Celcuity Inc. Q3 FY2021 Earnings Call

Greetings, and welcome to the Celcuity Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Robert Uhl with ICR Westwicke. Thank you. You may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to Celcuity’s third quarter 2021 financial results and business update webcast and conference call. Thank you for joining us. Earlier today, Celcuity incorporated released financial results for the third quarter ended September 30, 2021. The press release can be found on the Investors section of our website. Joining me on the call today are Brian Sullivan, Celcuity’s Chief Executive Officer and Co-Founder and Vicky Hahne, Chief Financial Officer. 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 will also refer to non-GAAP financial measures. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. You can find the table reconciling the non-GAAP financial measures to GAAP measures in today's press release. And with that, I'd like to turn the call over to Brian Sullivan, Celcuity’s CEO.

Thank you, Robert. Good afternoon, everyone, and thank you for joining us today. As always, we appreciate your continued support of Celcuity. On this call, we'll update you on our third quarter financial results, the status of our gedatolisib clinical development program, and an update on our CELsignia companion diagnostic activities. Vicky will follow my comments with a discussion of our financial results, and then we'll open up the line for questions. As most of you may know, Celcuity took a transformational step in April this year, when we licensed the pan PI3K/mTOR inhibitor gedatolisib from Pfizer. We took this step because of the significant potential that a well-tolerated pan PI3K/mTOR inhibitor offers to improve outcomes for patients with many different tumor types. This potential reflects the central role that active PI3K/mTOR signaling plays in the development and proliferation of many tumor types. Blockading PI3K/mTOR effectively and safely, though, is challenging because of its structural complexity and its linkage to key cell metabolic processes. While the optimal approach to inhibiting PI3K/mTOR requires targeting five different subunits, doing so has resulted in drugs that patients could not tolerate, until gedatolisib’s development. We believe gedatolisib is the first PI3K/mTOR inhibitor that combines high potency against all five subunits with a safety profile that compares very favorably against approved isoform-specific PI3K inhibitors. Thus, we believe gedatolisib is uniquely positioned to realize the significant potential first envisioned for PI3K therapies when the pathway's critical role in cancer was discovered. We’re currently developing gedatolisib to treat patients with ER positive HER2 negative advanced or metastatic breast cancer. We estimate that over 100,000 breast cancer patients globally could potentially be eligible to receive gedatolisib if approved. Given the broad role that PI3K/mTOR signaling has been demonstrated to play in a broad range of tumor types, we also believe we have a substantial opportunity to develop additional indications outside of breast cancer. During the quarter, we completed the transfer of regulatory, clinical trial, and safety reporting responsibilities for gedatolisib from Pfizer to Celcuity ahead of schedule. For our ongoing Phase 1b breast cancer clinical trial, we're now working with the participating sites to transition the 14 patients who are continuing to receive gedatolisib treatment to an updated clinical trial protocol. This ongoing clinical trial is evaluating gedatolisib in combination with the CDK4/6 inhibitor Ibrance and two different endocrine therapies. We're very pleased that updated data from our ongoing Phase 1b clinical trial for patients will be presented at the San Antonio Breast Cancer Symposium during a Spotlight Poster Discussion Session on December 10, 2021. Dr. Rachel Layman, an oncologist at the University of Texas MD Anderson Cancer Center who has been a principal investigator for the clinical trial, will be the presenter. Our preparations to initiate a Phase 3 clinical trial evaluating gedatolisib in combination with palbociclib and fulvestrant, which is an endocrine therapy in patients with advanced breast cancer, are well underway. We have engaged the CRO and other critical vendors, started the process of site identification and qualification, and received commitments from several globally recognized breast cancer KOLs to serve as members of our trial's steering committee. Our meeting with the FDA is scheduled and, subject to their feedback, we continue to expect to activate this clinical trial in the first half of 2022. We also began evaluating and prioritizing new potential indications for gedatolisib. This evaluation includes assessment of previous trials for other PI3K and mTOR inhibitors, review of tumor microenvironment factors related to PI3K/mTOR activity, and identification of non-clinical and clinical evidence of pathways that may cooperate with PI3K/mTOR. Our goal is to develop a lifecycle development plan in the first half of 2022 that will guide our long-term plans for gedatolisib. As we've previously discussed, our assessment of different PI3K and mTOR inhibitors using our CELsignia platform led us to approach Pfizer about our interest in pursuing a collaboration to evaluate gedatolisib. After that initial internal study and as part of our due diligence on gedatolisib’s mechanism of action, we conducted additional studies to evaluate gedatolisib in a PI3K inhibitor in breast and ovarian patient tumors using our CELsignia platform. We presented the results of these studies at the AACR annual meeting this past April. The study demonstrated the value of leveraging our CELsignia platform to gain valuable insights about drug development opportunities as part of our lifecycle development planning efforts. We are conducting additional investigations using our CELsignia platform to support our assessment of different indications for gedatolisib. Now I'd like to move on to the diagnostics side of our business. CELsignia, Celcuity’s third-generation diagnostic platform identifies the underlying cellular activity and dysregulated pathway signaling that may be driving a patient's tumor, so that a matching targeted therapy can be identified. Since dysregulated signaling is too complex for molecular tests to characterize in most cases, our platform can identify new treatment options for patients who lack actionable molecular biomarkers. Our strategy is to develop companion diagnostics that enable a pharmaceutical company to expand the number of patients eligible to receive their targeted therapy. To achieve this, we're collaborating with pharmaceutical companies to evaluate the efficacy of their targeted therapies in patient populations selected by a CELsignia pathway activity test. The clinical trial results are favorable. These collaborations may lead to the advancement of a new indication that expands the market for targeted therapy. In October, Celcuity entered into a clinical trial collaboration with the University of Rochester Wilmot Cancer Center and Puma Biotechnology. This open-label Phase 2 trial will evaluate the efficacy and safety of Puma's pan-HER inhibitor, NERLYNX or neratinib, in combination with a chemotherapy agent, capecitabine, in previously treated patients selected with Celcuity CELsignia HER2 activity tests who have metastatic HER2 negative breast cancer with brain metastases. This will be our first collaboration study involving metastatic breast cancer patients with brain metastasis, a patient population with an unmet and challenging medical need. We are hopeful CELsignia may allow us to identify much-needed new treatment options for them. Based on estimates in patient enrollment rates, Celcuity expects to obtain interim results 12 to 15 months after initiation of the trial, followed by the final results 12 to 15 months later. Enrollment is planned to begin by mid-2022. We now have six clinical trial collaborations in place. The ongoing FACT-1 and FACT-2 trials that Celcuity is conducting are evaluating anti-HER2 therapies in early-stage HER2 negative breast cancer patients. The goal of each of these trials is to demonstrate that breast cancer patients identified by our CELsignia HER2 pathway activity tests achieve a higher rate of pathological complete response to neoadjuvant anti-HER2 drug treatment than from current standard of care chemotherapies. Patients who receive a pathological complete response to neoadjuvant drug treatment are less likely to have their cancer recur. We believe our CELsignia tests can play a significant role in extending the lives of many breast cancer patients. Enrollment in both the FACT-1 and FACT-2 trials was negatively impacted by COVID-19 related delays during the third quarter. Hospitalizations of patients with COVID-19 increased dramatically during this period, which led hospitals to reduce clinical trial-related activities, especially those that require a screening step such as CELsignia. We now expect interim results from the FACT-1 and FACT-2 trials in the second half of 2022. This is later than our previous expectation of interim results in the first quarter of 2022. Nevertheless, we're excited about these collaborations and the opportunity to work with some of the world's most prominent cancer research centers. We have additional collaboration discussions in progress, and our goal is to announce new agreements in the coming months. Now I'd like to turn our call over to Vicky Hahne to review our financial results.

Thanks, Brian, and good afternoon, everyone. I'll provide a brief overview of our financial results for the third quarter of 2021. I invite you to review our 10-Q, which will be filed tomorrow for a more detailed discussion. Our third quarter net loss was $6 million or $0.41 per share compared to a net loss of $2.5 million or $0.24 per share for the third quarter of 2020. Because these quarterly net losses include significant non-cash items, including stock-based compensation, the issuance of common stock and interest, we also included in our press release a non-GAAP adjusted net loss for the quarter ending September 30, 2021. Our non-GAAP adjusted net loss was $5.1 million or $0.35 per share for the third quarter of 2021, compared to a non-GAAP adjusted net loss of $2 million or $0.20 per share for the third quarter of 2020. Research and development expenses increased approximately $3 million during the third quarter of 2021 compared to the third quarter of 2020. This was the result of preparations for increasing clinical activity related to gedatolisib. Employee-related expenses, including consulting fees, accounted for $1.1 million of the increase. The remaining increase of $1.9 million in expenses is related to clinical trials, legal fees related to patents, and costs associated with the transfer of gedatolisib related activities. The approximate $1.0 million increase in general and administrative expenses during the third quarter of 2021 compared to the third quarter of 2020 primarily arose from non-cash stock-based compensation. Net cash used in operating activities for the third quarter of 2021 was $4 million compared to $1.6 million for the third quarter of 2020. This was the result of the non-GAAP adjusted net loss of $5.1 million offset by $1 million of working capital changes and $0.1 million of depreciation expense. We ended the quarter with approximately $90.4 million of cash and cash equivalents compared to $11.6 million of cash and cash equivalents on December 31, 2020. I will now hand the call back to Brian.

Thank you, Vicky. Overall, I’m very pleased about the progress we made this quarter and throughout 2021. The opportunity to develop gedatolisib significantly expands the markets we are addressing, the potential value we can create for our shareholders, and the impact we can have in extending the lives of cancer patients. We're looking forward to getting the FDA's feedback on our Phase 3 trial design soon while also continuing to lay the groundwork for the trial. The new studies we expect to activate on the diagnostic side of the company will further support the advancement of our CELsignia platform, and finally, our successful financing activities in 2021 provide us with significant capital to advance our development programs. Operator, I'm ready now to open the call for questions.

Thank you. Our first question comes from the line of Maury Raycroft with Jefferies. Please proceed with your questions.

This is Kenny Chan on for Maury Raycroft. I have a question about the San Antonio Breast Cancer Conference data. What should we expect in terms of efficacy and follow-up from that poster?

Sure. So this data will represent data that was captured as of May versus January, which was the previous data cut. We'll include additional analysis that was performed, additional detail on patient characteristics, duration of treatment, some exploratory analysis and again data that has also been cleaned or reviewed for data integrity. So it'll essentially be consistent with what we've described but just a deeper dive into certain aspects of the study and the patients.

Thanks. And I have one more follow-up question about Phase 3 trial design. Regarding patient baseline, will you be screening for patients who fail first-line CDK4/6 within three months or five months? How are you screening for patients who perform better? Is it by CDK time to CDK failure?

Sure. We'll go into quite a bit of detail when we're ready to announce the design of our trial and those types of screening characteristics. Eligibility requirements will be details that we'll speak to. But I can speak generally because we've talked about this in the past. Our plan is to enroll patients who have progressed on prior CDK treatment and could also have progressed on subsequent treatments as well to ensure we can enroll quickly for the study. There are different factors that may be ones that you stratify across your arms so that you ensure equivalent representation or proportionate representation in your study arms. Variables similar to the one you described would be an example of a stratification variable that could be used to ensure consistency across your arms. But those are details that we'll provide when we schedule some time to talk about our trial design.

Thanks.

Great. Just some focus on the CELsignia test. I'm just curious how logistics would work for patients and physicians and what types of tumor types are best suited for obtaining a sufficient tumor sample?

Sure. Right now, our focus is on working with breast cancer patients. The two trials, FACT-1 and FACT-2, are early-stage patients. These are women who are presenting with a tumor in the breast. The tumors are very accessible, and they typically undergo biopsies for the purpose of their initial diagnosis. In the case of our study, they will undergo an initial or rather an additional biopsy, so that we have tissue available to evaluate using CELsignia. In the future, if when we hope to be diagnostic available in the clinic, we would expect to obtain tissue biopsies at the time the patient is receiving their initial diagnostic biopsy. There are a lot of moving pieces to that, but that's something that we've worked through, and we think we have a very good process in place, so that we can provide our results at the same time that the diagnostic results would be available. And there are ways of stratifying those patients, ensuring that we're not generating a lot of false negative results by conducting studies with patients who actually don't have a malignancy. We would provide those results to clinicians to inform treatment decisions. In later-stage settings, we follow a similar process. Biopsies, because of the prevalence of genomic testing, have become much more standard of care for later-stage patients. In those cases, biopsies are typically obtained from metastatic lesions; the most common lesions in breast cancer are liver as an example, or lung, but liver we think would be the primary site just based on what we've seen so far. Again, we would receive tissue and report out a result in less than 10 days, on average.

Got you. And so maybe lastly, for the FACT-1 and 2 studies, any comments on what exactly you need to show and what's the regulatory pathway for approval there?

Sure. The studies are designed to allow us to detect whether patients who we've selected achieve a significantly higher proportion of patients achieving a pathological complete response. Pathological complete response, or PCR, basically means that you will have eliminated the tumor. And that's essentially the goal of treatment that women receive before they operate; their tumors are local, it's just in the breast, it hasn't spread beyond the lymph node. The goal of that treatment is to increase or decrease the likelihood that the woman's cancer will recur. If we are able to demonstrate that, then we would expect to collaborate with whomever the drug sponsor is, let's say, Genentech with our FACT-1 trial as an example, and Genentech at that point would be driving the bus. They would be the ones overseeing discussions with regulators about what the regulatory pathway would be for moving forward with their case and label expansion, and our activities from a regulatory standpoint would be conducted in parallel. There's specific guidance that talks about concurrent evaluation of either label expansions or new drug approvals and a companion diagnostic, PMA approvals. We would operate within that framework. Ultimately, depending on the regulatory pathway or any additional data that the FDA may require, we would take that next step. The goal is to ensure that this could ultimately be assessed for availability to a breast cancer oncologist to help inform treatment decisions for these patients.

Great. Thank you very much for taking my question.

You're welcome.

Thank you. Our next questions come from the line of Alex Nowak with Craig-Hallum. Please proceed with your questions.

Great, good afternoon, everyone. I was just hoping Brian, you could highlight some of the key questions that you sent over to the FDA for feedback and data. Do you think any of the feedback could potentially change your plans for launching a pivotal Phase 3 in the first half of 2022?

Well, yes, I'll fax you over those questions, Alex.

That would be great. Thank you.

Yes. No, I'm sure you'd appreciate that. The goal of the meeting typically involves topics closely related because the FDA is divided into different subject matter areas. In our case, we wanted to bring subject matter experts who could provide input and guidance on the clinical trial design. Our questions specifically relate to the approach we're proposing for the Phase 3 design. We spent a lot of time with breast cancer KOLs over the summer to review the data we've shown or presented. We discussed the actual design of the Phase 3 study that we were proposing. We provided these KOLs with different options to spur discussion. We found during the series of scientific advisory meetings there was pretty good consensus on what made sense, which was consistent with our thinking. So it was encouraging to us that our approach aligned with the suggestions of these oncologists regarding what they thought would be the right approach. Our goal is to develop a study with a robust design that will, assuming we meet our endpoints, lead to acceptance of the results. That means having a comparator arm that is appropriate, represents real-world activity, and is one that the investigators would consider a realistic challenge. There are many details that go into these protocols, which we reviewed in depth with these investigators. Those types of questions we provided to the FDA. This process involves creating a detailed document with background information, the information about the trial design, and the specific questions. By the end of the meeting itself, we'll review those questions and have a discussion. The process then involves memorialization of that conversation in the form of minutes, which will come from the FDA. We then receive them and review, making any necessary suggestions for modifications. While it's a structured approach with timelines, some of which are adhered to and some which are not, it's the best way to effectively interact with the agency at this point. We believe we have good input based on the feedback we've received so far, and we feel confident about our approach.

No, that's helpful. I remember a couple of quarters ago, there were questions about whether or not you would need to run a bridge Phase 2. Are you confident this can move directly into a pivotal study? Just want to get your thoughts on that?

So questions about whether you go to Phase 1 to Phase 3 or Phase 1 to Phase 2 really involve two factors. One is safety, which depends on how much data has been generated for the drug. The agency could say that you don't have enough data to go into a registrational study or to characterize the safety; you need to perform a Phase 2 study to further explore safety signals. Gedatolisib has been studied in nearly 500 patients across a variety of different drug combinations, with the Phase 1b enrolling over 138 patients. Its safety profile has been fairly established, and we would argue that it's favorable, with no adverse events that would limit its use in the clinic, in our opinion, and the opinion of the investigators. So that's one factor. The other factor concerns risk, or what they would call 'sponsor risk.' In current study designs, you'll often see Phase 1 and 3 studies where sufficient safety data warrants moving to a larger study with more patients. In our case, we believe the data generates a safety margin that meets a clinically relevant and statistically significant endpoint for approval. So essentially, we believe it's a calculated risk to move directly to Phase 3. Going the Phase 2 route simply adds a couple of years to the program, which we think is unnecessary given the favorable results we've seen.

Yes. That makes sense. Appreciate the update. Thank you.

You're welcome.

Thank you. There are no further questions at this time. I would like to turn the call back over to Brian Sullivan for any closing comments.

Thank you for attending the call. We appreciate your interest in our company. We look forward to updating you in the future. Talk to you later. Goodbye.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.