Celcuity Inc. Q2 FY2022 Earnings Call

Good afternoon, and welcome to Celcuity Second Quarter 2022 Financial Results Conference Call. As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Robert Uhl. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to Celcuity's second quarter 2022 financial results and business update webcast and conference call. Thank you for joining us. Earlier today, Celcuity Inc. released financial results for the second quarter ended June 30, 2022. The press release can be found on the Investors section of the company website. Joining me on the call today are Brian Sullivan, Celcuity's Chief Executive Officer and Co-Founder; Vicki Hahne, Chief Financial Officer; as well as Igor Gorbatchevsky, Chief Medical Officer, who will be available during Q&A. Before we begin, I would like to remind investors 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, CEO of Celcuity.

Thanks, Robert, and good afternoon, everyone, and thank you for joining us today. As always, we really appreciate your continued support at Celcuity. I am happy to report that over the past few months our team has made significant progress on a variety of fronts to advance the development of gedatolisib. On this call we will review the regulatory status of gedatolisib’s clinical development program, our pivotal phase 3 trial on breast cancer, and our recent financing activity. In July, the U.S. Food and Drug Administration, or FDA, granted breakthrough therapy designation to Celcuity's lead drug product candidate gedatolisib, an investigational pan-PI3K/mTOR inhibitor, for the treatment of HR+/HER2- locally advanced, inoperable or metastatic breast cancer that has progressed after treatment with a CDK4/6 inhibitor in combination with a nonsteroidal aromatase inhibitor. Breakthrough therapy designation is intended to expedite the review of drugs that the agency believes have significant potential in treating serious diseases with unmet medical needs and offers a potential to receive accelerated review if relevant criteria are met. We look forward to collaborating closely with the agency as we seek to advance the therapy to the clinic as quickly as possible. Gedatolisib previously received fast track designation from the FDA in January 2022. In our submission seeking breakthrough status, we provided detailed clinical safety and pharmacological data with a focus on our early phase study evaluating gedatolisib in combination with palbociclib and fulvestrant in patients with advanced breast cancer whose disease progressed on a CDK4/6 inhibitor. This study reported very promising efficacy with a high objective response rate and extended progression-free survival period and safety data that compared favorably to currently available therapies for advanced breast cancer patients in the second-line setting. The initial potential target patient population for gedatolisib includes patients with HR positive versus negative advanced breast cancer whose disease progressed during treatment with a CDK4/6. We estimate this represents over 100,000 breast cancer patients globally on an annual basis. Current standard of care for these patients includes endocrine therapies such as fulvestrant, and regimens that combine fulvestrant with either an mTOR-specific or a PI3K alpha-specific targeted therapy. These therapies offer only modest progression-free survival periods, and in the case of the approved PI3K alpha inhibitor, a very challenging safety profile. The PIK3 mTOR pathway is considered one of the most important pathways involved in cancer; blockading PI3K mTOR efficaciously and safely, however, has been challenging because of its structural complexity and its relevance to key cellular metabolic processes. Gedatolisib inhibits all four class one PI3K isoforms and the mTOR 1 and mTOR 2 subunits. This is the biologically optimal approach because it limits the potential for cross-activation of uninhibited isoforms or subunits and the resulting drug resistance that can occur with PI3K isoforms and mTOR-specific inhibitors. Completely blockading the pathway also enhances the potential to induce synergistic inhibition with other targeted therapies such as CDK4/6 inhibitors. Gedatolisib's differentiated chemical structure and intravenous formulation results in a very favorable pharmacokinetic profile. The drug is potent against the various PI3K isoforms and mTOR subunits at low or sub-nanomolar concentrations and is able to maintain pathway inhibition with a tiny fraction of drug compared to approved oral PI3K inhibitors. This results in a safety profile that compares very favorably against the approved isoform-specific PI3K inhibitors. Last, we believe gedatolisib's unique properties position it to realize the significant potential first envisioned for PI3K therapies and the pathway's critical role in cancer was discovered. To advance the development of gedatolisib, we're conducting a pivotal phase three clinical trial known as VICTORIA-1 to evaluate the safety and efficacy of gedatolisib in combination with fulvestrant with or without palbociclib in adults with HR positive, HER2 negative advanced breast cancer whose disease progressed while receiving prior CDK4/6 therapy. This open-label randomized clinical trial will enroll subjects regardless of PIK3CA status while enabling separate evaluation of subjects according to their PI3K status. The clinical trial protocol we described in May included five arms with three arms evaluating patients lacking PIK3CA mutations, and two arms evaluating patients with PIK3CA mutations. At that time we had received feedback from the FDA on our study design, but we were still waiting to receive feedback from the European Medicines Agency, or EMA. In late May, we received feedback on our protocol, which included a recommendation that the study arms for PIK3CA mutated patients mirror the same study arms for PIK3CA non-mutated patients. In response to this feedback, we modified the protocol to include an additional study arm to evaluate gedatolisib plus fulvestrant in 50 patients who have PIK3CA mutations. PIK3CA mutated patients will now be randomized on a one-to-one-to-one basis to receive either gedatolisib plus palbociclib plus fulvestrant or the control arm with alpelisib plus fulvestrant. 150 PIK3CA mutated patients are enrolled in the gedatolisib plus fulvestrant arm. Subsequent patients will then be randomized on a one-to-one basis to receive either gedatolisib plus palbociclib plus fulvestrant or alpelisib plus fulvestrant. Subjects without confirmed PIK3CA mutations will continue to be randomly assigned on a one-to-one-to-one basis to receive a regimen of either gedatolisib plus palbociclib plus fulvestrant, gedatolisib plus fulvestrant, or fulvestrant alone. No changes were made to the primary endpoints, and we continue to expect data for the PIK3CA non-mutated patients to be available in the second half of 2024, and data for the PIK3CA mutated patients to be available in the first half of 2025. We're also excited to report that the updated clinical trial protocol that includes the additional arm was submitted to the FDA and received no comments, and central institutional review board or IRB approval was received, putting us on track to dose the first patient in the next few months. Dosing the first patient in any study is a significant milestone. For us, it will be doubly significant since it will trigger the closing of the $100 million private placement we announced earlier this year, provided that occurs on or before December 31, 2022. Investors in the private placement included Venrock Healthcare Capital Partners, New Enterprise Associates, RA Capital Management, Commodore Capital, Soleus Capital, and myself. We also made additional progress strengthening our balance sheet this past week. Our debt financing agreement with Nevada's Capital Partners was amended to provide Celcuity with up to $75 million in term loans, a $50 million increase from the original debt financing agreement. Celcuity received $15 million at the closing of the original agreement in April 2021. Celcuity will now be able to draw an additional $20 million following the closing of the $100 million private placement. Celcuity will also then be able to draw on two additional tranches of $10 million each and one additional tranche of $20 million upon the achievement of certain clinical trial and financing milestones. Celcuity is entitled to make interest-only payments through April 25 or, if certain conditions are met, through April 2026. The loans will mature in April 2027, the sixth anniversary of the initial funding date. 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. Our strategy is to develop companion diagnostics that enable the pharmaceutical company to expand the number of patients eligible to receive their targeted therapy. Our ongoing FACT trials were negatively impacted by COVID-19 related delays during late 2021 and early 2022. Now with a lower COVID case load, enrollment activities have resumed for these trials, and we expect interim results from the FACT-1 and FACT-2 trials in mid-2023.

Thank you, Brian. And good afternoon, everybody. I'll provide a brief overview of our financial results for the second quarter of 2022, and I invite you to review our 10-Q, which will be filed tomorrow for a more detailed discussion. Our second quarter net loss was $10 million or $0.67 per share, compared to a $14 million net loss or $1.11 per share for the second quarter of 2021. Because its quarterly net losses include significant non-cash items, including stock-based compensation, issuance of common stock in 2021, and interest, we also include in our press release non-GAAP adjusted net loss for the quarter ending June 30, 2022. Our non-GAAP adjusted net loss was $8.3 million or $0.55 per share for the second quarter of '22 compared to a non-GAAP adjusted net loss of $8.3 million or $0.66 per share for the second quarter of 2021. R&D expenses were $8.4 million for the second quarter of 2022 compared to $13.1 million for the second quarter of 2021. The approximately $4.7 million decrease during the second quarter of 2022 compared to the second quarter of 2021 reflects a $10 million reduction in gedatolisib licensing related expenses, partially offset by increases of $5.3 million in other R&D expenses. Of the $5.3 million increase in R&D, $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 in R&D expenses is primarily related to costs for existing clinical trials and activities supporting the initiation of the VICTORIA-1 pivotal trial. G&A expenses were $1.2 million for the second quarter of 2022 compared to $0.6 million for the same period in 2021. The approximately $0.6 million increase in G&A during the second quarter of 2022 compared to the second quarter of 2021 arose primarily from approximately $0.5 million of non-cash stock-based compensation. Net cash used in operating activities for the second quarter of 2022 was $11.3 million, compared to $7.6 million for the second quarter of 2021. This was a result of non-GAAP adjusted net loss of $8.3 million and working capital changes of approximately $3.1 million, offset by depreciation expense of $0.1 million. We ended the quarter with approximately $66.9 million of cash and cash equivalents compared to cash and cash equivalents of $84.3 million on December 31, 2021. I will now hand the call back to the operator for questions.

Thank you ma'am. Ladies and gentlemen, at this time, we will be conducting a question and answer session. The first question we have is from Maurice Raycroft from Jefferies.

Hi, congrats on the progress. And thanks for taking my questions. I was going to ask one on the arm F addition, just if you can talk more about how that suggestion came about from EMA. And do you have specific expectations for that Arm relative to Arm B where EMA seems to be focused and potentially compared to Arm E, which is the palbociclib plus fulvestrant combo?

Sure. So we’ve received the written feedback in response to requests for scientific advice. And that's a process that's laid out for companies to get input about various clinical topics, including clinical trial design. And so we submitted that and received that feedback in late May. And the feedback is in written form and essentially recommended that we mirror the study design that we're using in the non-mutated patients. And so it's fairly straightforward. In totality, then we'll have 50 patients in the mutated group and 117 in the non-mutated group, and that'll provide the sufficient data that the regulatory feedback was looking for. As far as the comparisons, Arm F will actually involve an analysis in the mutated group comparing Arm D versus Arm F, similar to an analysis or comparison of Arm A versus Arm B. There won't be a formal comparison with formal tests for comparing palbociclib and fulvestrant versus gedatolisib and fulvestrant, but there will be exploratory analysis.

Got it. Okay, that's helpful. And the other question I had was just with breakthrough therapy designation in hand, do you need to, do you plan on meeting with the FDA soon? And what is your plan for interactions over the course of the phase three?

We expect to have ongoing discussions with the FDA. There are a variety of topics sponsors want to get feedback from the agency on, ranging from CNC topics to pharmacology topics, and you do all that in anticipation to help ensure that your preparation for what you hope to be a new drug application is in order. With breakthrough, the timelines to get those meetings or the frequency of those meetings is increased. We already have plans in place to get feedback; it's really less about seeking specific direction and more about ensuring that what we've done to date aligns with their expectations.

Got it. Okay. And maybe last quick question. Just wondering if you can remind me where you're at with gedatolisib drug supply? And are there any other gating factors that you can comment on prior to starting dosing for the phase three?

No. So the manufacturing's in place, and so the drug supply and logistics around that have been developed. The gating items are related to the work the sites have to do. Once essentially, the protocol has been finalized and central IRB has reviewed the protocol and provided approval for it, it's quite a complex undertaking at these sites. Smaller sites tend to move more quickly, but a significant amount of training and logistical coordination has to be put in place. Those activities are ongoing now at several of the sites we've selected. We go from a phase that runs in parallel to your protocol finalization and your regulatory interaction, identifying sites and then qualifying them. That’s a formal process to ensure they can comply with GCP, good clinical practice guidelines, etc. We're on track with the discussions and activities we've been discussing, we've initiated trial and study activities with the sites and are finalizing operational aspects. Each site has its own timeline and budget, and we plan accordingly. Those are the activities we're focused on right now.

Got it. Okay, that's helpful. Thanks for taking my questions.

You're welcome. Thank you.

The next question we have is from Boris Peaker from Cowen & Co.

Great. Thanks for taking my questions. First, I'd like to focus on the CELsignia assay. Could you just remind us what you need to show in the FACT-1 and FACT-2 studies to gain approval, and maybe kind of more broadly, can you describe where in the course of therapy the CELsignia will be administered to the patient?

Sure. So these studies are evaluating early stage patients who are receiving new adjuvant treatment, with the goal of achieving a pathological complete response, which is the primary endpoint. In this setting, pathological complete responses are associated with longer disease-free recurrence periods. Therefore, the study is designed to obtain a significant increase in that pathological complete response rate in the populations we’re studying. If successful, if we meet the endpoint, at that point, we would engage with our collaborator, such as Genentech or Puma, to develop a more formal regulatory plan. This would involve both of us going to the agency since we would pursue a PMA process, and they would pursue a label expansion process, SNDA, to expand the label. This work is kind of subject to specific direction that you get from the agency. We hope to have data in the middle of next year that would give us the basis for those discussions.

Got it. And in terms of, I guess, you're partially answered in terms of when it would be administered in terms of course of therapy, it would be just to newly diagnosed patients?

Yes, so these women in the FACT-1 and FACT-2 trials will receive the therapies that we’re studying. In the case of FACT-1, it's Herceptin, Perjeta, and chemotherapy, which is the standard of care for HER2-positive patients in the new adjuvant setting. Our test is identifying patients who are HER2-negative, those who have normally expressed HER2 and non-amplified; and then we would be treating them with what is essentially the standard of care regimen that HER2-positive patients receive. Currently, these patients receive chemotherapy in a new adjuvant setting with the goal of shrinking the tumor to make possible more successful surgery or ideally eliminate the tumor completely, which is a pathological complete response. In these patients who are HR-positive, the typical or expected rate of pathologic complete response is only 10%. If we could double that rate, it would be very significant given the importance or the benefit to patients who do get a pathological complete response from chemotherapy.

Great. And my last question on the VICTORIA trial. What's the rationale, if I understand it correctly, for giving palbociclib to patients who have already progressed on a CDK4/6 inhibitor?

Yes. The mechanistic rationale, I'm sorry, Boris, you cut out there?

Yes, that's what I was asking. What is the mechanistic rationale for giving this treatment?

Sure. So, these patients—well, to step back to the disease mechanism involved in these women's cancer: 15 years ago, the hypothesis was that this was solely estrogen-driven. The development of better endocrine therapies was the prime focus of drug development. Work has shown that the estrogen pathways are cooperative with cell cycle pathways, which led to the development of CDK4/6 inhibitors that have proven to be fantastically beneficial to patients. However, patients aren’t cured, and they eventually progress as the tumors become resistant to these drugs. Research over the past 10-15 years has sought to understand what that resistance mechanism is. There’s a reasonable consensus that the PI3K/mTOR pathway is involved. Our early phase data studied patients in both the first line and second line settings. In the first line setting, we showed that when gedatolisib was added to palbociclib and letrozole, we reported a higher rate of objective response, 85%, than had been reported in the registrational study for palbociclib and letrozole. The results are significantly different; while they can’t be directly compared, the variation is large enough to draw inferences. In the second line setting, even though patients had progressed on palbociclib, many of them still had a significant response rate of 63%, as opposed to the 25% response rate in the registrational data for palbociclib and fulvestrant. Non-clinical data suggests that patients who become resistant to CDK4/6 therapies may adapt to rely primarily on the PI3K/mTOR pathways for continued proliferation. By blocking that pathway, we may reactivate the CDK4/6 pathway, re-sensitizing them to treatment with CDK4/6 therapy. We think there's a triad of pathways involved: estrogen receptor pathways, CDK4/6, and PI3K/mTOR; and the most beneficial potential treatment is synchronized inhibition of all of those pathways simultaneously. This is consistent with our data in both the second line arms as well as the first line arms, and we believe this strategy could be effective in other tumor areas where the PI3K/mTOR resistance mechanism is involved.

Thank you very much for the detailed answer to my question.

You're welcome.

Thank you. The next question we have is from Gil Blum from Needham.

Hey Gil.

Hi, yes. Hi, this is Chen for Gil. Thank you for taking our questions. We just want to ask if this new arm offers any benefit on the regulatory perspective for gedatolisib. And if the readout for Arm F misses, does it affect any other pathways in the other arms?

Thanks for your question. Well, since EMA recommended we add the arm, we think it's helpful to address a recommendation they had. It makes logical sense. We were not surprised by the requests. We felt the data in the non-mutated population for gedatolisib plus fulvestrant was sufficient. EMA believed that supplementing that data with mutated patients would be beneficial. We agreed, and that's the rationale for moving forward with that arm. There’s no formal hurdle for that arm to achieve in terms of tests. It's part of a requirement to demonstrate and allow the agency to see the individual contribution of different drugs to treatment benefit.

The next question we have is from Alex Nowak from Craig Hallum.

Great, good afternoon, everyone. This is Connor on for Alex. Thanks for taking the questions. I guess first, how is the team thinking about modeling clinical trial enrollment uptake? How quickly do you think you can enroll these sites and start dosing? And are there any internal goals the team has talked about for hitting those enrollment numbers?

Sure. As we've indicated, we expect to dose the first patient in the next few months. So we think it's imminent. The activities are underway at several sites to get them operational. Regarding the enrollment path, the focus is less on the number of patients alone; rather, we work toward reaching sufficient events that trigger the primary analysis. This takes into account enrollment numbers, rate of enrollment, and rate of events, all structured in the statistical analysis plan. We're projecting to have that data available in the second half of '24 for the wild type population and the first half of '25 in the mutated population.

Perfect, that makes sense. Thank you. And then just another quick one. Are there any kind of additional staffing needs as you ramp up for phase three?

Over the past 15 months, we've built out our senior team, and I'm very happy with the talent we’ve been able to hire in a short period of time. They're doing a fantastic job and have built a group of individuals who perform specific functions that support the study and overall operations. While there may be additional hires for less senior roles, we don't expect a dramatic increase in our headcount going forward. We believe the team required to execute the VICTORIA-1 studies is in place and working full steam ahead.

Yes, that's great. Thanks for the update. Congrats on the progress.

You're welcome. Thank you.

Ladies and gentlemen we have reached the end of our question-and-answer session. I would like to turn the call back to Brian Sullivan for closing remarks, sir.

Thank you for attending our call. We look forward to continuing to update you, and I will say goodbye.

Thank you, sir. Ladies and gentlemen, that does conclude today's conference. Thank you for joining us. You may now disconnect your lines.