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Celcuity Inc. - Quarter Report: 2022 June (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                       to                       

 

Commission File No. 001-38207

 

 

 

CELCUITY INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   No. 82-2863566
(State of incorporation)   (IRS Employer Identification No.)

 

16305 36th Avenue North; Suite 100

Minneapolis, Minnesota 55446

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: (763) 392-0767

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value per share   CELC   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒   NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒     NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer  
Non-accelerated filer     Smaller reporting company  
        Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐  NO

 

On August 8, 2022 there were 14,941,334 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

 

 

 

 

 

 

Celcuity Inc.

Table of Contents

 

  PAGE
PART I. FINANCIAL INFORMATION
 
ITEM 1. Financial Statements (unaudited) 3
   
Condensed Balance Sheets as of June 30, 2022 and December 31, 2021 3
   
Condensed Statements of Operations for the three months and six months ended June 30, 2022 and 2021 4
   
Condensed Statements of Stockholders’ Equity for the three months and six months ended June 30, 2022 5
   
Condensed Statements of Stockholders’ Equity for the three months and six months ended June 30, 2021 6
   
Condensed Statements of Cash Flows for the six months ended June 30, 2022 and 2021 7
   
Notes to Unaudited Condensed Financial Statements 8
   
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
   
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 24
   
ITEM 4. Controls and Procedures 24
   
PART II. OTHER INFORMATION
 
ITEM 1. Legal Proceedings 25
   
ITEM 1A. Risk Factors 25
   
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
   
ITEM 3. Defaults Upon Senior Securities 25
   
ITEM 4. Mine Safety Disclosures 25
   
ITEM 5. Other Information 25
   
ITEM 6. Exhibits 26
   
Signatures 28

 

As used in this report, the terms “we,” “us,” “our,” “Celcuity,” and the “Company” mean Celcuity Inc., unless the context indicates another meaning.

 

2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

Celcuity Inc.

Condensed Balance Sheets

 

   June 30, 2022   December 31, 2021 
    (unaudited)       
Assets          
Current Assets:          
Cash and cash equivalents  $66,910,824   $84,286,381 
Deposits   22,009    22,009 
Deferred transaction costs   332,824    22,144 
Payroll tax receivable   95,300    298,764 
Prepaid assets   4,601,874    722,677 
Total current assets   71,962,831    85,351,975 
Property and equipment, net   238,629    312,444 
Operating lease right-of-use assets   148,727    241,901 
Total Assets  $72,350,187   $85,906,320 
Liabilities and Stockholders’ Equity:          
Current Liabilities:          
Accounts payable  $2,304,543   $1,507,099 
Finance lease liabilities   5,379    5,850 
Operating lease liabilities   156,769    189,858 
Accrued expenses   1,683,305    802,893 
Total current liabilities   4,149,996    2,505,700 
Finance lease liabilities   -    2,449 
Operating lease liabilities   -    61,771 
Note payable, non-current   15,011,460    14,625,923 
Total Liabilities   19,161,456    17,195,843 
Stockholders’ Equity:          
Preferred stock, $0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021   -    - 
Common stock, $0.001 par value: 30,000,000 and 25,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 14,941,334 and 14,918,887 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   14,941    14,919 
Additional paid-in capital   126,995,610    124,622,405 
Accumulated deficit   (73,821,820)   (55,926,847)
Total Stockholders’ Equity   53,188,731    68,710,477 
Total Liabilities and Stockholders’ Equity  $72,350,187   $85,906,320 

 

See accompanying notes to the financial statements

 

3

 

 

Celcuity Inc.

Condensed Statements of Operations

(unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
                 
Operating expenses:                    
                     
Research and development  $8,367,687   $13,070,108   $15,064,000   $15,306,451 
General and administrative   1,233,040    573,360    2,044,332    1,128,787 
Total operating expenses   9,600,727    13,643,468    17,108,332    16,435,238 
Loss from operations   (9,600,727)   (13,643,468)   (17,108,332)   (16,435,238)
                     
Other income (expense)                    
Interest expense   (455,445)   (391,187)   (890,446)   (391,210)
Interest income   95,646    1,803    103,805    2,191 
Loss on sale of fixed assets   -    -    -    (263)
Other income (expense), net   (359,799)   (389,384)   (786,641)   (389,282)
Net loss before income taxes   (9,960,526)   (14,032,852)   (17,894,973)   (16,824,520)
Income tax benefits   -    -    -    - 
Net loss  $(9,960,526)  $(14,032,852)  $(17,894,973)  $(16,824,520)
                     
Net loss per share, basic and diluted  $(0.67)  $(1.11)  $(1.20)  $(1.42)
                     
Weighted average common shares outstanding, basic and diluted   14,930,538    12,610,917    14,923,900    11,845,758 

 

See accompanying notes to the financial statements

 

4

 

 

Celcuity Inc.

Condensed Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2022

 

   Shares   Amount   Capital   Deficit   Total 
       Additional         
   Common Stock   Paid-In   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance at December 31, 2021   14,918,887   $14,919   $124,622,405   $(55,926,847)  $68,710,477 
Stock-based compensation   -    -    756,271    -    756,271 
Exercise of common stock options, net of shares withheld for exercise price   1,415    1    7,413    -    7,414 
Net loss   -    -    -    (7,934,447)   (7,934,447)
Balance at March 31, 2022 (unaudited)   14,920,302   $14,920   $125,386,089   $(63,861,294)  $61,539,715 
Stock-based compensation   3,273    3    1,519,456    -    1,519,459 
Employee stock purchases   15,888    16    80,525    -    80,541 
Exercise of common stock options, net of shares withheld for exercise price   1,871    2    9,540    -    9,542 
Net loss   -    -    -    (9,960,526)   (9,960,526)
Balance at June 30, 2022 (unaudited)   14,941,334   $14,941   $126,995,610   $(73,821,820)  $53,188,731 

 

See accompanying notes to the financial statements

 

5

 

 

Celcuity Inc.

Condensed Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2021

 

      Additional       
   Common Stock   Paid-In   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance at December 31, 2020   10,299,822   $10,300   $38,013,551   $(26,321,581)  $11,702,270 
Stock-based compensation   -    -    449,098    -    449,098 
Exercise of common stock warrants   1,185    1    11,256    -    11,257 
Exercise of common stock options, net of shares withheld for exercise price   12,707    13    (13)   -    - 
Issuance of common stock upon closing of follow-on offering, net of underwriting discounts and offering costs   1,971,100    1,971    25,766,522    -    25,768,493 
Issuance of common stock in an at-the-market (“ATM”) offering   3,082    3    38,959    -    38,962 
Issuance costs associated with ATM offering   -    -    (3,868)   -    (3,868)
Net loss   -    -    -    (2,791,668)   (2,791,668)
Balance at March 31, 2021 (unaudited)  12,287,896   $12,288   $64,275,505   $(29,113,249)  $35,174,544 
Stock-based compensation   2,964    3    540,314    -    540,317 
Employee stock purchases   5,496    6    25,811    -    25,817 
Exercise of common stock options, net of shares withheld for exercise price   9,136    9    36,850    -    36,859 
Issuance of common stock warrants, note payable   -         289,839    -    289,839 
Issuance of common stock, licensing agreement   349,406    349    4,999,651    -    5,000,000 
Net loss   -    -    -    (14,032,852)   (14,032,852)
Balance at June 30, 2021 (unaudited)   12,654,898   $12,655   $70,167,970   $(43,146,101)  $27,034,524 

 

See accompanying notes to the financial statements

 

6

 

 

Celcuity Inc.

Condensed Statements of Cash Flows

(unaudited)

 

   2022   2021 
   Six Months Ended June 30, 
   2022   2021 
Cash flows from operating activities:          
Net loss  $(17,894,973)  $(16,824,520)
Adjustments to reconcile net loss to net cash used for operations:          
Depreciation   108,436    176,597 
Stock-based compensation   2,275,730    989,415 
Issuance of common stock, licensing agreement   -    5,000,000 
Amortization of debt issuance costs and discount   179,539    81,571 
Payment-in-Kind interest   205,998    93,397 
Loss on sale of fixed assets   -    263 
Changes in operating assets and liabilities:          
Payroll tax receivable   203,464    - 
Prepaid assets and deposits   (3,879,197)   37,496 
Accounts payable   705,145    438,018 
Accrued expenses   875,412    (124,940)
Non-cash operating lease, net   (1,686)   (6,550)
Net cash used for operating activities   (17,222,132)   (10,139,253)
           
Cash flows from investing activities:          
Purchases of property and equipment   (34,621)   (57,897)
Proceeds from sale of property and equipment   -    500 
Net cash used for investing activities   (34,621)   (57,397)
           
Cash flows from financing activities:          
Proceeds from exercise of common stock warrants   -    11,257 
Proceeds from exercise of employee stock options   16,956    36,859 
Proceeds from employee stock purchases   80,541    25,817 
Proceeds from follow-on offering, net of underwriting discounts and offering costs   -    25,768,493 
Proceeds from note payable, net of debt issuance costs and discount of $652,061   -    14,347,939 
Gross proceeds from an ATM offering   -    38,962 
Payments for secondary registration statement costs   (213,381)   (29,065)
Payments for finance leases   (2,920)   (2,900)
Net cash provided by financing activities   (118,804)   40,197,362 
Net change in cash and cash equivalents   (17,375,557)   30,000,712 
           
Cash and cash equivalents:          
Beginning of period   84,286,381    11,637,911 
End of period  $66,910,824   $41,638,623 
Supplemental disclosure of cash flow information:          
Interest paid  $504,909   $216,242 
Supplemental disclosures of non-cash investing and financing activities:          
Offering and registration statement costs included in accounts payable  $100,422   $96,111 
Offering and registration statement costs included in accrued expenses   5,000    - 
Issuance of common stock warrants and final fee recognized as discount to note payable   -    964,839 

 

See accompanying notes to the financial statements

 

7

 

 

CELCUITY INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)

(For the Three and Six Months Ended June 30, 2022 and 2021)

 

1. Organization

 

Nature of Business

 

Celcuity Inc., a Delaware corporation (the “Company”), is a clinical-stage biotechnology company focused on development of targeted therapies for hormonally driven cancers. The company’s lead therapeutic candidate is gedatolisib, a potent, reversible dual inhibitor that selectively targets all Class I PI3K isoforms and mTOR. Its mechanism of action and pharmacokinetic properties are highly differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or together. The company expects to initiate a Phase 3 study evaluating gedatolisib in patients with HR+/HER2- advanced breast cancer in 2022. Its CELsignia companion diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from already approved targeted therapies. The Company was co-founded in 2012 by Brian F. Sullivan and Dr. Lance G. Laing and is based in Minnesota. The Company has not generated any revenues to date.

 

2. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

 

Basis of Presentation

 

The accompanying unaudited financial statements include the accounts of the Company and have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, as permitted by Article 10, the unaudited financial statements do not include all of the information required by accounting principles generally accepted in the United States (“U.S. GAAP”). The balance sheet at December 31, 2021 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP. In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair presentation have been reflected in the financial statements. These unaudited condensed financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021 and the related footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.

 

Accounting Estimates

 

Management uses estimates and assumptions in preparing these unaudited condensed financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates and the difference could be material. Significant items subject to such estimates and assumptions include the valuation of stock-based compensation and prepaid or accrued clinical trial costs.

 

Risks and Uncertainties

 

The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on, the clinical and commercial success of its initial drug product, gedatolisib, the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval of its drug product, gedatolisib, ability to obtain regulatory approval of its diagnostic tests, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition.

 

Clinical Trial Costs

 

The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with service agreements with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its prepaid assets or accrued expenses. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in an adjustment to expense in future periods. Changes in these estimates that result in material changes to the Company’s prepaid assets or accrued expenses could materially affect the Company’s results of operations.

 

8

 

 

Application of New or Revised Accounting Standards

 

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements. The Company is an emerging growth company but has irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies.

 

3. Net Loss Per Common Share

 

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period. For all periods presented, the common shares underlying the options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share is the same.

 

For the three and six months ended June 30, 2022 and 2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 1,782,782 and 1,023,513 shares of common stock, respectively, warrants to purchase 377,652 and 378,442 shares of common stock, respectively, and 3,273 and 2,964 shares of restricted common stock, respectively.

 

4. Commitments

 

Operating and Finance Leases

 

The Company leases its corporate space in Minneapolis, Minnesota. In September 2017, the Company entered into a non-cancelable operating lease agreement for building space. The lease commenced, and the Company moved to the facility in May 2018, in conjunction with the termination of its then existing lease. Rent expense is recorded on a straight-line basis over the lease term. In July 2020, the Company signed an amendment to extend this lease through April 30, 2022. The lease amendment provides for monthly rent, real estate taxes and operating expenses. As a result of the lease amendment, the Company recorded an incremental $197,211 in the operating right-of-use (“ROU”) asset and lease liability. In July 2021, the Company signed the second amendment to extend this lease through April 30, 2023. This amendment provides for monthly rent, real estate taxes and operating expenses. The Company recorded an incremental $193,517 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this amendment. The second amendment also includes the option to extend the term for one additional year. The option to extend is at the Company’s discretion and because the Company has not determined if the option to extend will be exercised, the extended lease term is not included in the ROU assets and lease liabilities. The Company regularly evaluates the renewal options and when it is reasonably certain of exercise, the Company will include the renewal period in its lease term.

 

In May 2018, the Company entered into a non-cancelable finance lease agreement for office equipment with a five-year term. The underlying assets are included in furniture and equipment. The lease contains a bargain purchase option at the end of the lease.

 

When an implicit rate is not provided, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

 

9

 

 

Supplemental balance sheet information consisted of the following at June 30, 2022:

 

      
Operating Lease     
Right-of-use assets  $148,727 
      
Operating lease liability  $156,769 
Less: short term portion   (156,769)
Long term portion  $- 
      
Finance Lease     
Furniture and equipment  $28,932 
Less: Accumulated depreciation   (23,628)
 Net book value of property and equipment under finance lease  $5,304 
      
Finance lease liability  $5,379 
Less: short term portion   (5,379)
Long term portion  $- 

 

Maturity analysis under lease agreements consisted of the following as of June 30, 2022:

 

   Operating Leases   Finance Leases 
2022  $102,119   $3,627 
2023   68,080    3,023 
Total minimum lease payments   170,199    6,650 
Less: Present value discount   (13,430)   (19)
Less amount representing services   -    (1,252)
Present value of net minimum lease payments  $156,769   $5,379 

 

  Remaining Lease Term  Discount Rate 
Weighted Average       
Operating lease  0.8 years   6.0%
Finance lease  0.9 years   1.0%

 

Lease costs for the period ended June 30, 2022:

 

   Three-month period   Six-month period 
         
Operating lease cost  $48,647   $97,204 
Finance lease cost:          
Amortization   1,446    2,893 
Interest   11    25 
Variable lease cost   20,269    40,538 
Total lease cost  $70,373   $140,660 

 

Supplemental cash flow information related to leases period ended June 30, 2022:

 

   Three-month period   Six-month period 
Cash paid for amounts included in operating and finance leases:          
Operating cash outflow from operating leases  $70,544   $139,429 
Operating cash outflow from finance leases   11    25 
Financing cash outflow from finance leases   1,461    2,920 
Total cash paid for amounts included in operating and finance leases  $72,016   $142,374 

 

10

 

 

Clinical Research Studies

 

The Company enters into contracts in the normal course of business to conduct research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CMOs, and CROs. The Company currently has five Phase 2 clinical trial agreements in place to evaluate targeted therapies selected with one of our CELsignia tests. Timing of milestone payments related to the Phase 2 clinical trials are uncertain and the contracts generally provide for termination following a certain period after notice, therefore the Company believes that non-cancelable obligations under the agreements are not material. The Company also has a license agreement in place with Pfizer to research, develop, manufacture and commercialize gedatolisib. In conjunction with the license agreement, the Company continued a Phase 1b study – B2151009 related to gedatolisib. These patients subsequently transitioned to an Expanded Access study – CELC-G-001. Contracts related to the Phase 1b study and the Expanded Access study, are generally based on time and material. In addition, contracts related to the Company’s forthcoming Phase 3 clinical study (VIKTORIA-1) are generally cancelable with reasonable notice within 120 days and the Company’s obligations under these contracts are primarily based on services performed through termination dates plus certain cancelation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties. As of June 30, 2022, the Company had only one material non-cancelable contractual commitment with respect to these arrangements, which totaled approximately $2,600,000.

 

5. Stockholders’ Equity

 

On May 15, 2022, the Company entered into a securities purchase agreement with certain institutional and other accredited investors for the sale of Company common stock, preferred stock that may be convertible into common stock and warrants initially exercisable for preferred stock for $100 million in the aggregate, before deducting placement agent fees and other offering expenses. Pursuant to the securities purchase agreement, investors will purchase shares of common stock and preferred stock at a price per share of $5.75 (on an as converted to common stock basis). For each share of common stock and each 1/10 of a share of preferred stock purchased, investors will receive a warrant initially exercisable for preferred stock equivalent to 0.40 shares of common stock on an as converted basis. The exercise price of the warrants will be at a 40% premium to the price paid by investors for the initial shares of common stock purchased in the private placement. The preferred stock will be convertible into common stock at the holder’s election, subject to certain limitations such as beneficial ownership and the approval by the Company’s stockholders to increase the number of authorized shares of common stock sufficient to cover the shares of common stock issuable upon conversion of (i) the preferred stock purchased in the private placement and (ii) the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement. The warrants are initially exercisable for preferred stock and will convert into warrants to purchase common stock if the proposed increase in the Company’s authorized common stock is approved by stockholders. The closing of the private placement is conditioned on, among other customary items, the first patient enrolled in the Company’s forthcoming Phase 3 clinical study (VIKTORIA-1) having received their first dose of treatment at a clinical site located in the United States, provided that such date must occur on or before December 31, 2022. The Company also entered into a customary registration rights agreement with the investors pursuant to which it agreed to file a registration statement with the SEC registering the resale of (i) the shares of common stock to be issued and sold in the private placement, (ii) the shares of common stock issuable upon conversion of the preferred stock purchased in the private placement and (iii) the shares of common stock issuable upon conversion of the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement.

 

On February 4, 2022, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC, as agent (“Jefferies”), pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $50,000,000. The Company will pay Jefferies a commission equal to 3.0% of the aggregate gross proceeds from each sale of such shares. To date, the Company has not yet made any sales under this arrangement.

 

On July 1, 2021, the Company completed a follow-on offering whereby it sold 2,250,000 shares of common stock at a public offering price of $25.00 per share. The offering generated approximately $56.3 million before deducting underwriting discounts of approximately $3.4 million and offering expenses of approximately $0.1 million.

 

On February 26, 2021, the Company completed a follow-on offering whereby it sold 1,971,100 shares of common stock (including 257,100 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $14.00 per share. The aggregate gross proceeds from the sale of shares in the follow-on offering, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was approximately $27.6 million before deducting underwriting discounts of approximately $1.6 million and offering expenses of approximately $0.2 million.

 

On June 5, 2020, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley FBR, Inc. (the “Agent”). Pursuant to the ATM Agreement, the Company was able to offer and sell from time to time, at its option, shares of common stock having an aggregate offering price of up to $10,000,000, par value $0.001 per share (the “Placement Shares”), through the Agent.

 

The Placement Shares were registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (File No. 333-227466), which was originally filed with the SEC on September 21, 2018 and declared effective by the SEC on October 4, 2018, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed on June 5, 2020. Sales of the Company’s common stock under this prospectus supplement were able to be made by any method deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

 

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During the six months ended June 30, 2022 and 2021, the Company sold 0 and 3,082 shares, respectively, of common stock pursuant to the ATM Agreement, at an average selling price of $12.64 per share.

 

On February 23, 2021, in conjunction with the Company’s follow-on offering, the ATM Agreement was terminated.

 

6. Stock-Based Compensation

 

The following table summarizes the activity for all stock options outstanding for the six months ended June 30:

 

 

   2022   2021 
   Shares   Weighted Average
Exercise Price
   Shares   Weighted Average
Exercise Price
 
Options outstanding at beginning of year   1,315,321   $11.97    849,949   $9.33 
Granted   550,747    6.52    218,050    24.70 
Exercised   (3,286)   5.16    (39,620)   7.32 
Forfeited   (80,000)   13.01    (4,866)   7.67 
Balance at June 30   1,782,782   $5.75    1,023,513   $12.69 
                     
Options exercisable at June 30:   724,666   $6.02    504,189   $9.64 
                     
Weighted Average Grant Date Fair Value for options granted during the period:       $4.34        $16.39 

 

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2022:

 

Options Outstanding  Options Exercisable
Options Outstanding  Weighted Average Remaining Contractual Life   Weighted Average Exercise Price   Aggregate Intrinsic Value   Options Exercisable  Weighted Average Exercise Price   Aggregate Intrinsic Value 
1,782,782   8.16   $5.75   $6,161,776   724,666  $6.02   $2,396,078 

 

The Company recognized stock-based compensation expense for stock options of $1,460,031 and $520,361 for the three months ended June 30, 2022 and 2021, respectively and $2,169,540 and $938,553 for the six months ended June 30, 2022 and 2021, respectively. In May 2022, the Company modified the exercise price on 776,324 stock option awards to $5.50, the closing market price on the Nasdaq Capital Market on May 17, 2022. The effect of this modification on stock-based compensation was $428,343 for the three- and six-months ending June 30, 2022. The effect of this modification on stock-based compensation over the remaining service period will be approximately $444,000. In December 2021, the Company modified the exercise price on 311,000 stock option awards to $13.44, the closing market price on the Nasdaq Capital Market on December 15, 2021. No director or officer awards were modified. The effect of this modification on stock-based compensation was $25,755 and $0 for the three months ended June 30, 2022 and 2021, respectively and $53,784 and $0 for the six months ended June 30, 2022 and 2021, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $242,000. In May 2020, the Company modified the exercise price on 203,750 stock option awards to $5.10, the closing market price on the Nasdaq Capital Market on May 14, 2020. No director or officer awards were modified. The effect of this modification on stock-based compensation was $11,601 and $12,790 for the three months ended June 30, 2022 and 2021, respectively and $23,216 and $26,239 for the six months ended June 30, 2022 and 2021. The effect of this modification on stock-based compensation over the remaining service period will be approximately $62,000.

 

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the six months ended June 30:

 

   2022   2021 
Risk-free interest rate   1.68% - 3.10%    0.63% - 1.14% 
Expected volatility   76.2% - 78.3%    76.6% - 76.9% 
Expected life (years)   5.29 to 6.08    5.0 to 6.08 
Expected dividend yield   0%   0%

 

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The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s initial public offering, the price per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the initial public offering, the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility since being publicly traded.

 

All assumptions used to calculate the grant date fair value of non-employee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options issued in connection with the agreements would also be cancelled.

 

Restricted stock awards were granted to members of the Company’s board during the three months ended June 30, 2022 and 2021. The Company had 3,273 and 2,964 shares of restricted stock outstanding as of June 30, 2022 and 2021, respectively, and 2,964 and 15,686 shares of restricted stock vested during the three months ended June 30, 2022 and 2021. The Company recognized stock-based compensation expense for restricted stock of $6,775 and $18,112 for the three months ended June 30, 2022 and 2021, respectively and $27,119 and $38,567 for the six months ended June 30, 2022 and 2021, respectively.

 

The Company initially reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Amended and Restated Stock Incentive Plan (the “2017 Plan”). The number of shares reserved for issuance was automatically increased by 102,540, 102,998 and 149,189 shares on January 1, 2020, 2021 and 2022, respectively, and will increase automatically on January 1 of each of 2023 through 2027 by the number of shares equal to 1.0% of the aggregate number of outstanding shares of Company common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year. At the Annual Meeting held on May 12, 2021 and May 12, 2022, the stockholders approved a one-time, 500,000 increase each year for a total increase of 1,000,000 to the number of shares reserved for issuance under the 2017 Plan. The total remaining shares available for grant under the Company’s 2017 Plan as of June 30, 2022 was 463,925.

 

Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows:

 

      
2022  $2,192,203 
2023   3,142,793 
2024   2,008,832 
2025   1,091,593 
2026   28,373 
Total estimated compensation cost to be recognized  $8,463,794 

 

The Company recognized stock-based compensation expense related to its employee stock purchase plan of $52,653 and $1,844 for the three months ended June 30, 2022 and 2021, respectively and $79,071 and $12,295 for the six months ended June 30, 2022 and 2021, respectively. The Company initially reserved a total of 100,000 shares for issuance under the employee stock purchase plan. The number of shares reserved for issuance was automatically increased by 51,270, 51,499 and 74,594 shares on January 1, 2020, 2021 and 2022, respectively, and will increase automatically on each subsequent January 1 by the number of shares equal to 0.5% of the total outstanding number of shares of Company common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for issuance under the employee stock purchase plan as of June 30, 2022 was 208,929.

 

The Company recognized total stock-based compensation expense as follows for the three and six months ended June 30:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Stock-based compensation expense in operating expenses:                    
Research and development  $810,664   $328,077   $1,261,183   $583,258 
General and administrative   708,795    212,240    1,014,547    406,157 
Total  $1,519,459   $540,317   $2,275,730   $989,415 

 

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7. Debt

 

On April 8, 2021, the Company entered into a loan and security agreement (the “Loan Agreement”) with Innovatus Life Sciences Lending Fund I, LP, a Delaware limited partnership (“Innovatus”) in its capacity as Collateral Agent and sole Lender. The Lender agreed to loan up to $25 million in three tranches consisting of (i) a $15.0 million non-contingent term A loan that was funded on April 8, 2021, (ii) a $5 million term B loan to be funded upon request of the Company no later than March 31, 2022, and (iii) a $5 million term C loan to be funded upon request of the Company no later than March 31, 2023 (collectively the “Term Loans”). The Company is no longer eligible to draw on the term B loan. Funding of the term C loan is subject to the Company’s ability to achieve certain milestones. The Innovatus Loan Agreement is secured by a lien covering substantially all assets of the Company.

 

The Loan Agreement also contains certain events of default, warranties and covenants of the Company. In connection with each funding of the Term Loans, the Company is required to issue Innovatus a warrant (the “Warrants”) to purchase a number of shares of the Company’s stock equal to 2.5% of the principal amount of the relevant Term Loan funded divided by the exercise price, which will be based on the lower of (i) $14.40 per share or (ii) the volume weighted price per share of the Company’s stock for the five-trading day period ending on the last trading day immediately preceding the funding date of the Term C Loan. The warrants may be exercised on a cashless basis and are immediately exercisable through the tenth anniversary of the applicable funding date. In connection with the first tranche of the Term Loans, the Company issued a warrant to Innovatus to purchase 26,042 shares of the Company’s common stock at an exercise price of $14.40 per share. The Company evaluated the warrant under ASC 470, debt, and recognized an additional debt discount of approximately $0.3 million based on the relative fair value of the base instruments and warrants. The Company calculated the fair value of the warrant using the Black-Scholes model. The Company is also required to maintain a minimum cash balance in agreement with the term loans’ default terms.

 

The Company is entitled to make interest-only payments for thirty-six months, or up to forty-eight months if certain conditions are met. The Term Loans will mature on the fifth anniversary of the initial funding date and will bear interest at a rate equal to sum of (a) the greater of (i) Prime Rate (as defined in the Loan Agreement) or (ii) 3.25%, plus (b) 5.70%. The effective interest rate is 12.85%. Additionally, the Company elected to make 2.7% of the interest rate as payable in kind, which shall accrue as principal monthly. The Company is obligated to pay the Lenders (i) a non-refundable facility fee in the amount of 1.00% of each term loan that is funded (the “Facility Fee”), and (ii) a final fee equal to 4.50% of the aggregate amount of the term loans funded (the “Final Fee”). In connection with the funding of the first tranche of the Term Loans, a final fee of approximately $0.7 million was recorded as additional principal and as a debt discount, and a facility fee of approximately $0.1 million was recorded as additional debt discount. The Company has the option to prepay the loan at any time following the first anniversary of the loan closing, with tiered prepayment fees ranging from 0 – 2% based on when the prepayment would occur.

 

Innovatus also has the right, at its election, after June 1, 2021 and until the third anniversary of the Loan Agreement, to convert up to 20% of the outstanding principal amount of all Terms Loans made under the Loan Agreement into shares of the Company’s common stock at a price per share equal to the volume weighted average closing price of the Company’s stock for the 5-trading day period ending on the last trading day immediately preceding the execution of the Loan Agreement (the “Conversion Right”).

 

In connection with the Loan Agreement and the funding of the first tranche of the Term Loans, the Company incurred debt issuance costs of approximately $0.5 million. The debt issuance costs, and the debt discount are amortized to interest expense using the effective interest method over the life of the Term Loans. The carrying value of the debt approximates fair value as of June 30, 2022.

 

Long-term debt consisted of the following:

 

   June 30, 2022 
     
Note payable  $15,000,000 
Add: Payment-in-Kind interest (added to principal)   506,000 
Add: final fee   675,000 
Less: unamortized debt issuance costs   (319,359)
Less: unamortized debt discount   (850,181)
Total long-term debt  $15,011,460 

 

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Future principal payments, including the final fee, are as follows:

 

    Years Ending
December 31,
 
       
2024   $ 5,814,750  
2025     7,753,000  
2026     2,613,250  
Total   $ 16,181,000  

 

8. License Agreement

 

On April 8, 2021, the Company entered into a license agreement with Pfizer to research, develop, manufacture and commercialize gedatolisib, a potent, well-tolerated, reversible dual inhibitor that selectively targets all Class I PI3K isoforms and mTOR. The Company paid Pfizer $5.0 million in upfront fees and issued to Pfizer $5.0 million of shares of the Company’s common stock pursuant to an Equity Grant Agreement. The upfront payment and the issuance of shares were expensed to research & development in full for the three months ending June 30, 2021.

 

The Company is also required to make milestone payments to Pfizer upon achievement of certain development and commercial milestone events, up to an aggregate of $335.0 million. Additionally, the Company will pay Pfizer tiered royalties on sales of gedatolisib at percentages ranging from the low to mid-teens, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. Unless earlier terminated, the license agreement will expire upon the expiration of all royalty obligations. The royalty period will expire on a country-by-country basis upon the later of (a) 12 years following the date of first commercial sale of such product in such country, (b) the expiration of all regulatory or data exclusivity in such country for such product or (c) the date upon which the manufacture, use, sale, offer for sale or importation of such product in such country would no longer infringe, but for the license granted in the license agreement, a valid claim of a licensed patent right.

 

The Company has the right to terminate the license agreement for convenience upon 90 days’ prior written notice. Pfizer may not terminate the agreement for convenience. Either the Company or Pfizer may terminate the license agreement if the other party is in material breach and such breach is not cured within the specified cure period. In addition, either the Company or Pfizer may terminate the license agreement in the event of specified insolvency events involving the other party.

 

9. Subsequent Events

 

On July 27, 2022, the Company signed an amendment to exercise the option to extend the operating lease for building space for a period of one year. The commencement of the extended period is May 1, 2023 and will terminate on April 30, 2024.

 

On August 9, 2022, the Company amended the Loan Agreement described in Note 7 above. Under the amended Loan Agreement, Innovatus, as Lender, has agreed to loan up to $75 million, a $50 million increase from the original Loan Agreement, in five tranches consisting of: (i) a $15 million term A loan that was funded on April 8, 2021 upon entering into the original Loan Agreement, (ii) a $20 million term B loan to be funded upon request of the Company no later than December 31, 2022, with such funding conditioned upon the closing of the Company’s $100 million private placement announced on May 16, 2022, (iii) a $10 million term C loan to be funded upon request of the Company no later than April 1, 2024, (iv) a $20 million term D loan to be funded upon request of the Company no later than November 1, 2024, and (v) a $10 million term E loan to be funded upon request of the Company no later than February 28, 2025. Funding of the term B loan is conditioned upon the closing of the Company’s $100 million private placement announced on May 16, 2022, and funding of the term C, D and E loans are conditioned upon satisfaction of certain clinical trial milestones and certain financial covenants determined on a pro forma as-funded basis.

 

Under the amended Loan Agreement, Innovatus has the right, at its election and until August 9, 2025, the third anniversary of the loan amendment date, to convert into Common Stock up to: (i) 20% of the outstanding principal amount of term A loan, and (ii) an additional 7% of the amount by which the aggregate principal amount of the funded term B, C, D and E loans exceed $35 million, provided that the aggregate outstanding principal amount of all term loans is at least $35 million, with such conversion based upon a price per share equal to $10.00.

 

The Company is entitled to make interest-only payments for forty-eight months, or up to sixty months from the original loan agreement date if certain conditions are met. The Term Loans will mature on April 8, 2027, the sixth anniversary of the initial funding date, and will bear interest at a rate equal to sum of (a) the greater of (i) Prime Rate (as defined in the amended Loan Agreement) or (ii) 3.25%, plus 5.70%. Additionally, the Company elected to make 4.95% of the interest rate as payable in-kind, which shall accrue as principal monthly. The Amended Loan Agreement includes certain other fees, such as a final fee of 4.5% of the funded loan amounts not converted into equity by the lender, which apply if prepayment, an event of default, or change of control occurs prior to August 9, 2025, the third anniversary of the Amendment date. Subject to certain other conditions, no final fee will be payable after August 9, 2025. The Company has the option to prepay the loan at any time following the first anniversary of the amended loan agreement date, with tiered prepayment fees ranging from 0 – 1% based on when the prepayment occurs. Upon a change in control or event of default, mandatory prepayment will be required, and if such an event occurs prior to the first anniversary of the Amendment date, an additional prepayment fee of 3.0% applies.

 

The amended Loan Agreement remains secured by all assets of the Company. Proceeds will be used for working capital purposes and to fund the Company’s general business requirements. The amended Loan Agreement contains customary representations and warranties and covenants, subject to customary carve outs, and includes financial covenants related to or based upon liquidity, trailing twelve months revenue and the funded loan amounts.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and the related notes appearing under Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Quarterly Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” discussed in our Quarterly Report for the period ended March 31, 2022 and elsewhere in this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

Celcuity is a clinical-stage biotechnology company focused on development of targeted therapies for hormonally driven cancers. The company’s lead therapeutic candidate is gedatolisib, a pan-PI3K/mTOR inhibitor. Its mechanism of action and pharmacokinetic properties are highly differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or together. The company expects to initiate a Phase 3 study evaluating gedatolisib in patients with HR+/HER2- advanced breast cancer in 2022. Its CELsignia companion diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from already approved targeted therapies.

 

Gedatolisib, is a potent, well-tolerated, small molecule reversible dual inhibitor, administered intravenously, that selectively targets all class I isoforms of PI3K and mammalian target of rapamycin (mTOR). In April 2021, we obtained exclusive global development and commercialization rights to gedatolisib under a license agreement with Pfizer, Inc. We believe gedatolisib’s unique mechanism of action, differentiated chemical structure, favorable pharmacokinetic properties, and intravenous formulation offer distinct advantages over currently approved and investigational therapies that target PI3K or mTOR alone or together.

 

Overcomes limitations of therapies that only inhibit a single class I PI3K isoform or only one mTOR kinase complex

 

Gedatolisib is a pan-class I isoform PI3K inhibitor with low nanomolar potency for the p110α, p110β, p110γ, and p110δ isoforms. Each isoform is known to preferentially affect different signal transduction events that involve tumor cell survival, depending upon the aberrations associated with the linked pathway. When a therapy only inhibits a single class I isoforms (e.g., alpelisib, a PI3K-α inhibitor) or only one mTOR kinase complex (e.g., everolimus, an mTORC1 inhibitor), numerous feedforward and feedback loops between the PI3K isoforms and mTOR cross-activates the uninhibited sub-units. This, in turn, induces compensatory resistance that reduces the efficacy of isoform specific PI3K or single mTOR kinase complex inhibitors. Inhibiting all four PI3K isoforms and both mTOR complexes, as gedatolisib does, thus prevents the confounding effect of isoform interaction that may occur with isoform-specific PI3K inhibitors and the confounding interaction between PI3K isoforms and mTOR.

 

Better tolerated by patients than oral PI3K and mTOR drugs

 

Gedatolisib is administered intravenously (IV) on a four-week cycle of three weeks-on, one week-off, in contrast to the orally administered pan-PI3K or dual PI3K/mTOR inhibitors that are no longer being clinically developed. Oral pan-PI3K or PI3K/mTOR inhibitors have repeatably been found to induce significant side effects that were not well tolerated by patients. This typically leads to a high proportion of patients requiring dose reductions or treatment discontinuation. The challenging toxicity profile of these drug candidates ultimately played a significant role in the decisions to halt their development, despite showing promising efficacy. By contrast, gedatolisib stabilizes at lower concentration levels in plasma compared to orally administered PI3K inhibitors, resulting in less toxicity, while maintaining concentrations sufficient to inhibit PI3K/mTOR signaling.

 

Isoform-specific PI3K inhibitors administered orally were developed to reduce toxicities in patients. While the range of toxicities associated with isoform-specific inhibitors is narrower than oral pan-PI3K or PI3K/mTOR inhibitors, administering them orally on a continuous basis still leads to challenging toxicities. The experience with an FDA approved oral p110-α specific inhibitor, Piqray (“alpelisib”), illustrates the challenge. In its Phase 3 pivotal trial Piqray was found to induce a Grade 3 or 4 adverse event (AE) related to hyperglycemia in 39% of patients evaluated. In addition, 26% of patients discontinued alpelisib due to treatment related adverse events. By contrast, in the 103-patient dose expansion portion of the Phase 1b clinical trial with gedatolisib, only 7% of patients experienced Grade 3 or 4 hyperglycemia and less than 10% discontinued treatment.

 

As of June 30, 2022, 492 patients with solid tumors have received gedatolisib in eight clinical trials sponsored by Pfizer. Of the 492 patients, 129 were treated with gedatolisib as a single agent in three clinical trials. The remaining 363 patients received gedatolisib in combination with other anti-cancer agents in five clinical trials. Additional patients received gedatolisib in combination with other anti-cancer agents in nine investigator sponsored clinical trials.

 

16

 

 

A Phase 1b trial (B2151009) evaluating patients with HR+/HER2- metastatic breast cancer was initiated in 2016 and subsequently enrolled 138 patients. Ten patients from this study continue to receive study treatment, as of June 30, 2022, each of whom have received study treatment for more than three years. The B2151009 clinical trial was an open label, multiple arm Phase 1b study that evaluated gedatolisib in combination with palbociclib (CDK4/6 inhibitor) and fulvestrant or letrozole in patients with HR+/HER2- advanced breast cancer. Thirty-five patients were enrolled in two dose escalation arms to evaluate the safety and tolerability and to determine the maximum tolerated dose (MTD) of gedatolisib when used in combination with the standard doses of palbociclib and endocrine therapy (letrozole or fulvestrant). The MTD was determined to be 180 mg administered intravenously once weekly. A total of 103 patients were subsequently enrolled in one of four expansion arms (A, B, C, D).

 

High objective overall response rates (ORR) were observed in all four expansion arms and were comparable in each arm for PIK3CA WT and PIK3CA MT patients. In treatment-naïve patients (Arm A), ORR was 85%. In patients who received prior hormonal therapy alone or in combination with a CDK4/6 inhibitor (Arms B, C, and D), ORR ranged from 32% to 77%. Each arm achieved its primary endpoint target, which was reporting higher ORR in the study arm than ORR from either the PALOMA-2 (ORR=55%) study that evaluated palbociclib plus letrozole for Arm A or the PALOMA-3 study (ORR=25%) that evaluated palbociclib plus fulvestrant for Arms B, C, and D. For all enrolled patients, a clinical benefit rate (CBR) of ≥79% was observed. Median progression-free survival (PFS) was 31.1 months for patients receiving first-line treatment (Arm A) and 12.9 months for patients who received a prior CDK4/6 inhibitor and were treated in the study with the Phase 3 dosing schedule (Arm D).

 

Gedatolisib combined with palbociclib and endocrine therapy demonstrated a favorable safety profile with manageable toxicity. The majority of treatment emergent adverse events were Grade 1 and 2. The most frequently observed adverse events included stomatitis/mucosal inflammation, the majority of which were Grade 1 and 2. The most common Grade 4 AEs were neutropenia and neutrophil count decrease, which were assessed as related to treatment with palbociclib. No grade 5 events were reported in this study.

 

We are preparing to initiate VIKTORIA-1, a Phase 3, open-label, randomized clinical trial to evaluate the efficacy and safety of two regimens in adults with HR+/HER2- advanced breast cancer whose disease has progressed after prior CDK4/6 therapy in combination with an aromatase inhibitor: 1) gedatolisib in combination with palbociclib and fulvestrant; and 2) gedatolisib in combination with fulvestrant. We expect to initiate the VIKTORIA-1 study in 2022.

 

The clinical trial will enable separate evaluation of subjects according to their PIK3CA status. Subjects who meet eligibility criteria and are PIK3CA WT will be randomly assigned (1:1:1) to receive a regimen of either gedatolisib, palbociclib, and fulvestrant (Arm A), gedatolisib and fulvestrant (Arm B), or fulvestrant (Arm C). Subjects who meet eligibility criteria and are PIK3CA MT will be randomly assigned (1:1:1) to receive a regimen of either gedatolisib, palbociclib, and fulvestrant (Arm D), alpelisib and fulvestrant (Arm E), or gedatolisib and fulvestrant (Arm F).

 

Our proprietary CELsignia diagnostic platform is the only commercially ready technology we are aware of that uses a patient’s living tumor cells to identify the specific abnormal cellular process driving a patient’s cancer and the targeted therapy that best treats it. This enables us to identify patients whose tumors may respond to a targeted therapy, even though they lack a previously associated molecular mutation. By identifying cancer patients whose tumors lack an associated genetic mutation but have abnormal cellular activity a matching targeted therapeutic is designed to inhibit, CELsignia CDx can expand the markets for a number of already approved targeted therapies. Our current CDx identifies breast and ovarian cancer patients whose tumors have cancer drivers potentially responsive to treatment with human epidermal growth factor receptor 2-negative (HER2), mesenchymal-epithelial transition factor (c-MET), or phosphatidylinositol 3-kinases (PI3K) targeted therapeutics. While U.S. Food and Drug Administration (“FDA”) approval or clearance is not currently required for CELsignia tests offered as a stand-alone laboratory developed test, if we are partnered with a drug company to launch a CELsignia test as a companion diagnostic for a new drug indication, we would be required to obtain premarket approval, or PMA, in conjunction with the pharmaceutical company seeking a new drug approval for the matching therapy.

 

We are supporting the advancement of new potential indications for four different targeted therapies, controlled by other pharmaceutical companies, that would rely on a CELsignia CDx to select patients. Five Phase 2 trials are underway to evaluate the efficacy and safety of these therapies in CELsignia selected patients. These patients are not currently eligible to receive these drugs and are not identifiable with a molecular test.

 

Supporting the development of a potential first-in-class targeted therapy for breast cancer, like gedatolisib, with our CELsignia platform is a natural extension of our strategy to use our CELsignia CDx to enable new indications for other companies’ targeted therapies. By combining companion diagnostics designed to enable proprietary new drug indications with targeted therapies that treat signaling dysregulation our CDx identifies, we believe we are uniquely positioned to improve the standard-of-care for many early and late-stage breast cancer patients. Our goal is to play a key role in the multiple treatment approaches required to treat breast cancer patients at various stages of their disease. With each program, we are:

 

  Leveraging the proprietary insights CELsignia provides into live patient tumor cell function
  Using a CELsignia CDx to identify new patients likely to respond to the paired targeted therapy
  Developing a new targeted therapeutic option for breast cancer patients
  Maximizing the probability of getting regulatory approval to market the targeted therapy indication

 

17

 

 

Recent Developments

 

On August 9, 2022, Celcuity amended its existing debt financing agreement with an affiliate of Innovatus Capital Partners, LLC (“Innovatus”) to provide Celcuity with up to $75 million in term loans, a $50 million increase from the original debt financing agreement dated April 8, 2021. Celcuity received $15 million at the closing of the original agreement in April 2021. Celcuity will be able to draw an additional $20 million tranche following closing of the $100 million private placement. Celcuity will be able to draw on two additional tranches of $10 million each and one additional tranche of $20 million upon achievement of certain clinical trial milestones and satisfaction of certain financial covenants determined on a pro forma as-funded basis. Funding of these additional tranches is also subject to other customary conditions and limits on when the Company can request funding for such tranches. Celcuity is entitled to make interest only payments for the 48-month period from the original agreement date or for the 60-month period from the original agreement date if certain conditions are met. The loans will mature on April 8, 2027, the sixth anniversary of the initial funding date. Innovatus has the right to convert outstanding principal into shares of Celcuity common stock until the third anniversary of the loan amendment date, with such amount limited to an aggregate of up to $6.5 million assuming all tranches are funded. The loan is secured by all of Celcuity’s assets.

 

The VIKTORIA-1 Phase 3 clinical trial remains on track to dose the first patient in the next few months. The operational activities required to initiate the clinical trial at a study site are completed. Further details about the study will be available at www.CT.gov. The clinical trial protocol was updated to include an additional study arm (Arm F) to evaluate gedatolisib plus fulvestrant in 50 patients who have PIK3CA mutations. This update was made in response to a recommendation from the European Medicines Agency (EMA) that the study arms for PIK3CA mutated patients mirror the same study arms for PIK3CA non-mutated patients. No changes were made to the primary endpoints. VIKTORIA-1 will evaluate the safety and efficacy of gedatolisib in combination with fulvestrant with or without palbociclib in adults with HR+/HER2- advanced breast cancer whose disease progressed while receiving prior CDK4/6 therapy.

 

On July 18, 2022, gedatolisib was granted Breakthrough Therapy Designation for HR+/HER2- metastatic breast cancer after progression on CDK4/6 therapy. Breakthrough Therapy designation is granted by the FDA to expedite the development and regulatory review of an investigational medicine that is intended to treat a serious or life-threatening condition. The criteria for Breakthrough Therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. The benefits of Breakthrough Therapy Designation include more intensive guidance from the FDA on an efficient development program, access to a scientific liaison to help accelerate review time, and potential eligibility for priority review if relevant criteria are met. Celcuity’s breakthrough application was supported by data from a Phase 1b study that assessed the safety, tolerability and clinical activity of gedatolisib in combination with palbociclib and fulvestrant in patients with HR+/HER2- metastatic breast cancer whose disease progressed during treatment with a CDK4/6 therapy and an aromatase inhibitor.

 

On May 15, 2022, the Company entered into a securities purchase agreement with certain institutional and other accredited investors for the sale of Company common stock, preferred stock that may be convertible into common stock and warrants initially exercisable for preferred stock for $100 million in the aggregate, before deducting placement agent fees and other offering expenses. Pursuant to the securities purchase agreement, investors will purchase shares of common stock and preferred stock at a price per share of $5.75 (on an as converted to common stock basis). For each share of common stock and each 1/10 of a share of preferred stock purchased, investors will receive a warrant initially exercisable for preferred stock equivalent to 0.40 shares of common stock on an as converted basis. The exercise price of the warrants will be at a 40% premium to the price paid by investors for the initial shares of common stock purchased in the private placement. The preferred stock will be convertible into common stock at the holder’s election, subject to certain limitations such as beneficial ownership and the approval by the Company’s stockholders to increase the number of authorized shares of common stock sufficient to cover the shares of common stock issuable upon conversion of (i) the preferred stock purchased in the private placement and (ii) the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement. The warrants are initially exercisable for preferred stock and will convert into warrants to purchase common stock if the proposed increase in the Company’s authorized common stock is approved by stockholders. The closing of the private placement is conditioned on, among other customary items, the first patient enrolled in the Company’s forthcoming Phase 3 clinical study (VIKTORIA-1) having received their first dose of treatment at a clinical site located in the United States, provided that such date must occur on or before December 31, 2022. The Company also entered into a customary registration rights agreement with the investors pursuant to which it agreed to file a registration statement with the SEC registering the resale of (i) the shares of common stock to be issued and sold in the private placement, (ii) the shares of common stock issuable upon conversion of the preferred stock purchased in the private placement and (iii) the shares of common stock issuable upon conversion of the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement.

 

Impact of COVID-19 on our Business

 

Although we have largely returned to normal operations in our facility, the COVID-19 pandemic continues and its effect on our operations and financial condition will depend in large part on future developments which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, actions taken by governmental authorities, suppliers, clinical trial sites, and other business partners to contain or mitigate the pandemic’s impact, and the potential adverse effects on the suppliers, labor market and general economic activity.

 

As we continue to advance our clinical trial collaborations, we remain in close contact with our current clinical sponsors, and principal investigators, as well as prospective pharmaceutical company and clinical collaborators, to monitor the impact of COVID-19 on our trial enrollment timelines and collaboration discussions. We experienced delays in the enrollment of patients in our ongoing clinical trials and now expect interim results from two of our CELsignia Phase 2 clinical trials, FACT-1 and FACT-2 to be delayed until mid-2023 and final results approximately nine months later. We could experience further delays in clinical trials and collaborations with pharmaceutical companies and sponsors if new variants emerge or if the spread of COVID-19 once again accelerates. Due to the inherent uncertainty associated with the COVID-19 pandemic, we are unable to predict the impact the pandemic may have on our clinical trial work and overall financial condition.

 

Results of Operations

 

We have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since our inception in 2012. For the three months ended June 30, 2022 and 2021, we reported a net loss of approximately $10.0 million and $14.0 million, respectively and for the six months ended June 30, 2022 and 2021, we reported a net loss of approximately $17.9 million and $16.8 million, respectively. As of June 30, 2022, we had an accumulated deficit of approximately $73.8 million. As of June 30, 2022, we had cash and cash equivalents of approximately $66.9 million.

 

18

 

 

Components of Operating Results

 

Revenue

 

To date, we have not generated any revenue. With the execution of the Pfizer license agreement in April 2021, whereby we acquired exclusive world-wide licensing rights to develop and commercialize gedatolisib, we expect to conduct clinical trials to support potential regulatory approval to market gedatolisib. If we obtain regulatory approvals to market gedatolisib, we expect to generate revenue from sales of the drug for the treatment of breast cancer patients. Additionally, we will seek to generate revenue from partnership agreements with pharmaceutical companies to provide companion diagnostics for such pharmaceutical partners’ existing or investigational targeted therapies. If a new drug indication is received that requires use of our companion diagnostic to identify eligible patients, we expect to generate revenues from sales of tests to treating physicians.

 

Research and Development

 

Since our inception, we have primarily focused on research and development of our CELsignia platform, development and validation of our CELsignia tests, and research related to the discovery of new cancer sub-types. Beginning in April 2021, we are also focusing on development of gedatolisib, a PI3K/mTOR targeted therapy. Research and development expenses primarily include:

 

employee-related expenses related to our research and development activities, including salaries, benefits, recruiting, travel and stock-based compensation expenses;
laboratory supplies;
consulting fees paid to third parties;
clinical trial costs;
validation costs for gedatolisib;
facilities expenses; and
legal costs associated with patent applications.

 

Internal and external research and development costs are expensed as they are incurred. As we continue development of gedatolisib, initiate the VIKTORIA-1 Phase 3 trial and manage clinical trials to evaluate the efficacy of targeted therapies in cancer patients selected with one of our CELsignia tests, the proportion of research and development expenses allocated to external spending will grow at a faster rate than expenses allocated to internal expenses.

 

General and Administrative

 

General and administrative expenses consist primarily of salaries, benefits and stock-based compensation related to our executive, finance and support functions. Other general and administrative expenses include professional fees for auditing, tax, and legal services associated with being a public company, director and officer insurance, investor relations and travel expenses for our general and administrative personnel.

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of professional and consulting fees related to these functions. To date, we have incurred immaterial sales and marketing expenses as we continue to focus primarily on the development of our first drug, gedatolisib, CELsignia platform and corresponding CELsignia tests. We would expect to begin to incur increased sales and marketing expenses in anticipation of the commercialization of our first drug, gedatolisib, and CELsignia tests. These increased expenses are expected to include payroll-related costs as we add employees in the commercial departments, costs related to the initiation and operation of our sales and distribution network and marketing related costs.

 

Interest Expense

 

Interest expense is primarily due to a loan agreement and finance lease obligations.

 

Interest Income

 

Interest income consists of interest income earned on our cash and cash equivalent balances.

 

19

 

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2022 and 2021

 

 

   Three Months Ended     
   June 30,   Increase (Decrease) 
   2022   2021   $   Percent Change 
Statements of Operations Data:                    
Operating expenses:                    
Research and development  $8,367,687   $13,070,108   $(4,702,421)   (36)%
General and administrative   1,233,040    573,360    659,680    115%
Total operating expenses   9,600,727    13,643,468    (4,042,741)   (30)%
Loss from operations   (9,600,727)   (13,643,468)   4,042,741    (30)%
                     
Other income (expense)                    
Interest expense   (455,445)   (391,187)   (64,258)   16 %
Interest income   95,646    1,803    93,843    5,206%
Other income (expense), net   (359,799)   (389,384)   29,585    (8)%
Net loss before income taxes   (9,960,526)   (14,032,852)   4,072,326    (29)%
Income tax benefits   -    -    -    - 
Net loss  $(9,960,526)  $(14,032,852)  $4,072,326    (29)%

 

Comparison of the Six Months Ended June 30, 2022 and 2021

 

   Six Months Ended    
   June 30,   Increase (Decrease) 
   2022   2021   $   Percent Change 
Statements of Operations Data:                    
Operating expenses:                    
Research and development  $15,064,000   $15,306,451   $(242,451)   (2)%
General and administrative   2,044,332    1,128,787    915,545    81%
Total operating expenses   17,108,332    16,435,238    673,094    4% 
Loss from operations   (17,108,332)   (16,435,238)   (673,094)   4%
                     
Other income (expense)                    
Interest expense   (890,446)   (391,210)   (499,236)   128%
Interest income   103,805    2,191    101,614    4,638%
Loss on sale of fixed assets   -    (263)   263    n/a 
Other income (expense), net   (786,641)   (389,282)   (397,359)   102%
Net loss before income taxes   (17,894,973)   (16,824,520)   (1,070,453)   6%
Income tax benefits   -    -    -    - 
Net loss  $(17,894,973)  $(16,824,520)  $(1,070,453)   6%

 

20

 

 

Research and Development

 

Our research and development expenses for the three months ended June 30, 2022 were approximately $8.4 million, representing a decrease of approximately $4.7 million, or 36%, compared to the same period in 2021. This decrease reflected a $10 million reduction in gedatolisib licensing related expenses partially offset by increases of $5.3 million in other research and development expenses. In the 2021 period, research and development expenses included a $10.0 million upfront license fee related to the execution of the Pfizer license agreement while there were no licensing agreement expenses for gedatolisib in 2022. Of the $5.3 million increase in research and development expenses, $1.5 million was related to increased employee and consulting expenses, of which $0.5 million was in the form of non-cash stock-based compensation. The remaining $3.8 million increase of research and development expenses is primarily related to costs for existing clinical trials and for activities supporting the initiation of the VIKTORIA-1 pivotal trial.

 

Our research and development expenses for the six months ended June 30, 2022 were approximately $15.1 million, representing a decrease of approximately $0.2 million, or 2%, compared to the same period in 2021. The decrease reflected a $10 million reduction in gedatolisib licensing related expenses largely offset by increases of $9.8 million in other research and development expenses. In the 2021 period, research and development expenses included a $10.0 million upfront license fee related to the execution of the Pfizer license agreement while there were no licensing agreement expenses for gedatolisib in 2022. Of the $9.8 million increase in research and development expense, $3.1 million was related to increased employee and consulting expenses, of which $0.7 million was in the form of non-cash stock-based compensation. The remaining $6.7 million increase of research and development expenses is related to costs for existing clinical trials and for activities supporting the initiation of the VIKTORIA-1 pivotal trial.

 

Conducting a significant amount of research and development is central to our business model. We plan to increase our research and development expenses for the foreseeable future as we seek to develop gedatolisib, discover new cancer sub-types, and develop and validate additional CELsignia tests to diagnose such sub-types. We also expect to incur increased expenses to support companion diagnostic business development activities with pharmaceutical companies as we develop additional CELsignia tests and initiate a clinical trial for gedatolisib.

 

General and Administrative

 

Our general and administrative expenses for the three months ended June 30, 2022 were approximately $1.2 million, representing an increase of approximately $0.6 million, or 115%, compared to the same period in 2021. Employee related expenses accounted for the $0.6 million increase, including approximately $0.5 million in non-cash stock-based compensation.

 

Our general and administrative expenses for the six months ended June 30, 2022 were approximately $2.0 million, representing an increase of approximately $0.9 million, or 81%, compared to the same period in 2021. Employee related expenses accounted for $0.8 million of the $0.9 million increase, including approximately $0.6 million in non-cash stock-based compensation. The remaining $0.1 million of the increase resulted from director and officer insurance and other professional fees associated with being a public company.

 

We anticipate that our general and administrative expenses will increase in future periods, reflecting both increased costs in connection with the potential future commercialization of gedatolisib and CELsignia tests, an expanding infrastructure, and increased professional fees associated with being a public company.

 

Interest Expense

 

Interest expense for the three months ended June 30, 2022 was $0.5 million and represents an increase of $0.1 million, or 16%, compared to the same period in 2021. The increase is due to the loan agreement being in place for the entire three-month period in 2022 rather than for only a fraction of the period in 2021 and a higher interest rate on the loan.

 

Interest expense for the six months ended June 30, 2022 was $0.9 million and represents an increase of $0.5 million, or 128%, compared to the same period in 2021. The increase is due to the loan agreement being in place for the entire six-month period in 2022 rather than for only a fraction of the period in 2021 and a higher interest rate on the loan.

 

Interest Income

 

Interest income for the three months ended June 30, 2022 was $0.1 million higher compared to the same period in 2021. The increase was due to higher market interest rates and a higher cash and cash equivalents balance.

 

Interest income for the six months ended June 30, 2022 was $0.1 million higher compared to the same period in 2021. The increase was due to higher market interest rates and a higher cash and cash equivalents balance.

 

21

 

 

Liquidity and Capital Resources

 

Since our inception, we have incurred losses and cumulative negative cash flows from operations. Through June 30, 2022, we have raised capital of approximately $13.7 million and $7.5 million through private placements of common equity and unsecured convertible notes, respectively. On September 22, 2017, we closed on the initial public offering of our common stock, which generated approximately $23.3 million of additional cash after taking into account underwriting discounts and commissions and offering expenses. On June 5, 2020, we entered into an At Market Issuance Sales Agreement with B. Riley, FBR, Inc (the “ATM Agreement”). The ATM Agreement allowed us to sell shares of common stock up to an aggregate offering price of $10.0 million. Through March 31, 2022, we generated approximately $0.1 million of additional cash through sales pursuant to the ATM Agreement, after taking into account commissions and offering expenses. On February 26, 2021, we completed a follow-on offering of our common stock, which generated approximately $25.8 million of additional cash after taking into account underwriting discounts and offering expenses. In conjunction with the follow-on offering, the ATM Agreement was terminated. On April 8, 2021, we entered into a loan agreement with Innovatus Life Sciences Lending Fund I, LP (“Innovatus”), whereby Innovatus agreed to loan up to $25 million in three tranches consisting of (i) a $15.0 million non-contingent term A loan that was funded on April 8, 2021, (ii) a $5 million term B loan with a deadline of March 31, 2022, which we are no longer eligible to draw on, and (iii) a $5 million term C loan to be funded upon our request no later than March 31, 2023. Funding of the term C loan is subject to our ability to achieve certain milestones. On July 1, 2021, we completed a follow-on offering of our common stock, which generated approximately $52.8 million of additional cash after taking into account underwriting discounts of approximately $3.4 million and offering expenses of approximately $0.1 million.

 

On February 4, 2022, we entered into an Open Market Sale AgreementSM with Jefferies LLC, as agent, pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $50,000,000. To date, we have not yet made any sales under this arrangement.

 

On May 15, 2022, we entered into a securities purchase agreement with certain institutional and other accredited investors for the sale of Company common stock, preferred stock that may be convertible into common stock and warrants initially exercisable for preferred stock for $100 million in the aggregate, before deducting placement agent fees and other offering expenses. Pursuant to the securities purchase agreement, investors will purchase shares of common stock and preferred stock at a price per share of $5.75 (on an as converted to common stock basis), with the closing (funding) of such purchase to occur following the achievement of a milestone in our forthcoming Phase 3 study (VIKTORIA-1). The sale of shares of common stock includes forty percent (40%) warrant coverage and customary resale registration rights. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” above for additional details.

 

On August 9, 2022, the Company amended the loan agreement with Innovatus to provide up to $75 million in term loans. As mentioned above, the initial term A loan of $15 million was funded on April 8, 2021. The Company will be able to draw an additional $20 million following the closing of the $100 million private placement. Additionally, the Company will be able to draw on two additional tranches of $10 million and one additional tranche of $20 million upon achievement of certain clinical trial milestones and satisfaction of certain financial covenants determined on a pro forma as-funded basis. Funding of these additional tranches is also subject to other customary conditions and limits on when the Company can request funding for such tranches.

 

Cash from our historical capital raising activities has been our primary source of funds for our operations since inception. As of June 30, 2022, our cash and cash equivalents were approximately $66.9 million, and we had an accumulated deficit of approximately $73.8 million.

 

We expect that our research and development and general and administrative expenses will increase as we continue to develop gedatolisib, conduct research related to the discovery of new cancer sub-types, conduct clinical trials, and pursue other business development activities. We would also expect to incur sales and marketing expenses as we commercialize gedatolisib and our CELsignia tests. We expect to use cash on hand, together with the funds to be received under the Securities Purchase Agreement described above, to fund our research and development expenses, clinical trial costs, capital expenditures, working capital, sales and marketing expenses, and general corporate expenses.

 

Based on our current business plan, we believe that our current cash on hand will provide sufficient cash to finance operations and pay obligations when due for at least the next twelve months.

 

We may seek to raise additional capital to expand our business, pursue strategic investments, and take advantage of financing or other opportunities that we believe to be in the best interests of the Company and our stockholders. Additional capital may be raised through the sale of common or preferred equity or convertible debt securities, entry into debt facilities or other third-party funding arrangements. The sale of equity and convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common shares. Agreements entered into in connection with such capital raising activities could contain covenants that would restrict our operations or require us to relinquish certain rights. Additional capital may not be available on reasonable terms, or at all.

 

Cash Flows

 

The following table sets forth the primary sources and uses of cash for the six months ended June 30:

 

   June 30, 
   2022   2021 
         
Net cash provided by (used in):          
Operating activities  $(17,222,132)  $(10,139,253)
Investing activities   (34,621)   (57,397)
Financing activities   (118,804)   40,197,362 
Net increase (decrease) in cash and cash equivalents  $(17,375,557)  $30,000,712 

 

22

 

 

Operating Activities

 

Net cash used in operating activities was approximately $17.2 million for the six months ended June 30, 2022 and consisted primarily of a net loss of approximately $17.9 million and working capital changes of approximately $2.1 million, offset by non-cash expense items of approximately $2.8 million. The approximately $2.1 million of working capital changes was primarily due to an increase of approximately $3.9 million in prepaid assets, partially offset by increases in accounts payable and accrued expenses of approximately $0.7 million and $0.9 million, respectively. Non-cash expense items of approximately $2.8 million primarily consisted of approximately $2.3 million of stock-based compensation expense, non-cash interest expense of approximately $0.4 million and depreciation expense of approximately $0.1 million.

 

Net cash used in operating activities was approximately $10.1 million for the six months ended June 30, 2021 and consisted primarily of a net loss of approximately $16.8 million, offset by non-cash expense items of approximately $6.4 million and working capital changes of $0.3 million. Non-cash expense items of approximately $6.4 million primarily consisted of $5.0 for issuance of common stock related to a license agreement, stock-based compensation expense of approximately $1.0 million, non-cash interest expense of approximately $0.2 million and depreciation expense of approximately $0.2 million. The approximately $0.3 million of working capital changes was primarily due to an increase in accounts payable and a decrease in accrued expenses.

 

Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2022 and 2021 were minimal and consisted of purchases of property and equipment.

 

Financing Activities

 

Net cash used in financing activities was approximately $0.1 million for the six months ended June 30, 2022 and consisted of payments for secondary registration statement costs, offset partially by proceeds from the exercise of employee stock options and proceeds from employee stock purchases.

 

Net cash provided by financing activities for the six months ended June 30, 2021 was approximately $40.2 million. The $40.2 million primarily consisted of approximately $25.8 million from net proceeds from the sale of shares of our common stock through a follow-on offering and approximately $14.3 million from net proceeds related to the closing of a loan agreement. The remaining $0.1 million was the result of proceeds from the exercise of common stock warrants and employee stock options and proceeds from employee stock purchases.

 

Recent Accounting Pronouncements

 

From time-to-time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed in Note 2 to our unaudited condensed financial statements included in Item 1 of Part I of this Quarterly Report, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

 

Critical Accounting Policies and Use of Estimates

 

Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates.

 

Our significant accounting policies are more fully described in Note 2 to our unaudited condensed financial statements included in Item 1 of Part I of this Quarterly Report.

 

23

 

 

Private Securities Litigation Reform Act

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Such forward-looking information is included in this Quarterly Report and in other materials filed or to be filed by us with the SEC (as well as information included in oral statements or other written statements made or to be made by us). Forward-looking statements include all statements based on future expectations. This Quarterly Report contains forward-looking statements that involve risks and uncertainties including, but not limited to, (i) our clinical trial plans and the estimated costs for such trials, including the timing of launching a Phase 3 clinical trial for gedatolisib; (ii) our expectations with respect to costs and timelines to develop, validate and launch CELsignia tests and to continue to develop gedatolisib; (iii) our beliefs related to the perceived advantages of our CELsignia tests compared to traditional molecular or other diagnostic tests; (iv) the expected benefits of gedatolisib; (v) our expectations regarding the timeline of patient enrollment and results from clinical trials, including the existing clinical trial for gedatolisib; (vi) the future payments that may be owed to Pfizer under the license agreement; (vii) our expectations regarding partnering with pharmaceutical companies and other third parties; (viii) our expectations regarding revenue from sales of CELsignia tests and revenue from milestone or other payment sources; (ix) our plans with respect to research and development and related expenses for the foreseeable future; (x) our expectations regarding business development activities, including companion diagnostic related activities with pharmaceutical companies, expanding our sales and marketing functions and the costs associated with such activities; (xi) our expectations with respect to the CELsignia tests and the analytical capabilities and potential impact of such tests; (xii) our beliefs regarding the ability of our cash on hand to fund our research and development expenses, capital expenditures, working capital, sales and marketing expenses, and general corporate expenses, as well as the increased costs associated with being a public company; (xiii) our plans with respect to potentially raising capital; and (xiv) our expectations regarding the impact that the COVID-19 pandemic and related economic effects will have on our business and results of operations.

 

In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on their interpretation of currently available information.

 

These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Certain risks, uncertainties and other factors include, but are not limited to, our limited operating history; the potential impact of the COVID-19 pandemic on our business; our initial success being heavily dependent on the success of our CELsignia HER2 Pathway Activity Test; our inability to develop and commercialize gedatolisib; our inability to determine whether our CELsignia tests are currently commercially viable; challenges we may face in developing and maintaining relationships with pharmaceutical company partners; the complexity and timeline for development of CELsignia tests and gedatolisib; the uncertainty and costs associated with clinical trials; the uncertainty regarding market acceptance by physicians, patients, third-party payors and others in the medical community, and with the size of market opportunities available to us; the pricing of molecular and other diagnostic products and services that compete with us; uncertainty with insurance coverage and reimbursement for our CELsignia tests; difficulties we may face in managing growth, such as hiring and retaining a qualified sales force and attracting and retaining key personnel; changes in government regulations; and obtaining and maintaining intellectual property protection for our technology and time and expense associated with defending third-party claims of intellectual property infringement, investigations or litigation threatened or initiated against us. These and additional risks, uncertainties and other factors are described more fully in our Quarterly Report for the period ended March 31, 2022 and elsewhere in this Quarterly Report. Copies of filings made with the SEC are available through the SEC’s electronic data gathering analysis and retrieval system (EDGAR) at www.sec.gov.

 

You should read the cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this Quarterly Report completely. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

 

ITEM 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022. Based on that review and evaluation, the Certifying Officers have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures, as designed and implemented, are effective and provide reasonable assurance that information required to be disclosed by us in the periodic and current reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms.

 

Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition and results of operations.

 

ITEM 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item. However, in addition to other information set forth in this Quarterly Report, including important information in the section entitled “Private Securities Litigation Reform Act,” you should carefully consider the “Risk Factors” discussed in our Quarterly Report on Form 10-Q for the period ended March 31, 2022 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Recent Unregistered Sales of Equity Securities

 

None

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Disclosures

 

None.

 

ITEM 5. Other Information

 

None.

 

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ITEM 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
2.1   Form of Plan of Conversion (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
     
3.1*  

Certificate of Incorporation of the Company, as amended.

     
3.2   Bylaws, incorporated by reference from Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 13, 2017.
     
4.1   Specimen Certificate representing shares of common stock of Celcuity Inc., incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A filed September 12, 2017.  
     
4.2   Description of Registered Securities (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2020).
     
4.3   Form of Warrant to Purchase Units of Membership Interest issued by Celcuity LLC to Cedar Point Capital, LLC, as placement agent of membership units and unsecured convertible promissory notes of Celcuity LLC (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 23, 2017).  
     
4.4   Form of Warrant to Purchase Shares of Common Stock issued by Celcuity Inc. in connection with the conversion of 1.25% Unsecured Convertible Promissory Notes (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 25, 2017).  
4.5   Representative’s Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 25, 2017).
     
4.6   Form of Warrant, incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2021.
     
4.7   Equity Grant Agreement, dated April 8, 2021, between the Company and Pfizer, Inc., incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2021.  
     
4.8   Loan and Security Agreement, dated as of April 8, 2021, by and between the Company and Innovatus Life Sciences Lending Fund I, LP., incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2021.  
     
4.9   Form of Warrant, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022.
     
4.10   Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock filed May 16, 2022, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022.
     
10.1   Securities Purchase Agreement, dated May 15, 2022, by and among the Company and the Purchasers named therein, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022.
     
10.2   Registration Rights Agreement, dated May 15, 2022, by and among the Company and the Purchasers named therein, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022.

 

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31.1*   Certification of Chairman and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Certification of Chairman and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101*   Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Changes in Stockholders’ Equity, (iv) the Condensed Statements of Cash Flows, and (v) the Notes to Condensed Financial Statements.
     
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

*Filed herewith.

 

**Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: August 12, 2022 CELCUITY INC.
     
  By /s/ Brian F. Sullivan
    Brian F. Sullivan
    Chairman and Chief Executive Officer
    (Principal Executive Officer)
     
  By /s/ Vicky Hahne
    Vicky Hahne
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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