Thanks, Vicky. Operator, we'd now like to turn to questions.

[Operator Instructions] We'll take our first question from Per Ostlund with Craig-Hallum capital.

I want to start with FACT 1. And first of all, I'm encouraged to hear it sounds like the activation of the extra 16 sites is on plan and the timeline really for that one and FACT 2 remain consistent with your most recent commentary. Do you have any sense or is it just too blinded to know kind of how those initial 14 sites are coming on? Is there -- I don't know, how much of it is an educational process in terms of trying to get that enrollment up in the initial sites. And is there anything from the FACT 1 enrollment learnings that you have that you can apply to FACT 2 to make sure that, that Puma trial kind of stays on plan?

Well, we've obviously been coordinating with NSABP for FACT 1 and providing as much support as practical and as the site is willing to take. Whenever you're working with a clinical site, you're somewhat dependent on whatever internal processes they have for screening patients and speaking to them about the opportunities to participate in clinical trials. We can work with the PI, the principal investigator at that site and trial coordinator. But our ability to reach inside the site and get more activity is somewhat limited to just essentially training and ongoing efforts to maintain visibility. So we provide newsletters to the principal investigators and the participants at the sites to, again, try to stay top of mind. So we're kind of following what is fairly standard practice for companies that are participating in trials. NSABP has good infrastructure to manage these sites and to work with them. And so we've been fairly consistent in doing that. I do think over time, as the activities associated with screening patients and educating patients becomes more embedded, you can expect possibly enrollment to increase at these sites. But again, the reason why we decided to increase the number of sites was I didn't want to bank on significant improvements. We looked at the results over the first period of time and saw the trend lines of enrollment rates and certainly continue to do everything at those sites to boost their enrollment. But again, I wanted to be more proactive and add sites to mitigate that more directly. And certainly with the trial with Puma and West Clinic, we're letting them everything we know. But they're experienced folks, they run a lot of trials, the investigator that we're working with, collaborating with is Head of their clinical trial group. So he is a very experienced investigator and very engaged and very interested in seeing this trial succeed and getting the patients enrolled.

That's make a lot of sense. With activating 16 sites to make 30 and I get that you don't want to necessarily bank on improvement. But by activating 16 if it turned out that there was an acceleration of enrollment in some of those sites coming on, we're in a position to contribute to that, could you enroll beyond the 54, 55 figure that's part of that -- the trial if it -- if the enrollment look like it was poised to hit that in relative short order with the new sites coming on? Or would you be -- still be capped there?

There's a lot of mechanisms to amend a trial. And in our case, if we were to amend the protocol, it would be to support what might be considered an FDA suggestion if, for instance, if data was going to support an effective registration effort. But for the most part, you should view the trial as described, 54-patient trial, but these trials could morph into more formal registration trials given the FDA's recent modification to how they are managing the data requirements for new drug indications.

Okay. Very good. Turning to the c-MET test. And I want to be careful not to put words in your mouth or wordsmith here too much, Brian. But when you talk about nearing -- working toward finalizing your clinical collaboration with the pharmaceutical company and I stress, company, not plural, is there any signaling, I guess, pun intended, is there any signaling that you'd be looking to work with a partner that's involved on both the HER family and c-MET inhibition? Or is it equally likely that you could strike a collaboration that, that spans multiple partners?

Yes. I wouldn't read into the singular use of the word company there. I think it was meant to indicate that we have been engaged in discussions with different pharmaceutical companies and that we're having good discussions and efforts to bring one of those home. So it was meant to say that we think we have a good line of sight on a collaboration. We'll certainly, if we can, get more than that. But we wanted to essentially provide a little bit of visibility to the fact that we have made progress in these discussions and that anything that we do will involve initially one total collaboration that may involve 1 or 2 companies.

I appreciate that. Curious your thoughts as it stands today on expanding your commercial or kind of business development efforts. I know, Laura left here in not-too-distant past. And I'm just curious if you have any thoughts on bolstering your team and what you might be looking for in that regard?

Sure. So we've initiated a search for a kind of a different position, a Chief Business Officer. That person would have experience primarily in working on companion diagnostic collaborations with pharmaceutical companies. So somewhat of a different background than Laura. But I think as I've indicated, I have -- in all of our discussions, for the most part, taking the lead in those discussions and really being the primary point of contact and the lead presenter/responder to any of the inquiries and all of the follow-up activities. So essentially, the transition hasn't really even been a transition. And so as we kind of search for a Chief Business Officer, it is going to leverage the experience we've had to date and we'll have I think a very informed understanding of the background that would be most helpful to us and the characteristics of the individual that would fit.

Okay. And actually, one last question. So I guess besides potentially that type of an addition to the leadership team, is there anything we should be thinking about from a modeling standpoint, operating expenses have been very, very well controlled to date. I think the first quarter was $100-plus thousand dollars less than our model here again. Are these the kind of run rates that we should be thinking about? Or there -- are there step-ups coming to build out the R&D team at all? Or again, kind of anything leadership-wise besides a potential...

I would say that whatever guidance we've given you in the past is unchanged. I think we've discussed a new published research about our subsequent quarters and how expenses may increase. And we don't have any further guidance beyond that.

[Operator Instructions] We'll take our next question from Yi Chen with H.C. Wainwright.

My first question is, could you clarify whether Celcuity is directly involved in opening these clinical sites? Or is it -- is the process mainly led by Genentech?

Well, the process is led by NSABP. So NSABP is the formal sponsor of the trial. They're responsible for identifying the sites, activating them, managing them, managing the data. Our role and Genentech's role is as collaboration partners. And Genentech obviously is providing the drugs, we're providing a test. And then because of the value to us of this trial and its importance, we have offered to and have provided, what I would say, is more educational support to NSABP to help explain and describe our technology and the test as just part of the efforts to engage these sites and get them focused on screening patients for the trial. So -- and that's the similar structure that we have in the collaboration with Puma and West Cancer Center. West Cancer Center is the sponsor, they're responsible for managing their sites, the doctors' enrollment process as well as the data. And again, we are collaborating with our test and then providing educational support and any other support that could be deemed helpful to the trial.

Got it. But is it reasonable to assume that with more sites up and running, your R&D cost for the rest of the year could increase modestly?

Yes. And I think that's in the estimates that I think we've seen and we think that those are -- accurately reflect how our expenses would change over time.

Okay. Got it. So the second question. Regarding the Phase II trial for -- in colorectal cancer, is there any estimate in terms of time frame to see the -- to report the preliminary results?

The information we've received from NSABP is that they're hoping to receive data or have data sometime in 2021. And they haven't given us a time more specific than that.

Okay. And final question. Brian, I know you've previously mentioned that the company is developing another new cell signaling function test for breast cancer to -- that will diagnose a new subtype of breast cancer, not currently detected with your existing tests. So what is the status of that test?

Well, our goal, as we discussed in our call, in February, is to complete development of that test by the end of the year. And so we're on track for that. So no development. Our development process follows certain phase of programs and involves a series of prescribed steps that we need to complete in order to validate any new test that we want to use in a clinical trial setting. But we're on track for achieving -- or completing rather that development of that new test by the end of the year.

We'll take our next question from Neil Gagnon with Gagnon Securities.

I also repeat Per's comment, you folks have done a wonderful job husbanding your cash. In a very nonquantitative way, could you give us your view of the progress that you've made and how is it done versus your expectations?

Sure. Well, when we went public about 1.5 years ago, we had a single collaboration and a single test. And since then we have activated that trial, obviously it's taking a little longer than we expected, so that is different than our expectations. But we've put in place another collaboration with Puma, which is really the only other approved and active HER2 drug. We launched our second test, the CELx MP Test for co-activated c-MET, HER family signaling cancers. We have made progress in development of the test for 2 new tumor types that -- again, our goal is to be able to announce those tests by the end of this year as well. And all of the work we're doing internally towards development of these additional tests reconfirms those results that we saw with our first test that we have a very powerful ability to assess the activity of these tumor cells and to discern how these pathways potentially co-activate and are interconnected in ways that's really not a -- any other -- otherwise observable. And we think that gives us a unique ability to kind of define disease function. That in turn leads to identification of appropriate treatment regimens. And so again, our -- from an R&D perspective, everything we've done to date has been consistent with and to be frank, I guess reconfirming our confidence in our platform and the power that we think it gives us to discern the driver of a patient cancer.

[Operator Instructions] No questions on the line at this time.

Well, thank you, everyone, for participating in the call. I appreciate your interest in Celcuity, and I look forward to reporting back to you in a few months. Have a good afternoon.

This does conclude today's program. Thank you for your participation, and you may now disconnect.