Celcuity Inc. (CELC) Q3 2019 Earnings Report, Transcript and Summary

Good day and welcome to the Celcuity Release of Third Quarter 2019 Financial Results Conference. At this time, all participants are in a listen-only mode. Later, you have the opportunity to ask question during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn the program over to Mr. Brian Sullivan. Please go ahead.

Good afternoon, everyone. Thank you for joining our call. We announced the financial results for our third quarter ended September 30, 2019 a few minutes ago. Before we begin though, I'd like to remind everyone that our comments today will include some forward-looking statements. 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. Our actual results may differ materially from those in these forward-looking statements. On this call, we will also refer to some non-GAAP financial measures. You can find a table reconciling the non-GAAP financial measures to GAAP financial measures in our earnings release for the three months and nine months ended September 30, 2019, which was included in today's press release. Today's press release is available on our website at www.celcuity.com under the Investors section. I'm also pleased to have with me on the call today, Vicky Hahne, our CFO. I'd like to first make some comments on our third quarter results as well as provide a general outlook. In particular, I'd like to review the status of our product development projects, our collaboration discussions and our clinical trials. Vicky will follow with more details on a few items and then we will open the line up for questions. As we've talked in the past and I think many of you understand our CELx platform gives us the unique ability to identify patients whose tumors have hyperactive oncogenic signaling pathways, despite the absence of corresponding genomic biomarkers. And this enables us to discover new cancer subtypes and to translate those discoveries into diagnostic tests. Our goal for our CELx Signaling Function tests to diagnose the signaling dysfunction driving up to 40% of the cancers in the solid tumor types are test and evaluate. Each of the new cancer subtypes we discover can enable multiple new drug indications and expand the treatment population for a number of targeted therapies. Most importantly, new indications offer the potential for significantly better outcomes for the patients that are test diagnosed. Our R&D teams continue to advance development of several new CELx tests to diagnose patients with breast cancer subtypes not identifiable with genomic tests. In December, we will report preclinical study results for our next cell Signaling Function test for breast cancer at the San Antonio Breast Cancer's conference. This test will identify a new subgroup of HER2-negative breast cancer patients with tumors that have currently undiagnosed hyperactive oncogenic signaling activity. We'll incorporate this test into our CELx Multi-Pathway Signaling Function test. HER2 subgroup will increase the proportion of HER2-negative breast cancer patients our CELx Multi-Pathway test can diagnose. And as with our first two tests, there are approved targeted therapies and one is in light-phase clinical development that can treat the cancer subtype this test diagnoses. Each of these therapies represent a potential collaboration opportunity for Celcuity to provide a companion diagnostic that would expand the treatable population for the partner's therapies. We would expect to initiate discussions with pharmaceutical companies about collaborating on clinical trials beginning in the first half of 2020. We're also advancing development of our fourth test for HER2-negative breast cancer that we hope to complete in 2020. If successfully developed this fourth this test would create additional potential opportunities for pharmaceutical companies to obtain new indications and expand the treatment population for a number of targeted therapies. The development of the tests for two new tumor types also progressed during the quarter. We expect to complete preclinical studies for our cell Signaling Function test in the second tumor type in the first quarter of 2020 and present the results of these studies at a cancer research conference in the second quarter. The completion of the preclinical data package for the second tumor type will further increase our opportunities to provide companion diagnostics that we believe will enable pharmaceutical companies to obtain new drug indications for the cancer subtypes or tests diagnosed. Our efforts to advance the development of Signaling Function test in the third tumor type also made significant progress in this quarter. We hope to complete development of test for this third tumor type sometime in 2020. The approach we're taking for developing tests in these new tumor types mirrors in many ways the approach we used for our breast cancer tests. With these new tissue types, we can leverage the pathway studies we've conducted in breast cancer. And this experience and data we hope will enable us to offer tests for multiple pathways in the initial version of the test when we announce it. The Multi-Pathway test is available at the offset. We will potentially broaden the scope of collaborations we could pursue. We also continue to progress towards finalizing several clinical trial collaborations with pharmaceutical companies and clinical sponsors to study breast cancer patients identified by our CELx MP test. These potential collaboration would, if finalized, enable us to study a range of drugs either as single or combination agents. If successful we believe these collaborations could ultimately lead to helping these therapies gain FDA approval to treat the patient population our test identifies. Since the collaborations we're pursuing involve Celcuity, the clinical sponsor and in some cases two pharmaceutical companies, significant time is required to finalize the related agreements between the three or four parties. However, we're very confident that we will close several collaborations in the next several quarters. The efforts by NSABP to add new clinical sites to the FACT one trial successfully continued this quarter. Six new clinical sites obtained Institutional Review Board or IRB approval and activated the trial. We now have 26 sites, who are enrollment ready and another four sites that are at various stages of obtaining IRB and other related approvals. And we're hopeful that most if not all of the four remaining sites that are in the midst of approval-related activities will be enrollment-ready by year-end. This is a reminder that FACT 1 trial is evaluating the safety and efficacy of Genentech's drugs Herceptin and Perjeta in chemotherapy in early stage breast cancer patients selected with Celcuity's CELx HSF Test. The addition of these six new sites and four pending sites would double the number of activated sites enrolling patients for this trial compared to the end of 2018. Since most of these new sites only began participating recently, they haven't had yet significant impact on the patient enrollment rate for the trial. We expect interim results will be available from this trial in mid-2020 and final results ultimately nine months later. The FACT 2 trial that is evaluating the safety and efficacy of Puma Biotechnology’s pan-HER inhibitor NERLYNX in chemotherapy in early stage breast cancer patients selected with our CELx HSF Test is also progressing. We expect interim results from this trial in mid-2020 and final results approximately 12 months later. The trial with NSABP and Puma Biotechnology to evaluate tissue samples from a Phase II study evaluating Puma's pan-HER inhibitor NERLYNX; Genentech's HER2 antibody Herceptin; and Bristol-Myers Squibb's EGFR Inhibitor Erbitux in metastatic colorectal cancer patients also continued to progress. Finally, I'm very excited to have Eric Lindquist join our team as our Chief Business Officer to lead Celcuity's efforts to establish collaborations with pharmaceutical companies and to foster relationships with oncology thought leaders. We announced this previously but I just wanted to comment on it. Eric's nearly two decades of experience in the companion diagnostic industry brings critical expertise to Celcuity. During his tenure at several leading diagnostic companies, he developed companion diagnostic relationships with nearly every major pharmaceutical company. And prior to joining us, Eric was most recently the Globalized President of oncology and rare disease for Natera, a leading genetic testing diagnostics company. He was responsible when he was there for launching their oncology diagnostic product Signatera to the pharmaceutical industry and executed more than 30 Signatera agreements within the first year of its launch. And so, that concludes my remarks. Overall, we're very excited about the progress we made during the quarter. And now I will turn it over to Vicky to review our financial results.

Thank you, Brian. Our third quarter net loss was $1.98 million, or $0.19 per share, compared to $1.87 million net loss or $0.18 per share for the third quarter of 2018. Net loss for the first nine months of the year was $5.55 million or $0.54 per share compared to $5.66 million or $0.56 per share for the same period in 2018. Because these quarterly net losses include a significant non-cash 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 $1.68 million or $0.16 per share for the third quarter of 2019 compared to non-GAAP adjusted net loss of $1.57 million or $0.15 per share for the third quarter of 2018. R&D expenses increased approximately $0.08 million during the first nine months of 2019 compared to the first nine months of 2018. This was primarily due to $0.37 million in clinical validation and laboratory studies, legal expenses related to patent costs and operational and business development activities. This increase was offset by a decrease of $0.19 million in non-cash stock-based compensation and $0.1 million decrease in payroll taxes, primarily resulting from utilization of research and development tax credits as authorized by the PATH Act tax provision. The approximately $0.15 million decrease in G&A from the first nine months of 2019 compared to the first nine months of 2018, primarily resulted from non-cash stock-based compensation and professional fees associated with being a public company. We ended the quarter with approximately $20.4 million of cash, cash equivalents and investments. The net cash used in operating activities for the third quarter of 2019 was $1.48 million. This was a result of the non-GAAP adjusted net loss of $1.68 million, offset by depreciation expense and working capital changes in prepaid and accounts payable of $0.2 million.

Thank you, Vicky. And, operator, we'd like now to take questions.

Thank you. [Operator Instructions] We'll go first to the side of Yi Chen with HC Wainwright.

Good afternoon. This is Edward Marks on for Yi. I appreciate you taking the questions. Just looking at the time frames that you had laid out here for the multiple collaborations, I'm just wondering if you can give a little more detail. Most of them are laid out here, but for the Roche collaboration or Genentech collaboration I'm wondering if you can provide anymore granularity on what the timing for the trial readout may be.

Well, as we indicated, I think, we said mid-2020. That's as specific as we can get. And then, with the final readout, roughly not just 12 months after that. And so, it's essentially a function of the enrollment and that we hope will be augmented by the addition of the new sites that are coming online now.

Okay. Thank you. And then, you also mentioned just in the next several quarters you anticipate having some additional collaborations. I'm just wondering if you could break these down into the different indications or if you're going to have just these conversations in the near term, and then you anticipate within the next three or four quarters to be able to announce them.

Well, we don't really want to preview the deals until they happen, just because we don't think that is practical. But I can say that we've had ongoing discussions with five or six different pharmaceutical companies. We're pursuing a lot of potential different indications or different drugs and we're -- as a result of those conversations and the stage, confident that we will have collaborations to announce. But as I indicated in my remarks, these are multiparty agreements and those just take a longer time to get done. They are -- in some cases, it's just a lot of drill time getting feedback on agreements or having follow-up meetings, et cetera. It's just reality in the pharmaceutical world, because of the nature of the collaborations themselves. But regardless, I mean, we're -- have a number of these discussions, far enough along for us to have great confidence that we will have a number of them to announce in 2020 and we think that some of those will be in the next few quarters.

Understood. Thank you. And that’s all for me. So I appreciate taking the questions.

You're welcome. Thank you.

[Operator Instructions] We'll go next to the line of Per Ostlund from Craig-Hallum Capital.

Good afternoon. Thanks for taking the question, Brian and Vicky.

Hi, Per.

Wanted to ask, I guess, since we're talking about future collaborations and specifically the pan-HER, c-Met test. If I'm right the multi-pathway test is essentially iterative in the sense that you'll continue to add test for additional subtypes to the Multi-Pathway test. I assume that there's nothing that holds you back from striking collaborations, as you add tests along the way. In other words, you can have a c-Met, pan-HER collaboration and then when you add something else to it with your third and fourth tests coming down the road, you can strike fresh --

Exactly.

-- collaborations. Okay. That makes sense. And that's what I expected, but figured I would clarify because clearly you do have a lot that you're working on there. You brought up Eric's hiring in your prepared remarks, Brian, and I know it's only been a couple of months, but I'd kind of love your early take, I guess, on what he's bringing to the table for you from a business development standpoint. Are you having more conversations with pharma partners? Or is it a matter of those conversations just being a little bit deeper, because you've got another high-level executive at the table alongside? And then, maybe just bigger picture how does his background stand out?

Sure. Well, Eric is a listing in on this call. So I'll have to bring him back down to earth after the call. But no, we did an extensive national search and found a lot of very good candidates who were very interested in working with us. The companion diagnostic industry over the past 10 years has really exploded. There are a lot of companies that offer molecular tests that are important for drug companies to get approvals to select their patients. And so there's a good pool of people out there who've spent their careers collaborating with pharmaceutical companies to coordinate clinical trials, FDA approvals and in the process developed relationships with senior executives across a range of disciplines in the pharmaceutical area whether its translational medicine, medical affairs, biomarker group or even the discovery group and preclinical Phase I groups. And so I had the chance in the national search to evaluate a lot of candidates and so I had I think a pretty good take on the talent available and the experience available to us. And Eric stood out. I really was fortunate to have the opportunity to select amongst a number of very, very capable people. And what was most intriguing about Eric was that he's been at the forefront of a lot of the most advanced companion diagnostic technologies. He was involved in helping launch the first HER2 tests and involved in advancing the development of next generation of HER2 tests focusing on HER2 amplification using FISH or ISH. His most recent experience in Natera, was very impressive to me and I think he'd be very helpful to us because he was directly involved in launching a new technology and new tests that could directly impact how pharmaceutical companies evaluate their drugs incorporate those tests into the development of their programs. And because of the nature of the readout from that test it gave him entrée to meet with very, very senior people at most of the major and minor pharma companies out there. And as you know in most industries it's a lot better to start a dialogue with somebody that you know than with a stranger. And so the benefit of having Eric join our team is that he knows the people that we should get to know and he brings credibility of having delivered new technology to those companies in the past. And I think he has a great reputation as a result. He is discerning in the companies that he has worked with and he's credible because he understands he can overpromise. And you have to be very honorable in how you're presenting the data from your company. So in terms of how it helps us directly, we've made progress as a company getting relationships with Puma and Genentech, but there's a lot of companies out there. And we may have focused on certain areas of pharma. Eric allows us to broaden our reach within the pharmaceutical also get at higher levels than maybe we were able to get to before. So I think overall we hired him for a reason to help advance our ability to collaborate or establish these collaborations and ideally over time deepen our relationships with these companies. And so far so good. We spent a couple of days at a conference where we were the only non-pharma company at the conference, invitation-only conference and we were able to engage at a -- with very high-level folks and talk in a very strategic way about the type of work that we do. So again I would say you can hear it for 60 days but he has reinforced my decision. So Eric you and I will talk after this call. And I will have to straighten things out exactly. But no he's a great guy to have on board. And he really fits the profile exactly that I had set out when I was initiating the search.

Perfect. Very good to hear. Last question. And I realize this might be just a little bit early to telegraph, but is there anything early as you look to turning the calendar into 2020 from an operating plan standpoint that would deviate from your expense/investment levels of 2019?

No. No, I mean I think 2019 -- we're always very budget conscious and so we're frugal. And to the extent that we spend more money in 2020 it'll be because we're doing some good things that are advancing the ball. But I -- we're not changing our overall direction or guidance vis-à-vis our spending.

Excellent. Okay. Thanks, Brian.

You're welcome. Thank you.

Thank you. [Operator Instructions] And it does not appear we have any further questions at this time sir.

Okay. Well, thank everyone for joining the call. Look forward to speaking with you in the future. I'll talk to you later. Goodbye.

We'd like to thank everybody for their participation in today's conference. Please feel free to disconnect your line anytime and have a wonderful day.