Earnings Call Transcript - CELC Q1 2020

Operator, Operator

Good day, everyone, and welcome to the Celcuity Release of First 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 this call will be recorded. I'll now turn the program over to the Chief Financial Officer, Vicky Hahne. Please go ahead. And it is now my pleasure to turn the program over to Celcuity's CEO, Brian Sullivan. Please go ahead.

Vicky Hahne, CFO

Thank you, operator. Good afternoon, everyone. And thank you for joining us today for our discussion of Celcuity's First Quarter 2020 Financial Results and Business Highlights. We issued a press release announcing our financial results for the first quarter ended March 31st, 2020, a few minutes ago. Today's press release can be found on the Investors section of our website. 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 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 financial measures in today's press release. And with that, I'd like to introduce Brian Sullivan, our CEO.

Brian Sullivan, CEO

Thank you, Vicky, and good afternoon, everyone. I'm very pleased that you joined us today for an update on our progress this quarter. I'd like to comment on our first-quarter results, focusing in particular on a few things: the status of our product development projects, our collaboration discussions, and our FACT 1 and FACT 2 clinical trials. Vicky will follow me to discuss our financial results. Today, only a small proportion of cancer patients are benefiting from the advancements made over the past 20 years in molecular-based medicine. Recent reports estimate that roughly 80% of cancer patients lack an actionable biomarker, typically a molecular mutation that oncologists can use to guide the selection of a targeted therapy for their patients. There's thus a huge unmet patient need for new diagnostics for the 80% of cancer patients today who are not eligible for targeted therapies. We founded Celcuity to address this unmet need. Our CELsignia platform diagnoses dysregulated oncogenic signaling, which is the underlying cellular activity driving many cancers. The patients we diagnose with a dysregulated signaling pathway have a disease mechanism that directly corresponds to a matching targeted therapy's mechanism of action. Our strategy is to help pharmaceutical companies obtain new indications for their targeted therapies to treat the patients our CELsignia tests identify. 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 strategy. To execute our strategy, our R&D team is working hard to expand the applications for our platform. New tests expand the number of patients who may positively impact and increase the number of potential pharmaceutical collaborations we can pursue. So I'm excited to report that we again made significant progress this quarter developing a new dynamic signaling test to diagnose cancers driven by dysregulated RAS or RAS signaling. We hope to complete the development of a CELsignia RAS test for breast and ovarian cancer patients by the end of 2020. Dysregulation of RAS signaling, which includes the RAF/ERK and PI3K/AKT pathways, is estimated to contribute 30% to 40% of all cancers. Pharmaceutical companies have developed numerous drugs to target RAS-involved pathways. However, the number of interactions between RAS-regulated pathways has made it extremely difficult to use molecular tests to identify patients with dysregulated RAS signaling tumors. This challenge of diagnosing a cancer driven by dysregulated RAS signaling networks is magnified because two or more different pathways are typically involved. Recent research has also found that RAS mutations play a much less important role in dysregulated RAS signaling than previously thought. Our CELsignia platform is uniquely suited to untangling the complexity of this tumor subset and identifying the targeted therapy combination capable of treating it. In particular, the development of our RAS test leverages our unique ability to analyze complex signaling activity involving multiple pathways, including G-protein-coupled receptors, receptor tyrosine kinases, and pathway nodes. Our RAS dynamic signaling test would be our fourth CELsignia test. Our current tests for HER-2, c-MET, and PI3K signaling have the potential to diagnose oncogenic signaling activity undetectable by molecular tests in up to one in three HER-2-negative breast cancer patients. If our efforts to develop a RAS dynamic signaling test are successful, the percentage of cancer patients who could benefit from a CELsignia test could increase significantly. Since the patients diagnosed by our CELsignia tests are those current molecular tests can identify, each test offers a potential opportunity for pharmaceutical companies to expand the number of patients eligible for their targeted therapies or to obtain new indications. If we're successful in working with pharmaceutical companies to gain approval for new drug indications, we would significantly expand the therapeutic options for cancer patients. During our last call, we announced we would report preclinical results for our first CELsignia test for ovarian cancer at the 2020 Annual Meeting of the American Association for Cancer Research, which was originally scheduled for late April. Due to the COVID-19 pandemic, AACR has rescheduled most poster presentations, including ours, until late June. Accepted abstracts will be posted by AACR in mid-May. This new test will identify a new subgroup of ovarian cancer patients with tumors that have undiagnosed hyperactive oncogenic signaling activity. On the collaboration front, we continue to advance our discussions with pharmaceutical companies for a number of potential clinical trial collaborations. While we still expect to close several collaborations this year, the clinical sponsors and pharmaceutical companies we have to work with have been affected, as most companies have, to varying degrees, by the COVID-19 pandemic. These events may delay finalizing some of these potential collaborations past year-end 2020. Our potential collaboration partners include many of the country's leading cancer research centers as well as several global pharmaceutical companies. The goal of these collaborations is to evaluate the efficacy of targeted therapies in breast cancer patients identified by CELsignia tests. These potential collaborations, if finalized, would enable us to study a range of drugs, either single or combination agents. If successful, we believe these collaborations could ultimately lead to helping these therapies gain FDA approval to treat the patient populations that our test identifies. The collaborations we're pursuing involve Celcuity as the clinical sponsor, and in some cases, two pharmaceutical companies, which requires significant time to finalize the related agreements between the three or four parties. I'd like now to turn to an update on our clinical trials. In light of the recent developments relating to the COVID-19 pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA's updated industry guidance for conducting clinical trials issued in mid-March 2020, we are experiencing delays in the enrollment of patients in our ongoing clinical trials. COVID-related delays for our trials are consistent with those reported by most clinical trial sponsors. In fact, during discussions with clinical sponsors, we've learned that even surgeries to remove cancerous tumors are getting delayed in some cases. As a result, we now expect interim results from the FACT-1 and FACT-2 trials to be delayed until the second half of 2021, and the final results approximately nine months later. We will continue to evaluate the situation and provide updates as appropriate, but of course, we'll be taking every step we can to mitigate the effects of the COVID-19 pandemic on these trials. I'd like now to have Vicky review the financial results for you. Vicky?

Vicky Hahne, CFO

Thank you, Brian. Our first-quarter net loss for 2020 was $2.25 million, or $0.22 per share, compared to a $1.85 million net loss, or $0.18 per share, for the first quarter of 2019. Because these quarterly net losses include a significant non-cash item, stock-based compensation, we also include in our press release non-GAAP adjusted net loss for the quarter. Our non-GAAP adjusted net loss was $1.78 million, or $0.17 per share, for the first quarter of 2020 compared to a non-GAAP adjusted net loss of $1.66 million, or $0.16 per share, for the first quarter of 2019. R&D expenses increased approximately $0.26 million during the first quarter of 2020 compared to the first quarter of 2019. This was primarily due to a $0.25 million increase in compensation expense, which included $0.19 million of non-cash stock-based compensation. In addition, other research and development expenses increased $0.01 million due to clinical validation, laboratory studies, and operational and business development activities. The approximately $0.8 million increase in G&A during the first quarter of 2020 compared to the first quarter of 2019 was attributable to non-cash stock-based compensation. We ended the quarter with approximately $16.9 million of cash and cash equivalents. The net cash used in operating activities for the first quarter of 2020 was $1.83 million. This was a result of a non-GAAP adjusted net loss of $1.78 million and $0.14 million of working capital changes in prepaid assets and accounts payable, offset by depreciation expense of $0.1 million.

Brian Sullivan, CEO

Thank you, Vicky. So in summary, we're excited about our continued advancement of new CELsignia tests and the progress towards closing important collaboration agreements. We're monitoring the COVID-19 situation closely and doing everything we can to mitigate any impact on our trials and collaboration discussion timelines. Operator, could you please open up the lines for questions?

Operator, Operator

And we'll take our first question from Yi Chen with H.C. Wainwright. Please go ahead, your line is open.

Edward Marks, Analyst

This is Marks speaking on behalf of Yi Chen from H.C. Wainwright. Congrats on the progress, and thanks for taking our question. Just a clarification point. When do you anticipate the PI3K functional signaling test to enter a clinical trial following your great progress in the development of the test in the first quarter?

Brian Sullivan, CEO

That's a good question. We have started discussions, but the process of bringing these discussions to completion takes a considerable amount of time. We are engaging with various investigators and pharmaceutical companies. We haven't set a specific timeline yet, but based on past experiences, we would expect it to take about 12 to 18 months to establish a collaboration after we announce initial data.

Edward Marks, Analyst

All right. Thank you for the update.

Operator, Operator

We'll take our next question from Per Ostlund with Craig-Hallum. Please go ahead, your line is open.

Per Ostlund, Analyst

Thank you. Good afternoon, Brian and Vicky.

Brian Sullivan, CEO

Hi, Per.

Per Ostlund, Analyst

I'm following up on the earlier question. Hi Brian. You mentioned the RAS signaling test that you're developing and identified PI3K as one of the key pathways involved in RAS signaling and its dysregulation that you're focusing on. It seems like there's a substantial patient population that could help determine your success in this area. Since PI3K appears to be a subset of RAS, do you anticipate a separate PI3K trial collaboration, or do you think you might achieve greater success with a combined RAS CELsignia test?

Brian Sullivan, CEO

No, that's a great question. There's a bit of biology involved in that. So, the RAS signaling network is comprised of two important pathways, MAPK and PI3K. Within those pathways are different nodes that include PI3K, AKT, and RAF, MEK, and ERK. These are all potential drug targets involved in either supporting the proliferation of cells or how long they can survive. The work we completed when we were developing our PI3K tests revealed to us how we could go about untangling other nodes that are part of this RAS signaling network. I think we will ultimately end up with several subtests within the RAS that identify subsets of patients. We refer to the RAS signaling network because it will invariably, in these other tests, involve or require multiple drugs to treat the disease mechanism and because these pathways cooperate. The situation is somewhat akin to what we discovered with c-MET involvement in cooperation with the HER family pathway. In this case, we are working with intracellular targets as opposed to extracellular receptor targets, which adds another layer of complexity. Overall, I would say that PI3K will ultimately probably be considered a subset of a family of RAS-related signaling tests.

Per Ostlund, Analyst

Okay. That makes sense. Your answer actually kind of captured a follow-up there because I was sensing a parallel to the c-MET test that you had developed as well. So, thank you for preemptively answering my next question. On c-MET, you mentioned the 12 to 18-month timeline on a collaboration for PI3K. We're kind of sitting around that level with c-MET at this point. Would you expect that that’s sort of the nearest collaboration we would expect at this point?

Brian Sullivan, CEO

I would say that it's among several that are at similar stages. Among those are ones that would include the c-MET drug.

Per Ostlund, Analyst

Okay, all right. That makes sense. And then one last question for me. You addressed it in the press release and in your comments. I had come into today expecting that COVID-19 probably had put a little bit of chill on clinical trial activities and potential collaborations as people are considering what to do during this pandemic. As it pertains to clinical events like AACR, do you sense any different level of engagement from potential research partners or pharma on collaborations when there isn't that face-to-face interaction at some of these bigger industry events? Are you still sensing that there's going to be that same engagement level, or is there a bigger hurdle to overcome conducting everything more remotely?

Brian Sullivan, CEO

That's a good question. Yes, I think it can actually work the opposite. I think people have quickly adapted to having Zoom calls and to reviewing presentations on a shared screen. They're efficient, and it allows for easy back and forth. We've been pretty successful in engaging folks in this environment. We obviously haven't been traveling and visiting people. We're hopeful that even though AACR won't give us a chance to run into people, which is one of the benefits of those conferences, we're still plugging away and able to advance the collaboration. The biggest effect of COVID-19, however, is that many of the doctors we're working with are senior leaders in the institutions where they serve. They are involved in developing COVID-19 protocols and dealing with larger issues in their healthcare systems. That takes time away from our efforts, which is understandable. The health care system in general has been affected, and that has not spared the cancer world. If you had asked me the question in early March, I might have thought differently, but it's clearly impacting every corner of the healthcare market.

Per Ostlund, Analyst

It definitely has. Definitely a fluid situation. That’s all I had. Thank you, Brian. Appreciate it.

Brian Sullivan, CEO

Okay. Thank you, Per.

Operator, Operator

Well, I think in the absence of further questions, we'll release everybody. We really appreciate your listening to our call and look forward to communicating with you in three months. Goodbye. This does conclude today's program. Thank you for your participation, and you may now disconnect.