Celcuity Inc. Q2 FY2020 Earnings Call

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

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

Thank you, Vicky, and good afternoon, everyone. I'm really pleased that you joined us today for an update on our progress this past quarter. I will first comment on our second quarter results, focusing in particular on the status of our product development projects, our collaboration discussions, and our FACT-1 and FACT-2 clinical trials. Celcuity's third-generation diagnostic platform, CELsignia, identifies the underlying cellular activity and dysregulated pathway signaling that drives many cancers, allowing us to diagnose dysregulated signaling pathways in a patient's tumor that has a disease mechanism treatable with a matching targeted therapy. Our strategy is to help pharmaceutical companies obtain new indications for their targeted therapies to treat patients identified by our CELsignia tests. Since dysregulated signaling is too complex for molecular tests to characterize, we can leverage the capability of our CELsignia platform to create a proprietary business model. To execute our strategy, we continue to advance the development of additional CELsignia Pathway Activity tests during the second quarter. In June, we presented results from studies of our first CELsignia Pathway Activity test for ovarian cancer at the American Association for Cancer Research, or AACR, annual meeting. Our CELsignia test for ovarian cancer identifies a subset of ovarian cancer patients whose tumors have abnormal c-Met signaling that coincides with abnormal HER2 signaling. Nearly 15,000 women a year die from ovarian cancer, which is a disease that has less than a 50% five-year survival rate. Only a small portion of ovarian cancer patients benefit today from the advancements made over the past 20 years in molecular-based medicine since most patients lack an actionable biomarker, which is typically a molecular mutation. These patients have an undiagnosed cancer driver and are precluded from receiving, in many cases, the optimal drug to treat their cancer. It is also a significant unmet need for a new diagnostic approach that can identify treatment options for ovarian cancer patients who lack actionable molecular mutations. The CELsignia test is intended to address this unmet need by helping pharmaceutical companies obtain new indications to treat ovarian cancer patients whose cancer drivers are identified by our CELsignia test. Regarding our collaborations, our discussions with pharmaceutical companies progressed during the quarter, despite the headwinds COVID-19 presents. We remain very confident that we will finalize one to two collaborations before year-end and then additional ones in the first half of 2021. Our potential collaboration partners include many of the country’s leading cancer research centers as well as several global pharmaceutical companies. These collaborations are intended to evaluate the efficacy of targeted therapies in patient populations identified by our CELsignia test. A pharmaceutical company would not otherwise be able to evaluate their drugs in these patient populations. These potential collaborations, if finalized, would enable us to study a range of drugs, either as single agents or in combination. If successful, these collaborations would represent a critical step towards obtaining a new indication for the evaluated targeted therapies. Finally, although our FACT-2 and FACT-1 trials remain somewhat impacted by COVID-19-related delays, we see many sites restarting their clinical trial activities. We continue to expect interim results, as we reported last call, from these trials in the second half of 2021. Both the FACT-1 and FACT-2 trials are evaluating anti-HER2 therapies in early-stage HER2-negative breast cancer patients. The goal of each trial is to demonstrate that breast cancer patients identified by our CELsignia HER2 Pathway Activity test achieve a higher rate of pathological complete response to new adjuvant anti-HER2 drug treatment than the current therapies. Since cancer patients who receive a pathological complete response to new adjuvant drug treatment are less likely to have a cancer recurrence, we're hopeful that our CELsignia test can play a significant role in extending the life of many breast cancer patients. So I’d like to now turn back to Vicky, who will review our financial results.

Our second quarter net loss was $2.2 million or $0.21 per share compared to a $1.72 million net loss or $0.17 per share for the second quarter of 2019. The net loss for the first six months of the year 2020 was $4.45 million or $0.43 per share compared to $3.57 million or $0.35 per share for the same period in 2019. Because these quarterly net losses include a significant non-cash item, which is stock-based compensation, we also included in our press release the non-GAAP adjusted net loss for the quarter. Our non-GAAP adjusted net loss was $1.78 million or $0.17 per share for the second quarter of 2020, compared to the non-GAAP adjusted net loss of $1.53 million or $0.15 per share for the second quarter of 2019. The non-GAAP adjusted net loss for the first six months of 2020 was $3.56 million or $0.34 per share compared to the non-GAAP adjusted net loss of $3.19 million or $0.31 per share for the first six months of 2019. Research and development expenses increased approximately $0.55 million during the first six months of 2020 compared to the first six months of 2019. This was primarily due to an $8.52 million increase in compensation expense, which included $0.36 million of non-cash stock-based compensation. Additionally, other research and development expenses increased by $0.03 million due to clinical validation and laboratory studies and operational and business development activities. The approximately $0.16 million increase in general and administrative expenses during the second quarter of 2020 compared to the second quarter of 2019 was attributable to non-cash stock-based compensation. We ended the quarter with approximately $15.4 million of cash and cash equivalents. The net cash used in operating activities for the second quarter of 2020 was $1.56 million. This was a result of the non-GAAP adjusted net loss of $1.78 million, offset by $0.12 million of working capital changes in prepaid assets and accounts payable, and depreciation expense of $0.10 million.

Thank you, Vicky. So in summary, we’re pleased with the progress we’re making. We’ve presented data for two new CELsignia tests in two different tumor types over the past nine months. Our discussions with pharmaceutical companies and clinical sponsors continue to advance and we expect to close some collaborations this year. We expect to present data for another CELsignia test for breast cancer patients by the end of 2020. And we remain confident that we’ll obtain interim results from the FACT-1 and FACT-2 trials in the second half of 2021. Operator, we would now like to take questions.

And we’ll take our first question from Yi Chen with H.C. Wainwright. Please go ahead.

Hi. This is Boobalan dialing in for Yi Chen. So I’ve got a couple of questions. The first one, you mentioned about the new clinical trial collaboration. So do you happen to know how many such collaborations are expected to be later this year and will it be focused on ovarian cancer?

So thanks for your question. We expect one to two collaborations to be announced this year, and then several additional ones in the first half of next year. The collaborations that we’re working on now or that we would expect to announce in the near term will be for breast cancer. Discussions for ovarian cancer just began and we don’t expect those collaborations to come to fruition until probably towards the end of next year, 2021.

Yes. That’s really helpful. And do you expect any upfront payment from your partners for such collaborations?

We’re not going to characterize those collaborations until they’re finalized. So at the time we announce them, we’ll be able to describe those in detail.

Duration for those when the clinical trials may start?

Well, as you know, there’s a fair amount of time from when you may reach an agreement to conduct a study to the work of getting the IRB approval and drug supply. It depends on a particular partner and their processes, but there can be six to nine months of time from the time you announce an agreement to when you’re actually enrollment-ready. And again, that will be specific to each collaboration.

Okay, that’s helpful. And on FACT-1 and FACT-2 trials, still enrolling patients amid the pandemic?

After the end of the quarter, yes. But there was a period during the second quarter when most of the sites were not admitting patients who weren’t COVID-19 and for the most part suspended their clinical trial activity.

Okay. And one final question from me. When do you expect to release validation results for the CELsignia RAS test?

We expect to be able to provide additional data—the next round of data would be towards the end of this year. That’s our current goal.

We’ll take our next question from Alex Nowak. Please go ahead.

Great. Good afternoon, everyone. This is actually Will Fafinski on for Alex. Thanks for taking our questions. First from me, could you just provide us with a look into how things effectively progressed this summer with the FACT trials and just discuss the pace of enrollment thus far in Q3? Thanks.

Right. Up to Q2, at the end of June, most of our sites were either not enrolling or just getting back online. In July, we saw more of the sites begin to reinitiate activity. There’s been— I don’t want to say necessarily a pause, but as you know in some states, there was an uptick which caused some sites— and it was really site-specific, location-specific to curtail some activities. So I would say the trend has been upward, and I would say most sites have reengaged, but there, as you might expect, are some bumps along the way. But I really expect unless something else arises— and again that’s the problem with COVID-19, there’s a lot of unknowns— the current trajectory suggests that we would be back to full activity by the end of this quarter certainly, and maybe before. But we’re still maintaining our guidance for results in the second half of '21.

Got you. I appreciate it. That’s very helpful color there. And then actually just one for me. We were wondering how the reduction in patients getting screened, thus fewer cancer diagnoses, impacted the prevalence of cancer targeted in FACT-1, FACT-2. Just what are your thoughts on how this impacts enrollment in Q3 and beyond?

I would hate to get too precise about that. You may have read that there have been some reports indicating that the number of cancer diagnoses in general declined in the second quarter because patients weren’t being scheduled for biopsies and diagnostic procedures. Does that lead to a blip in Q3? I don’t want to make any forecasts on that. There’s so much noise in the system, it’s hard to—at least I’m not comfortable projecting off of that. But I’m aware that some people suggest that there’s a backlog, and maybe in some areas, that will translate directly. We don’t have enough experience to determine the nature of what we’re doing to forecast that precisely.

Understood. Thanks for taking the questions and best of luck moving forward.

Thank you. Take care.

Thank you for your questions, and best of luck as well.

Okay. So I think—unless we have other questions, any other questions in the queue.

No, there are no further questions on the line at this time.

Okay. Thank you very much, everyone. I appreciate you attending the call and I look forward to speaking with you next quarter. Take care.

This does conclude today’s program. Thank you for your participation. You may now disconnect.