Celcuity Inc. (CELC) Q3 2020 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today's Celcuity Release of Third Quarter 2020 Financial Results. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note today's call may be recorded. [Operator Instructions] It is now my pleasure to turn today's program over to Vicky Hahne. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for a discussion of Celcuity's third quarter 2020 financial results and business highlights. We issued a press release announcing our financial results for the third quarter ended September 30, 2020, a few minutes ago. Today's press release can be found on the Investors section of our Web site, www.celcuity.com. Before we begin, I would like to remind listeners 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. Actual events or results may differ materially from those projected in the forward-looking statements. Such forward-looking statements and their implications involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. On this call, we also refer to non-GAAP financial measures. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. You can find the table reconciling the non-GAAP financial measures to GAAP measures in today's press release. And with that, I'd like to introduce Brian Sullivan, our CEO.

Thank you, Vicky, and good afternoon everyone. Thank you for joining us today. I'm glad that we're able to update you on our progress this past quarter. I'd like to comment on our third quarter results. I will focus in particular on the status of our collaboration discussions, our product development projects, and as well as FACT 1 and FACT 2 clinical trials. Vicky will follow my comments with a discussion of our financial results, and then we'll open up the line for questions. Celcuity's 3rd generation diagnostic platform, CELsignia, identifies the underlying cellular activity, dysregulated pathway signaling that drives many cancers, and this allows us to diagnose dysregulated signaling pathways in a patient's tumor and has a disease mechanism treatable with a matching targeted therapy. Our strategy is to help pharmaceutical companies obtain new indications for their targeted therapies to treat their patients our CELsignia tests identify. Since dysregulated signaling is too complex for molecular tests to characterize in most cases, we can leverage the capability of our CELsignia platform to create a proprietary business strategy. To execute our strategy we continue to make progress advancing collaboration agreements with pharmaceutical companies and our clinical sponsors. Over the past several months, our clinical collaborators have received approval from several major pharmaceutical companies to contract and finalize protocols for clinical trials that evaluate their approved targeted therapies in patients our CELsignia tests select. These are the same collaboration discussions we have referenced previously when they were at an earlier stage. Once our clinical sponsor collaborators receive an approval from a pharmaceutical company a number of actions are required to translate the pharmaceutical company's intent to collaborate with us until final agreement between Celcuity, our clinical sponsors, and the pharmaceutical company. This process is, as I have described previously, an expensive and time-consuming one because of the number of parties and documents involved. For example, the first clinical -- the final clinical trial protocol must get approved separately by several groups at the clinical sponsors institutions and then by separate groups within the pharmaceutical company before collaboration agreements can get finalized. Each of these review steps can take months. Fortunately, we are close to completing these steps with several collaborations, which is why we expect to close several pharmaceutical company collaborations over the next few months, including one or two before year-end. The collaborations we expect to close soon will evaluate different drug combinations with HER2-negative metastatic breast cancer patients selected with our CELsignia Multipathway Activity Test. These will be our first collaborations to study late-stage metastatic patients. Our collaborations with Genentech and Puma are evaluating early-stage breast cancer patients. There is a significant unmet need for new therapeutic options for HER2-negative metastatic breast cancer patients. Our research suggests that many of these patients have an undiagnosed and untreated disease mechanism. We believe our CELsignia test can identify the disease mechanism for roughly 25% to 35% of these late-stage patients, and the targeted therapy is mostly likely to benefit them. The collaborations we expect to close soon will evaluate patients, with either hyperactive HER2 signaling tumors or those with hyperactive c-MET in HER2 signaling tumors. Our discussions with pharmaceutical companies to evaluate PI3K inhibitors in breast and ovarian cancer patients with hyperactive PI3K signaling are also progressing. Now, these discussions are at an earlier stage than those involving patients with hyperactive HER2 or c-MET signaling, so we don't expect those collaborations to close until some time in mid 2021 or beyond. For pharmaceutical companies the collaboration with Celcuity offers a unique opportunity to evaluate the efficacy of their targeted therapies in patient populations the company would not otherwise be able to evaluate. If successful, these collaborations would represent a critical step towards obtaining a new indication that expands the market for the evaluated targeted therapies. We're also very excited about the clinical investigators we expect to partner with to fuel these trials. They are amongst the most respected oncology thought leaders and researchers in the country, and we believe their interest in collaborating with us reflects their respect for the unique potential our CELsignia test offers to identify undiagnosed disease drivers for their patients. During the third quarter, we also continued to advance development of additional CELsignia pathway activity tests. Our goal is to develop new CELsignia tests that identify RAS pathway-driven cancers undetectable with molecular tests in breast and ovarian cancer. Dysregulated signaling involving RAS network nodes is responsible for a significant percentage of all cancers, which has led many pharmaceutical companies to sponsor research in this area. We expect to report data for these new tests at a cancer conference in the first-half of 2021. Our CELsignia platform also provides unique insights into the interdependence of the various RAS pathways. For many patients, a targeted therapy that inhibits one RAS pathway in turn may activate another RAS pathway, and this is typically referred to as a resistance mechanism, which at present can reduce the efficacy of the targeted therapy. For instance, it is generally understood that the inhibition of PI3K can detrimentally activate mTOR or MEK signaling and vice versa in some patients. With CELsignia, we can analyze these interactions between the different pathways and this interconnected network using a patient's tumor cells. So it allows us to identify drug combinations that can blockade these interactions and prevent the resistance mechanisms from occurring. The benefit to the patient would be better tumor control and ultimately longer overall survival. In addition, we can also assess the relative potency and efficacy of the different therapies targeting RAS nodes. This enables us to characterize the relative superiority of the different approved and investigational targeted therapies for RAS pathways, which will help guide our collaboration activities. Finally, we continue to expect interim results from our FACT 1 and FACT 2 trials in the second-half of 2021. Although some sites continue to experience COVID-19 delays, it should not further delay reporting of results. However, as you are all aware, we do not yet know whether the recent increase in COVID-19 related hospitalizations in a number of States will impact enrollment activities for these trials over the next few months. Both the FACT 1 and FACT 2 trials are evaluating anti-HER2 therapies in early-stage HER2-negative breast cancer patients. The goal of each trial is to demonstrate that breast cancer patients identified by our CELsignia HER2 Pathway Activity test, obtain a higher rate of pathological complete response to new adjuvant anti-HER2 drug treatment than the current therapies. Since patients who receive a pathological complete response to new adjuvant drug treatment are less likely to have a cancer recur. We're hopeful our CELsignia test can play a significant role in extending the lives of many breast cancer patients. That concludes my initial remarks, but I'd like to now turn it over to Vicky to review financial results.

Our second quarter net loss was $2.47 million, or $0.24 per share, compared to $1.98 million net loss, or $0.19 per share, for the third quarter of 2019. Net loss for the first nine months of the year was $6.92 million, or $0.67 per share, compared to $5.55 million, or $0.54 per share, for the same period in 2019. Because these quarterly net losses included significant non-cash item stock-based compensation, we also include in our press release non-GAAP adjusted net loss for the quarter. Our non-GAAP adjusted net loss was $2.03 million, or $0.20 per share, for the third quarter of 2020, compared to non-GAAP adjusted net loss of $1.68 million, or $0.16 per share, for the third quarter of 2019. Non-GAAP adjusted net loss for the first nine months of 2020 was $5.59 million, or $0.54 per share, compared to non-GAAP adjusted net loss of $4.87 million, or $0.47 per share, for the first nine months of 2019. R&D expenses increased approximately $0.8 million during the first nine months of 2020, compared to the first nine months of 2019, primarily due to $0.71 million increase in compensation expense, which included $0.45 million of non-cash stock based compensation. In addition, other research and development expenses increased $0.09 million due to clinical validation and laboratory studies and operational and business development activities. The approximately $0.3 million increase in G&A during the first nine months of 2020 compared to the first nine months of 2019 was primarily due to $0.24 million increase in compensation expense, which included $0.21 million of non-cash stock based compensation. In addition, other general and administrative expenses increased $0.06 million primarily due to professionals fees associated with being a public company. We ended the quarter with $13.7 million of cash and cash equivalents. The net cash used in operating activities for the third quarter of 2020 was $1.65 million, this was a result of non-cash -- non-GAAP adjusted net loss of $2.03 million, offset by $280,000 of working capital changes in prepaid assets and accrued expenses and depreciation expense of $100,000.

Great, thank you, Vicky. So, in summary, we're pleased with the progress we're making. Our discussions with pharmaceutical companies and clinical sponsors continue to advance, and we expect to close some collaborations this year. We're very excited about getting approvals to proceed from the pharmaceutical companies. We expect to present data for another CELsignia test for breast cancer patients in early 2021, and remain confident that we we'll obtain interim results from the FACT 1 and FACT 2 trials in the second-half of 2021. Operator, we'd like to take questions now.

[Operator Instructions] And it looks like our first question is from Yi Chen from H.C. Wainwright. Please go ahead, your line is open.

Hi. This is Boobalan dialing in for Yi Chen. Can you hear me okay?

Well, yes, we can.

Okay, awesome. So, other than what is started in your prepared remarks, can you provide additional color on FACT 1 and FACT 2 study, and how the progress looked like during current quarter?

Well, I think, again, when we announced that we expect to get results in second-half of 2021, the quarter progressed as we expected, and the unknown is how much COVID could have an affect. We don't think it's a significant factor in most of our sites. We do know a couple in particular that have been hit hard recently and are kind of pausing some of their clinical trial activities, but I don't think that will affect the trial itself. We kind of assumed that there would be some pauses along the way over the course of the remainder of 2020.

[Operator Instructions] We'll take our next question from Alex Nowak from Craig-Hallum Capital. Your line is open, please go ahead.

Great. Good afternoon, everyone. Just to follow-up on that last question there. When we saw the cases rise in the south, and in early Q3, what happened to enrollment in FACT 1 and FACT 2?

We have different distribution of sites. We did see, and I'm giving kind of more anecdotal information because the number of patients that we're screening and seeing are not ones you can necessarily draw too many trends from, but we know just from an activity standpoint the sites themselves -- or a couple sites essentially slowed down their enrollment activities in general, but that that's not a -- and I don't want to overstate that. I'm just saying that that has been some anecdotal feedback we've received. I'm only mentioning it because over the past week or so there have been reports of some areas having limitations with hospital beds and talking to NSABP we know that when that happens that constrains other activities, but we still believe that we're on track to report results in second-half of 2021. So I guess I'm only providing color but not attempting or trying to change our outlook.

Yes. No, absolutely, Brian, and obviously Minnesota is seeing a big impact right now, so is Wisconsin, and others. So I guess as enrollment continues here over the next couple of weeks, what are you primarily going to be looking for. I guess what would be the kind of the point where you'd have to say, "All right, maybe we won't be able to get through the second-half of 2021 readouts," or are you feeling pretty confident with the number of patients you have enrolled right now with where enrollments were going perhaps through all of Q3 versus just signaling out early Q3, but all of Q3 you were pretty happy, where enrollments have been heading that you're pretty confident in that second-half number.

Right, I don't keep the thought of forecasts or supposed to grade the forecast as red, yellow, green, but we're confident for now. I mean, again, if we had the data, we'd report it. So we still have patients to get, and we projected that we'll get the patients so that we can report the date in the second-half. I mean I can't, but there's only about what's been going on that would change our opinion about that.

Yes, okay, but I understand, you want to make sure things, we're still even with the latest case spikes, things are still tracking in line, and it sounds like they certainly are. So I just want to confirm that. So that's, that's good. The collaboration is that you expect to sign in the next few months here. Would these be Phase 2 studies, similar to FACT-1 and FACT-2 and I know one of the pieces with FACT-1 and FACT-2 was because it was for early stage cancer, the enrollment time is just longer, the fact that these would be metastatic, is it fair to say the enrollment should be condensed a bit?

I would think I mean, if there are fewer metastatic patients, so you got two things going on one, they're more early stage patients, but they have a much better prognosis overall, metastatic patients, there are fewer of them, but they have a more urgent need to find alternatives, and so, we think we will have a much greater ability to engage the patient community, because they have fewer options, and the clinicians know that they have to, in cases where these patients have failed their prior therapies have alternatives. So, it's an entirely different dynamic. Now, each trial has its own characteristics, because they're addressing different populations. In the case of HER2 c-Met, several of these trials or most of them will be Phase 2, but in some cases, we're evaluating two drugs that haven't been tried before. So you do a small Phase 1b study to just confirm dosing, that there are no toxicity overlaps, but that's relatively very small, it might be a small 10 patients, 12 patients, and that's not selection, so you're really just getting safety data in that case, but for others, you've got maybe a setting where the patients have failed several lines of therapy, and so their motivation to participate and Doctors motivation to find an option for them is higher. So, net-net, we will estimate when we think we could get data at the time, we announced the trials, but the timelines, again I don't want to get ahead of my skis, because there are a number of different trials that have different characteristics, and each timeline will have its own story to tell.

Yes, no, absolutely. I understand that, and just to confirm, is this two collaborations for two separate HER2 negative breast cancer, metastatic breast cancer, I just want to make sure I was correct on the number and the mutation?

There would be two different drug combinations, and encouraging sign for us is among the steps along the way are having the drug companies kind of go through a formal process to approve the concept, approve the protocol, approve their intent to provide drug and to collaborate on a regulatory basis, and so, receiving that is obviously gives you a high degree of confidence that, no, it's just now a matter of getting, other final documentation done, which takes longer than I'd like, but again, it's the path isn't just a matter of getting certain documents to move from different desks.

Yes, yes, absolutely. One more clarification, then just one more question after that. In the metastatic cancers for this one particular, do you say that the test would be able to identify roughly 25% or 30% of patients that molecular marker would have missed just for this specific because there's new indication you're targeting?

Okay, so if you add up the three tests, HER2, HER2 c-Met, [indiscernible]. If you aggregate the patient subgroups, it leads to roughly we would say 30%, if I was just to use a round number, and it's probably closer to 35%, but to say 30% is a round number, and these patient groups or individual patient groups are smaller than that. So there will be an indication that we'll be studying that for HER2 that will have different combination drugs. So, separate trials with separate drug combinations or drugs that they're combined with, we're working on several trials to evaluate different pan-HER inhibitors with different c-Met inhibitors, and that will have a certain proportion of patients that will be less than 30%, but north of 20% as an example.

Okay, got it, and then just last question here, how are you still having conversations with Roche and Genentech and Puma with regards to additional collaborations with them? Or is this just an area of opportunity for you?

Well, I mean, we're having ongoing conversations with again, until we close to them, I don't like to announce I don't want to announce the names, but I could say that, Puma has a very good pan-HER inhibitor. Roche has, their HER2 drugs, I think they have different characteristics, and so we're in touch with both, and hope to collaborate with both over time.

That's great, very helpful. Appreciate it. Thank you.

You're welcome. Thank you.

It looks like we have another question from Yi Chen from H.C. Wainwright. Your line is open. Please go ahead.

Hi, this is Boobalan Pachaiyappan. Thanks for incorporating me, just only one really quick. So how many collaborations do you expect to finalize within the next six to 12 months, do you have like rough ballpark number?

I would say three to five.

Okay.

More than two.

Okay. Thank you so much.

You're welcome.

[Operator Instructions] It appears that we have no further questions at this time. I'll now turn the program back over to our speakers for any additional or closing remarks.

Thank you everyone for attending the call. We appreciate your interest in Celcuity, and I look forward to speaking with you again in a few months. Take care.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.