Celcuity(CELC) - 2018 Q4 - Annual Report

PART I Business Celcuity develops proprietary CELx diagnostic tests using living tumor cells to improve cancer patient outcomes through pharmaceutical partnerships - Celcuity's core technology, the CELx diagnostic platform, analyzes living tumor cells to measure dynamic cell signaling activity, which it believes is a more accurate method for diagnosing cancer drivers compared to traditional molecular diagnostics that analyze static genetic mutations in dead cells[20] - The company's first commercial-ready test, the CELx HSF Test, identifies two new sub-types of HER2-negative breast cancer, with internal studies suggesting 15-20% of these patients may respond to anti-HER2 therapies[21] - The commercialization strategy centers on partnering with pharmaceutical companies to develop companion diagnostics (CDx), aiming to generate revenue from clinical trial testing, milestone payments, and potential royalties[30][31] - Celcuity is conducting two key prospective clinical trials, FACT 1 with Genentech and NSABP, and FACT 2 with Puma Biotechnology, both using the CELx HSF Test to select breast cancer patients for HER2 targeted therapies, with interim results expected in late 2019 to early 2020[24][87] Research and Development Expenses | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Research and Development Expenses | $6.3 million | $5.0 million | Risk Factors The company faces significant risks from limited operating history, lack of revenue, reliance on partnerships, regulatory changes for LDTs, and internal control weaknesses - The company has a limited operating history, has never generated revenue, and its success is heavily dependent on the clinical and commercial success of its first product, the CELx HSF Test[148][150] - Celcuity relies on collaborations with third parties like NSABP, Genentech, and Puma Biotechnology to conduct its clinical trials, and their failure to perform could delay or prevent test commercialization[189][190] - The company's tests are currently considered Laboratory Developed Tests (LDTs) and are not subject to FDA regulation, but a change in FDA policy could incur substantial costs and delays[202][203][204] - A material weakness in internal control over financial reporting has been identified due to a lack of segregation of duties, which could lead to material misstatements not being prevented or detected[241][242][243] - The company operates a single laboratory facility in Minneapolis, and any damage or operational failure at this site would prevent it from performing tests, harming the business[182] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments[264] Properties Celcuity leases approximately 16,000 square feet in Minneapolis for its laboratory and offices, with the lease expiring in April 2021 - The company leases approximately 16,000 square feet in Minneapolis, Minnesota for its laboratory and offices[264] - The lease expires in April 2021 and is renewable annually with extension rights[264] Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[265] Mine Safety Disclosures This item is not applicable to the company - Not applicable[266] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Celcuity's common stock is listed on Nasdaq under "CELC" since September 2017, with no history or expectation of cash dividends - Common stock is listed on The Nasdaq Capital Market under the symbol "CELC" since September 20, 2017[269] - As of February 21, 2019, there were approximately 49 holders of record of the common stock[270] - The company has never paid cash dividends and does not intend to in the foreseeable future[271] Selected Financial Data Selected financial data shows no revenue, increasing net losses, and decreasing total assets for 2018 and 2017 Statement of Operations Data | Statement of Operations Data | 2018 | 2017 | | :--- | :--- | :--- | | Research and development | $6,325,995 | $4,980,427 | | General and administrative | $1,606,543 | $972,518 | | Total operating expenses | $7,932,538 | $5,952,945 | | Loss from operations | $(7,932,538) | $(5,952,945) | | Net loss | $(7,480,815) | $(6,251,730) | | Net loss per share, basic and diluted | $(0.74) | $(0.84) | Balance Sheet Data | Balance Sheet Data | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | | Total assets | $26,031,821 | $31,969,510 | | Total liabilities | $682,210 | $578,053 | | Total stockholders' equity | $25,349,611 | $31,391,457 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increasing net losses due to higher R&D and G&A expenses, with $24.9 million in cash expected to fund operations for 24 months Operating Expense Comparison | Operating Expense Comparison | 2018 | 2017 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $6,325,995 | $4,980,427 | $1,345,569 | 27% | | General and administrative | $1,606,543 | $972,518 | $634,025 | 65% | | Total operating expenses | $7,932,538 | $5,952,945 | $1,979,594 | 33% | - The increase in R&D expenses in 2018 was driven by higher compensation costs and increased spending on clinical validation, laboratory studies, and patent costs[307] - The increase in G&A expenses was primarily due to higher professional fees and insurance costs associated with being a public company for a full year[309] - As of December 31, 2018, the company had approximately $24.9 million in cash, cash equivalents, and investments, which management believes is sufficient to finance operations for at least the next 24 months[296][314][316] Cash Flow Summary | Cash Flow Summary | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,076,269) | $(4,947,982) | | Net cash provided by (used for) investing activities | $19,094,392 | $(28,976,983) | | Net cash provided by financing activities | $236,697 | $30,708,406 | Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures as a smaller reporting company - The company is not required to provide this disclosure as it qualifies as a smaller reporting company[334] Financial Statements and Supplementary Data This section presents audited financial statements for 2018 and 2017, with an unqualified opinion from Boulay PLLP - The independent auditor, Boulay PLLP, issued an unqualified opinion on the financial statements for the years ended December 31, 2018 and 2017[338] - The company converted from a Minnesota LLC to a Delaware corporation named Celcuity Inc. on September 15, 2017, ahead of its IPO[361] - The company completed its IPO on September 22, 2017, selling 2,760,000 shares at $9.50 per share, with net proceeds of approximately $23.3 million[362] - A valuation allowance has been recorded to fully offset the net deferred tax asset, as it is more likely than not that the company will not realize future benefits from these assets[432] Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes or disagreements with its accountants on accounting or financial disclosures - None reported[439] Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness from limited segregation of duties - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[439] - A material weakness in internal control over financial reporting was identified due to limited segregation of duties resulting from the company's small size[440] - As an emerging growth company, the company is exempt from the requirement to have its registered public accounting firm provide an attestation report on internal control over financial reporting[441] Other Information The company reports no other information for this item - None[443] PART III Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers, including co-founders and CFO, with further details in the 2019 proxy statement - Brian F. Sullivan, co-founder, serves as Chairman and CEO, having previously founded and led SterilMed and Recovery Engineering[446] - Dr. Lance G. Laing, co-founder, serves as Chief Science Officer and Director, with over 15 years of experience in drug discovery and technology development and 18 U.S. patents[447] - Vicky Hahne joined as CFO in July 2017, bringing over 20 years of financial leadership experience from previous roles[453] - Additional information required by this item is incorporated by reference from the company's 2019 Definitive Proxy Statement[455] Executive Compensation Executive compensation information is incorporated by reference from the 2019 Definitive Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[456] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2019 Definitive Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[457] Certain Relationships and Related Transactions, and Director Independence Related transactions and director independence information is incorporated by reference from the 2019 Definitive Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[458] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2019 Definitive Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[460] PART IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance and material contracts - Lists the financial statements included in the report[463] - An index of exhibits filed with the Form 10-K is provided, including key agreements and required certifications[466][476] Form 10-K Summary The company reports no summary for this item - None[464]