UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ___________________
Commission File Number: 001-38207
Celcuity Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
16305 36th Avenue North, Suite 100
Minneapolis, MN
(Address of principal executive offices)
82-2863566
(I.R.S. Employer
Identification No.)
55446
(Zip Code)
Registrant’s telephone number, including area code: (763) 392-0767
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol(s)
CELC
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on $9.10, the closing price of the
shares of common stock on June 30, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) as reported by The
Nasdaq Capital Market on such date, was approximately $96,109,668.
As of March 15, 2023, there were 21,689,425 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this
Annual Report on Form 10-K
2022 Annual Report on Form 10-K
Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
2
Page
6
33
57
57
57
57
58
59
59
67
68
88
88
88
89
91
91
91
91
92
92
93
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Annual Report on Form 10-K (this
“Annual Report”) contains forward-looking statements regarding us, our business prospects and our results of operations that are subject to certain risks
and uncertainties that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such
forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in Part I, Item 1A,
“Risk Factors” and elsewhere in this Annual Report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date of this Annual Report. We expressly disclaim any intent or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in this Annual
Report and in our other reports filed with the Securities and Exchange Commission (the “SEC”) that advise interested parties of the risks and uncertainties
that may affect our business.
All statements, other than statements of historical facts, contained in this Annual Report, including statements regarding our plans, objectives and
expectations for our business, operations and financial performance and condition, are forward-looking statements. In some cases, you can identify
forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “target,”
“ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although
not all forward-looking statements contain these words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that
may cause our results, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements
in this Annual Report. Additionally, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments that we may make. Forward-looking statements may include, among other things, statements relating to:
● our clinical trial plans and the estimated timelines and costs for such trials;
● our plans to develop and commercialize gedatolisib, our first internally developed drug candidate;
● our expectations with respect to the potential efficacy of gedatolisib in various patient types alone or in combination with other treatments;
● our expectations regarding the timeline of patient enrollment and results from clinical trials, including our existing Phase 3 VIKTORIA-1 clinical
trial for gedatolisib;
● our expectations regarding our ability to obtain FDA approval to commercialize gedatolisib;
● our expectations regarding governmental laws and regulations affecting our operations, including, without limitation, the recently enacted Inflation
Reduction Act (IRA), changes in laws and regulations or their interpretation, including, among others, changes in tax laws and regulations
internationally and in the U.S.;
● our expectations with respect to the development, validation, required approvals, costs and timelines of gedatolisib and our CELsignia tests;
● our beliefs related to the potential benefits resulting from Breakthrough Therapy designation for gedatolisib;
● our beliefs about our ability to capitalize on the exclusive global development and commercialization rights obtained from our license agreement
with Pfizer with respect to gedatolisib;
● our beliefs related to the perceived advantages of our CELsignia tests compared to traditional molecular or other diagnostic tests;
● the size and growth potential of the markets for both our CELsignia platform and gedatolisib, and our ability to serve those markets;
● our plans with respect to research and development and related expenses for the foreseeable future;
● our beliefs with respect to the potential rate and degree of market acceptance, both in the United States and internationally, and clinical utility of
our therapeutics, diagnostic platform and tests;
● our expectations regarding the future payments that may be owed to Pfizer under our license agreement with them;
● our plans to develop and commercialize our CELsignia platform and CELsignia tests for patients with cancer and our expectations regarding the
various cancer sub-types our CELsignia tests will identify;
3
● our beliefs on the perceived advantage of our CELsignia platform and CELsignia tests as compared to traditional molecular or other diagnostic
tests, including, without limitation, the ability of our platform and tests to help physicians treat their patients’ cancers or to identify new patient
populations not diagnosable with currently available diagnostic tests;
● our expectations regarding revenue from sales of CELsignia tests and revenue from milestone or other payment sources;
● our expected first-mover advantage in providing products to culture living tumor cells on a commercial scale, or the sustainability of our
competitive advantages;
● our expectations regarding business development activities, including companion diagnostic related activities with pharmaceutical companies;
● expectations regarding federal, state, and foreign regulatory requirements and developments, such as potential FDA review and regulation of our
gedatolisib drug candidate, our CELsignia platform and CELsignia tests, our operations and our laboratory;
● our plans with respect to pricing in the United States and internationally, and our ability to obtain reimbursement for both our CELsignia tests and
gedatolisib drug candidate, including expectations as to our ability or the amount of time it will take to achieve successful reimbursement from
third-party payors, such as commercial insurance companies and health maintenance organizations, and from government insurance programs,
such as Medicare and Medicaid;
● our expectations as to the use of proceeds from our recently completed PIPE offering;
● our expectations with respect to accessing our current debt facility or any other debt facility or other capital source in the future;
● our beliefs regarding the adequacy of our cash on hand to fund our research and development expenses, capital expenditures, working capital,
sales and marketing expenses, and other general corporate expenses, as well as the increased costs associated with being a public company;
● our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates, including our gedatolisib
drug candidate and our CELsignia platform and tests; and
● our expectations regarding the impact that the COVID-19 pandemic and related economic effects will have on our business and results of
operations.
These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of
activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Certain
risks, uncertainties and other factors include, but are not limited to, our limited operating history; the potential impact of COVID-19 and any resurgence
thereof on our business and clinical study activities; our potential inability to develop, validate and commercialize gedatolisib on a timely basis or at all; the
uncertainties and costs associated with clinical studies and with developing and commercializing biopharmaceuticals; the complexity and difficulty of
demonstrating the safety and sufficient magnitude of benefit to support regulatory approval of gedatolisib and other products we may develop; challenges
we may face in developing and maintaining relationships with pharmaceutical company partners; the complexity and timeline for development of our
CELsignia tests; the uncertainty regarding market acceptance of our products and services by physicians, patients, third-party payors and others in the
medical community, uncertainty with respect to the size of market opportunities available to us; uncertainty regarding the pricing of drug products and
molecular and other diagnostic products and services that compete or may compete with us; uncertainty with insurance coverage and reimbursement for our
products and services; difficulties we may face in managing growth, such as hiring and retaining key personnel; changes in government regulations; and
obtaining and maintaining intellectual property protection for our technology and time and expense associated with defending third-party claims of
intellectual property infringement, investigations or litigation threatened or initiated against us. See “Risk Factors” in Part I, Item 1A of this Annual Report
for additional risks, uncertainties and other factors applicable to the Company.
4
SUMMARY OF RISK FACTORS
Below is a summary of the material factors that make an investment in our common stock speculative or risky. This summary does not address all of the
risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found in the “Risk
Factors” section of Part I, Item 1A of this Annual Report and should be carefully considered, together with other information in this Annual Report and our
other filings with the Securities and Exchange Commission before making investment decisions regarding our common stock.
● We have a limited operating history and we may never generate revenue or profit;
● Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize our therapeutic (Rx)
and companion diagnostic (CDx) strategy;
● We are currently conducting and will continue to conduct clinical trials. Clinical trials are expensive and complex with uncertain outcomes, which
may prevent or delay commercialization of any drug product candidates or CELsignia tests;
● The COVID-19 pandemic may materially and adversely impact our business, including ongoing clinical trials;
● Our future strategy is dependent on the success of our initial drug product, gedatolisib, as well as other drug products we may develop. If we are
unable to successfully complete clinical development of, obtain regulatory approval for or commercialize our drug products, or if we experience
delays in doing so, our business will be materially and adversely impacted;
● The successful development of biopharmaceuticals such as gedatolisib is highly uncertain;
● We were not involved in the early development of gedatolisib; therefore, we are dependent on third parties having accurately generated, collected,
interpreted and reported data from certain preclinical and clinical trials;
● As an organization, we have never successfully completed any registrational clinical trials, and we may be unable to do so for any drug candidates
we may develop;
● For a new drug to be approved for marketing, the FDA in the United States and health authorities in other countries, must determine that the drug
is safe and effective. Because all drugs can have adverse effects, the data from our Phase 3 clinical study must demonstrate to the satisfaction of
the FDA and other health authorities that the benefits of gedatolisib in combination with palbociclib and fulvestrant, or gedatolisib in combination
with fulvestrant, outweigh its risks. Failure to demonstrate sufficient magnitude of benefit, even if the benefit is found to be statistically
significant, may not support regulatory approval;
● If we encounter difficulties enrolling patients in any of our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected;
● If we are unable to obtain and maintain intellectual property protection for our products and technology, or if the scope of the intellectual property
protection obtained is not sufficiently broad, our competitors could develop and commercialize products or technology similar or identical to ours,
and our ability to successfully commercialize our technology and diagnostic tests may be impaired;
● We depend on intellectual property licensed from third parties, including from Pfizer for our lead product candidate, gedatolisib, and termination
of this license could result in the loss of significant rights, which would materially and adversely impact our business;
● If we fail to comply with our obligations under our patent license with Pfizer, we could lose certain license rights that are important to our
business;
● Our success with CELsignia is heavily dependent on the success of our first CELsignia trials and we cannot be certain of the outcomes of such
trials;
● We may not be successful in finding pharmaceutical company partners for continuing development of additional CELsignia tests;
● We have not attempted to market our CELsignia HER2 Pathway Activity Test and CELsignia Multi-Pathway Activity Test to physicians or their
patients as stand-alone tests and have no ability to determine if these tests or any of our other tests will be commercially viable;
● We will be dependent on our ability to attract and retain key personnel; and
● We face significant competition from other pharmaceutical and diagnostic companies.
5
ITEM 1. Business
Overview
PART I
Unless otherwise provided in this Annual Report, references to the “Company,” “we,” “us,” and “our” and similar references refer to Celcuity Inc., a
Delaware corporation. We own various unregistered trademarks and service marks, including our corporate logo. Solely for convenience, the trademarks,
trade names and service marks in this Annual Report, including those owned by third parties, may be referred to without the ®,TM or SM symbols, but such
references should not be construed as any indicator that the owner of such trademarks, trade names and service marks will not assert, to the fullest extent
under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks, trade names and service marks to imply an
endorsement or sponsorship of us by any other companies.
We are a clinical-stage biotechnology company focused on development of targeted therapies for treatment of multiple solid tumor indications. Our
lead therapeutic candidate is gedatolisib, a pan-PI3K/mTOR inhibitor. Its mechanism of action and pharmacokinetic properties are highly differentiated
from other currently approved and investigational therapies that target PI3K or mTOR alone or together. With respect to our CDx development activities,
our CELsignia diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from
targeted therapies.
Our therapeutic candidate, gedatolisib, is a potent, well-tolerated, small molecule dual inhibitor, administered intravenously, that selectively targets all
Class I isoforms of PI3K and mammalian target of rapamycin (mTOR). In April 2021, we obtained exclusive global development and commercialization
rights to gedatolisib under a license agreement with Pfizer, Inc. Our initial clinical development program for gedatolisib will focus on the treatment of
patients with hormone receptor positive (HR+), HER2-negative, advanced or metastatic breast cancer. In 2022, we dosed our first patient in our Phase 3
clinical trial, VIKTORIA-1, evaluating gedatolisib in combination with fulvestrant with or without palbociclib in patients with HR+/HER2- advanced
breast cancer (ABC).
Supporting the development of a potential first-in-class targeted therapy for breast cancer, like gedatolisib, with our CELsignia platform is a natural
extension of our strategy to use our CELsignia CDx to enable new indications for other companies’ targeted therapies. By combining companion
diagnostics designed to enable proprietary new drug indications with targeted therapies that treat signaling dysregulation our CDx identifies, we believe we
are uniquely positioned to improve the standard-of-care for many early and late-stage breast cancer patients. Our goal is to play a key role in the multiple
treatment approaches required to treat breast cancer patients at various stages of their disease.
Therapeutic (Rx) Product Development
Gedatolisib
Gedatolisib is a potent, reversible dual inhibitor that selectively targets PI3K and mTOR. Gedatolisib was originally developed by Wyeth and clinical
development was continued by Pfizer after it acquired Wyeth. We exclusively licensed global rights to gedatolisib from Pfizer in April 2021. A Phase 1b
trial evaluating patients with ER+/HER2- metastatic breast cancer was initiated in 2016 and subsequently enrolled 138 patients.
On January 13, 2022, gedatolisib was granted Fast Track designation for the treatment of patients with HR+/HER2- metastatic breast cancer after
progression on CDK4/6 therapy. Fast Track designation is granted by the FDA for products that are intended for the treatment of serious or life-threatening
disease or conditions and which demonstrate the potential to address an unmet medical need.
On July 18, 2022, gedatolisib was granted Breakthrough Therapy Designation for HR+/HER2- advanced breast cancer after progression on CDK4/6
therapy. Breakthrough Therapy designation is granted by the FDA to expedite the development and regulatory review of an investigational medicine that is
intended to treat a serious or life-threatening condition. The criteria for Breakthrough Therapy designation require preliminary clinical evidence that
demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy.
In 2022, we activated VIKTORIA-1, a Phase 3, open-label, randomized clinical trial to evaluate the efficacy and safety of two regimens in adults with
HR+/HER2- advanced breast cancer whose disease has progressed after prior CDK4/6 therapy in combination with an aromatase inhibitor: 1) gedatolisib in
combination with palbociclib and fulvestrant; and 2) gedatolisib in combination with fulvestrant. Two hundred clinical sites in North America, Europe,
South America, Asia, and Australia have been selected to participate in the study. The first clinical site was activated in the third quarter of 2022. The first
dosage of a patient in the trial occurred in December 2022.
6
Background
Breast cancer is the most prevalent cancer in women, accounting for 30% of all female cancers and 13% of cancer-related deaths in the United States.
The National Cancer Institute estimated that approximately 281,000 new cases of breast cancer would be diagnosed in the United States in 2020, and
approximately 43,600 breast cancer patients would die of the disease. Approximately 190,000, or 70%, of these new cases are for HR+/HER2- breast
cancer.
Four different breast cancer subtypes are currently identified using molecular tests that determine the level of HR and HER2 expression. About 70% of
breast cancers are HR+/HER2-, which is indicative of hormone dependency. Despite progress in treatment strategies, metastatic HR+/HER2- breast cancer
(MBC) remains an incurable disease, with a median overall survival (OS) of three years and a five-year survival rate of 29%.
Four different classes of targeted therapies are currently used to treat HR+/HER2- tumors: endocrine-based therapies, CDK4/6 inhibitors, PI3K
inhibitors and mTOR inhibitors. Each of the CDK4/6 inhibitors, PI3K inhibitors and mTOR inhibitors are generally used to respond to the related
mechanisms of resistance to endocrine therapy, namely, activation of the CDK4/6, PI3K and mTOR pathways.
As specifically relates to gedatolisib, activation of the PI3K/mTOR pathway has been implicated in a wide variety of human cancers, involving either
activating mutations, or other unknown drivers of pathway amplification. These include cancers of the breast, prostate, endometrial, colon, rectum, and
lung, among others.
Activities associated with PI3K involve complex essential cell regulatory mechanisms including feedforward and feedback signaling loops.
Overactivation of the pathway is frequently present in human malignancies and plays a key role in cancer progression. Four catalytic isoforms of Class I
PI3K preferentially mediate signal transduction and tumor cell survival based on the type of malignancy and the genetic or epigenetic alterations an
individual patient harbors. Due to the multiple subcellular locations, activities, and importance of the different PI3K complexes in regulating many types of
cancer cell proliferation, control of PI3K activity is an important target in cancer therapy.
mTOR is a critical effector in cell-signaling pathways commonly dysregulated in human cancers. The mTOR signaling pathway integrates both
intracellular and extracellular signals and serves as a central regulator of cell metabolism, growth, proliferation, and survival. mTOR is a serine/threonine
protein kinase, a downstream effector of PI3K, and regulated by hormones, growth factors, and nutrients, that is contained in two functionally distinct
protein assemblies – mTORC1 and mTORC2. In cancer, dysfunctional signaling leads to various constitutive activities of the mTOR complexes, making
mTOR a good therapeutic target.
In addition, the PI3K/mTOR pathway, like other mitogenic pathways, can also promote the activities of cyclin D and CDK4/6 to drive proliferative cell
cycling. The available evidence indicates that resistance to CDK4/6 inhibition in patients with HR+/HER2- advanced breast cancer is a transient adaptive
mechanism, most likely involving the PI3K/mTOR pathway. This data indicates that CDK4/6 signaling is restored in CDK4/6 resistant tumors when
PI3K/mTOR inhibitors are applied. Thus, continuing CDK4/6 inhibitor treatment in combination with a PI3K/mTOR inhibitor in patients who progressed
on their prior CDK4/6 inhibitor, would both blockade the reactivated CDK4/6 pathway and prevent adaptive activation of the PI3K/mTOR pathway. This
suggests the limited efficacy induced by current standard-of-care (SOC) therapies in patients who have progressed on a CDK4/6 therapy reflects the
mechanistic inadequacy of relying on partial PI3K/mTOR inhibition (e.g., alpelisib or everolimus) and no CDK4/6 inhibition to address this complex
disease mechanism.
We believe the complex connection between the PI3K/mTOR and CDK4/6 pathways can enable gedatolisib to adaptively reactivate CDK4/6 signaling
that reportedly occurs in CDK4/6 resistant tumors when the PI3K/mTOR pathway is completely blockaded. By re-activating CDK4/6 signaling, we believe
gedatolisib can restore the therapeutic effect of CDK4/6 inhibition when it is combined with a CDK4/6 inhibitor. The contributory effect of a CDK4/6
inhibitor when combined with gedatolisib would thus largely reflect the interaction between the two therapies that gedatolisib initiates.
Evidence of gedatolisib anti-tumor in vivo activity was provided in a study evaluating the combination of gedatolisib and a CDK4/6 inhibitor in cell-
line xenograft model where response to endocrine therapy was improved and tumor regressions were induced. In a study evaluating the MCF7 xenograft
model (ER+/HER2-/PIK3CA mutant), the combination of gedatolisib with palbociclib and fulvestrant caused 90% tumor regression with no tumor
regrowth observed for more than 60 days after the final dose.
7
Advantages of Gedatolisib over other PI3K and mTOR inhibitors
The important role the PI3K/mTOR pathway plays in cancer has led to significant investment in the development of many different PI3K and mTOR
inhibitors for solid tumors. However, developing efficacious and well-tolerated therapies that target this pathway has been challenging. This reflects the
inherent adaptability and complexity of the PI3K pathway, where numerous feedforward and feedback loops, crosstalk with other pathways, and
compensatory pathways enable resistance to PI3K inhibition. Another major hurdle for the development of PI3K pathway inhibitors has been the inability
to achieve optimal drug-target blockade in tumors while avoiding undue toxicities in patients.
We believe there is significant potential for gedatolisib to address previously treated breast cancer tumors and has the potential to be used in other
tumor types where the PI3K/mTOR pathway is either: i) driving tumorigenesis directly; ii) cooperating with other dysregulated signaling pathways; or iii) a
mechanism of resistance to other drug therapies.
As a result, we believe gedatolisib’s unique mechanism of action, favorable pharmacokinetic properties, and intravenous formulation offer distinct
advantages over currently approved and investigational therapies that target PI3K or mTOR alone or together.
● Overcomes limitations of therapies that only inhibit a single Class I PI3K isoform or only one mTOR kinase complex.
Gedatolisib is a pan-class I isoform PI3K inhibitor with low nanomolar potency for the p110α, p110β, p110γ, and p110δ isoforms. Because
gedatolisib inhibits all four PI3K isoforms and both mTOR complexes, it prevents the confounding effect of isoform interaction that may occur
with isoform-specific PI3K inhibitors and the confounding interaction between PI3K isoforms and mTOR. This compares to therapies that only
inhibit a single Class I isoforms (e.g., alpelisib, a PI3K-α inhibitor) or only one mTOR kinase complex (e.g., everolimus, an mTORC1 inhibitor),
which cross-activate uninhibited sub-units due to numerous feedforward and feedback loops between the PI3K isoforms and mTOR, which in turn
induces compensatory resistance that reduces the efficacy of isoform specific PI3K or single mTOR kinase complex inhibitors.
● Better tolerated by patients than oral PI3K and mTOR drugs.
Gedatolisib is administered intravenously (IV) on a four-week cycle of three weeks-on, one week-off, in contrast to the orally administered pan-
PI3K or dual PI3K/mTOR inhibitors that are no longer being clinically developed. Oral pan-PI3K or PI3K/mTOR inhibitors have repeatably been
found to induce significant side effects that were not well tolerated by patients. This typically leads to a high proportion of patients requiring dose
reductions or treatment discontinuation, despite showing promising efficacy. By contrast, gedatolisib stabilizes at lower concentration levels in
plasma compared to orally administered PI3K inhibitors, resulting in less toxicity, while maintaining concentrations sufficient to inhibit
PI3K/mTOR signaling.
● Isoform-specific PI3K inhibitors administered orally were developed to reduce toxicities in patients. While the range of toxicities associated with
isoform-specific inhibitors is narrower than oral pan-PI3K or PI3K/mTOR inhibitors, administering them orally on a continuous basis still leads to
challenging toxicities. The experience with an FDA approved oral p110-α specific inhibitor, Piqray, illustrates the challenge. In its Phase 3 pivotal
trial, Piqray was found to induce a Grade 3 or 4 adverse event (AE) related to hyperglycemia in 39% of patients evaluated. In addition, 26% of
patients discontinued alpelisib due to treatment related adverse events. By contrast, in the 103-patient dose expansion portion of the Phase 1b
clinical trial with gedatolisib, only 7% of patients experienced Grade 3 or 4 hyperglycemia and less than 10% discontinued treatment.
8
Clinical Experience with Gedatolisib
As of December 31, 2022, 492 patients with solid tumors have received gedatolisib in eight clinical trials sponsored by Pfizer. Of the 492 patients, 129
were treated with gedatolisib as a single agent in three clinical trials. The remaining 363 patients received gedatolisib in combination with other anti-cancer
agents in five clinical trials. Additional patients received gedatolisib in combination with other anti-cancer agents in nine investigator sponsored clinical
trials.
On January 13, 2022, gedatolisib was granted Fast Track designation for the treatment of patients with HR+/HER2- metastatic breast cancer after
progression on CDK4/6 therapy. Fast Track designation is granted by the FDA for products that are intended for the treatment of serious or life-threatening
disease or conditions and which demonstrate the potential to address an unmet medical need. The designation offers the opportunity for frequent
interactions with the FDA to discuss the drug’s development plan and to ensure collection of appropriate data needed to support drug approval, as well as
eligibility for rolling submission of a New Drug Application.
On July 18, 2022, gedatolisib was granted Breakthrough Therapy Designation for HR+/HER2- advanced breast cancer after progression on CDK4/6
therapy. Breakthrough Therapy designation is granted by the FDA to expedite the development and regulatory review of an investigational medicine that is
intended to treat a serious or life-threatening condition. The criteria for Breakthrough Therapy designation require preliminary clinical evidence that
demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. The benefits of
Breakthrough Therapy Designation include more intensive guidance from the FDA on an efficient development program, access to a scientific liaison to
help accelerate review time, and potential eligibility for priority review if relevant criteria are met. Celcuity’s breakthrough application was supported by
data from a Phase 1b study that assessed the safety, tolerability and clinical activity of gedatolisib in combination with palbociclib and fulvestrant in
patients with HR+/HER2- advanced breast cancer whose disease progressed during treatment with a CDK4/6 therapy and an aromatase inhibitor.
Gedatolisib’s safety, tolerability and pharmacokinetic profile were determined in a Phase 1 First-in-Human study. The favorability of preliminary
results from our most recently completed clinical trial, a Phase 1b study which evaluated 138 patients with HR+/HER2- advanced breast cancer (ABC), led
us to focus on our initial clinical development program on advanced breast cancer.
Phase 1 First-in-Human Study
In 2013, Pfizer completed a Phase 1, open-label, dose-escalation first-in human study of single-agent gedatolisib in patients with advanced solid
tumors. The primary objective of Part 1 of the study was to determine the safety, tolerability, and maximum tolerated dose (MTD) of single-agent
gedatolisib administered once weekly as an intravenous (IV) infusion. Seventy-seven patients with advanced solid tumors received doses of gedatolisib and
the MTD was determined to be 154 mg IV once weekly (n = 42). Based on results and analyses from subsequent clinical trials, the maximum tolerated dose
was determined to be 180 mg IV once weekly.
Phase 1b HR+/HER2- ABC Clinical Trial Results
In 2016, Pfizer initiated a Phase 1b dose-finding trial with an expansion portion for safety and efficacy to evaluate gedatolisib when added to either the
standard doses of palbociclib plus letrozole or palbociclib plus fulvestrant in patients with HR+/HER2- advanced breast cancer. PI3K mutation status was
not used as an eligibility criterion. Patient enrollment for the trial is complete.
A total of 138 patients with HR+/HER2- advanced breast cancer were dosed in the clinical trial. Seven patients from this study continue to receive
study treatment, as of December 31, 2022, each of whom have received study treatment for more than four years.
● 35 patients were enrolled in two dose escalation arms to evaluate the safety and tolerability and determine the MTD of gedatolisib when used in
combination with the standard doses of palbociclib and endocrine therapies. The MTD was determined to be 180 mg administered intravenously
once weekly.
● 103 patients were enrolled in one of four expansion arms (A, B, C, D) to determine if the triplet combination of gedatolisib plus palbociclib and
letrozole or gedatolisib plus palbociclib and fulvestrant produced a superior objective response (OR), compared to historical control data of the
doublet combination (palbociclib plus endocrine therapy). All patients received gedatolisib in combination with standard doses of palbociclib and
endocrine therapy (either letrozole or fulvestrant). In Arms A, B, and C, patients received an intravenous dose of 180 mg of gedatolisib once
weekly. In Arm D, patients received an intravenous dose of 180 mg of gedatolisib on a four-week cycle of three weeks-on, one week-off.
Objective response was determined using Response Evaluation Criteria in Solid Tumors v1.0, or RECIST v1.0.
9
○ Arm A: ABC with progression and no prior endocrine-based systemic therapy or a CDK4/6 inhibitor in the metastatic setting. First-line
endocrine-based therapy for advanced disease (CDK4/6 treatment naive).
○ Arm B: ABC with progression during one or two prior endocrine-based systemic therapy in the advanced setting, with no prior therapy
with any CDK inhibitor. Second- or third-line endocrine-based therapy for metastatic disease.
○ Arm C: ABC with progression during one or two prior endocrine-based systemic therapies in the advanced setting and following prior
therapy with a CDK inhibitor. Second- or third-line endocrine-based therapy for advanced disease.
○ Arm D: ABC having progressed on a CDK inhibitor in combination with endocrine therapy as the most recent regimen for advanced
disease. Second- or third-line endocrine-based therapy for advanced disease.
Analysis for the 103 patients enrolled in the expansion portion of the Phase 1b clinical trial, as of a database cutoff date of June 29, 2022, showed:
● Efficacy analysis for all arms in aggregate:
○ 63% objective response rate (ORR)
○ 92% clinical benefit rate (CBR)
● Best responses, as measured by RECIST v1.0, are shown in the following chart for Arm A (1st line patients) and Arm D (2nd/3rd line patients who
received recommended dosing regimen). The dotted line represents the cutoff for partial response (PR), defined as a 30% reduction from the
baseline tumor assessment.
● Safety analysis:
○ For all arms in aggregate, all patients experienced at least one Grade 1 or Grade 2 treatment-emergent adverse event. The Grade 3 and 4
treatment-emergent adverse events occurring in at least 20% of patients were neutropenia (63%), stomatitis (27%) and rash (20%).
Neutropenia is a known class effect of CDK4/6 inhibitors. Stomatitis was reversible in most patients with a steroidal mouth rinse. All
grades of treatment-related adverse events related to hyperglycemia was reported in 22% of patients; Grade 3 or 4 hyperglycemia was
reported in 7% of patients. Gedatolisib was discontinued in less than 10% of patients.
○ For the patients in Arm D, who received the Phase 3 dosing schedule, Grade 3 and 4 treatment-emergent adverse events occurring in at
least 20% of patients were neutropenia (67%), leukopenia (22%), and stomatitis (22%). All grades of treatment-related adverse events
related to hyperglycemia was reported in 26% of patients; Grade 3 or 4 hyperglycemia was reported in 7% of patients. Gedatolisib was
discontinued in 4% of patients.
10
● Best overall response data for each arm is presented in the table below:
Prior Therapy
n (Full, response evaluable)
Study Treatment
Gedatolisib schedule
ORR1 (evaluable)
mPFS 2 , mos (range)
PFS % at 12 mos 2
Arm A
1L
CDKi- naive
31, 27
P + L + G
weekly
85%
NR
(16.9, NR)
72.1%
Total Expansion Arms
(N=103, full analysis set)
Arm B
2L+
CDKi- naive
13,13
P + F + G
weekly
77%
12.9
(7.6, 38.3)
54.5%
Arm C
2L/3L
CDKi -pretreated
32, 28
P + F + G
weekly
36%
5.1
(3.3, 7.5)
23.6%
Arm D
2L/3L
CDKi- pretreated
27, 27
P + F + G
3 wks on/1 wk off
63%
12.9
(7.4, 16.7)
53.2%
(1) ORR represents PR, except in Arm A, which had 1 CR = complete response. Responses per RECIST 1.1; (2) Includes 2 unconfirmed PR
Abbreviations: 1L= first line, 2L= second line; mos= months; NR = not reached; ORR, objective response rate; PFS, progression free survival
Source: Wesolowski 2022 SABCS
Other Gedatolisib Clinical Trials
Phase 2 Pilot Clinical Trial for HER2+/PIK3CA+ Patients
The Korean Cancer Study Group sponsored a Phase 2 pilot clinical trial to evaluate gedatolisib combined with a trastuzumab biosimilar (Herzuma®),
in patients with HER2+/PIK3CA+ metastatic breast cancers whose disease had progressed after treatment with three or more prior HER2 targeted therapy
regimens. The clinical trial commenced in December 2019 and interim efficacy data from the first 17 patients enrolled was presented at the San Antonio
Breast Cancer Symposium in December 2021. Patients received a trastuzumab biosimilar (8 mg/kg IV for 1st cycle loading dose, and then 6 mg/kg IV
every 3 weeks) plus gedatolisib (180 mg, weekly IV). The primary endpoint was objective response, a reduction of at least 30% in tumor volume by
RECIST v1.1.
As of a data cutoff date of October 30, 2021, 10 of 17 patients achieved a partial response, an ORR of 59%, and four patients had stable disease.
Fourteen of 17 patients thus received either a partial response or stable disease, resulting in a clinical benefit rate of 82%. Best responses are shown in the
following chart. The dotted lines represent the cutoff for progressive disease (>20% tumor growth) and for partial response (>30% tumor regression).
11
Best Response
* Patient whose target lesion decreased by 63% but a new leptomeningeal seeding occurred.
The duration of treatment for the 16 patients evaluated is shown in the chart below. As of the October 30, 2020 data cutoff, 16 patients (80%) remained
on therapy. Four patients discontinued treatment, one due to disease progression, one due to an adverse event of Grade 1 diarrhea, one participant decision,
and one patient being unable to undergo the required MRI imaging due to a titanium rod implant from non-treatment related worsening of scoliosis. At the
time of data cut-off, the median time on treatment for these 20 patients was 10.1 cycles (approximately 10 months) and all 10 patients who had achieved an
objective response remained on therapy assessment. At the time of the analysis, nine patients had a continuing response. The dashed lines show the
response at 3 months and 6 months.
Duration of Treatment
Phase 1 Clinical Trial in Patients with Solid Tumors
A phase 1 study conducted at the Indiana University Simon Cancer Center evaluated the safety, tolerability, pharmacokinetics and preliminary activity
of gedatolisib combined with carboplatin and paclitaxel in patients with advanced solid tumors previously who were treated with two or more prior
chemotherapies. Seventeen patients were enrolled (10 clear cell ovarian, one low-grade serous ovarian, four endometrial, and two lung cancers). The ORR
was 65% in all patients (11/17 patients: eight partial responses and three complete responses) and stable disease was 17% (3/17). Among patients with clear
cell ovarian cancer, the ORR was 80%, with three patients achieving a complete response.
12
Best Response
Active Gedatolisib Clinical Trials
Phase 3 HR+/HER2- ABC Clinical Trial (VIKTORIA-1)
In 2022, we initiated VIKTORIA-1, a Phase 3, open-label, randomized clinical trial to evaluate the efficacy and safety of gedatolisib in combination
with fulvestrant with or without palbociclib in adults with HR+/HER2- advanced breast cancer whose disease has progressed after prior CDK4/6 therapy in
combination with an aromatase inhibitor. This multi-center, international trial is expected to enroll 701 total subjects at approximately 200 clinical sites
across North America, Europe, Latin America, and Asia. The first clinical site was activated in the third quarter of 2022. The first patient was dosed in
December 2022.
The clinical trial will enable separate evaluation of subjects according to their PIK3CA status.
● Subjects who meet eligibility criteria and do not have confirmed PIK3CA mutations (WT) will be randomly assigned (1:1:1) to receive a
regimen of either gedatolisib, palbociclib, and fulvestrant (Arm A), gedatolisib and fulvestrant (Arm B), or fulvestrant (Arm C). Up to 351
subjects who are PIK3CA WT will be enrolled.
● Subjects who meet eligibility criteria and have PIK3CA mutations (MT) will be randomly assigned (3:3:1) to receive a regimen of either
gedatolisib, palbociclib, and fulvestrant (Arm D), alpelisib and fulvestrant (Arm E), or gedatolisib and fulvestrant (Arm F). Up to 350 subjects
who are PIK3CA MT will be enrolled.
The clinical trial primary endpoints are progression free survival (PFS), per RECIST 1.1 criteria, as assessed by blinded independent central review
(BICR). Two primary endpoints will be evaluated in subjects who are PI3KCA WT, and one primary endpoint will be evaluated in subjects who are
PI3KCA MT. In subjects who are PI3KCA WT, the PFS of gedatolisib in combination with palbociclib and fulvestrant (Arm A) will be compared to
fulvestrant monotherapy (Arm C), and the PFS in gedatolisib in combination with fulvestrant (Arm B) will be compared to fulvestrant monotherapy (Arm
C). In subjects who are PI3KCA MT, the PFS of gedatolisib in combination with palbociclib and fulvestrant (Arm D) will be compared to alpelisib
combined with fulvestrant (Arm E).
All subjects will receive treatment according to the assigned study arm until objective progressive disease, unacceptable toxicity, death, or withdrawal
of consent, whichever occurs first. Subjects in Arm C will have the option to receive the treatment regimen provided in Arm A or Arm B upon
radiographically confirmed disease progression. Subjects will be followed for AEs, safety laboratory testing, tumour assessment by RECIST v1.1, quality
of life, and overall survival.
13
Planned Phase 2 Gedatolisib Clinical Trials
We expect to use the CELsignia PI3K Activity Test to help support development of gedatolisib for breast cancer indications. Our internal studies
demonstrate how measurement of PI3K-involved signaling may provide a sensitive and specific method of identifying patients most likely to benefit from
PI3K inhibitors. We believe CELsignia tests uniquely enable us to pursue indications simultaneously for unselected patient populations and CELsignia
selected patient sub-groups. This approach can greatly reduce the risk of pursing an indication for a large, but unselected patient population, as we plan to
do for the initial gedatolisib indication. By combining the capabilities of CELsignia PI3K Activity Test with a potent pan-PI3K/mTOR inhibitor like
gedatolisib, we believe we are uniquely suited to maximize the probability of obtaining regulatory approval to market gedatolisib.
Accordingly, we plan to initiate a Phase 2 clinical trial to evaluate gedatolisib in combination with palbociclib and letrozole in early-stage HR+/HER2-
breast cancer patients. The tumors from all patients will be evaluated with a CELsignia PI3K Pathway Test.
Pfizer License Agreement
In April 2021, we entered into a license agreement, or the Gedatolisib License Agreement, with Pfizer pursuant to which we acquired exclusive
(including as to Pfizer) worldwide sublicensable rights to research, develop, manufacture, and commercialize gedatolisib for the treatment, diagnosis and
prevention of all diseases. Pursuant to the Gedatolisib License Agreement, we are obligated to use commercially reasonable efforts to develop and seek
regulatory approval for at least one product in the U.S. and if regulatory approval is obtained, to commercialize such product in the U.S and at least one
international major market.
We paid Pfizer a $5.0 million upfront fee upon execution of the Gedatolisib License Agreement and issued to Pfizer $5.0 million of our common stock.
We are also required to make milestone payments to Pfizer upon achievement of certain development and commercial milestone events, up to an aggregate
of $335.0 million. We will pay Pfizer tiered royalties on sales of gedatolisib at percentages ranging from the low to mid-teens, that may be subject to
deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. Unless earlier terminated, the Gedatolisib
License Agreement will expire upon the expiration of all royalty obligations. The royalty period will expire on a country-by-country basis upon the later of
(a) 12 years following the date of First Commercial Sale of such Product in such country, (b) the expiration of all regulatory or data exclusivity in such
country for such Product or (c) the date upon which the manufacture, use, sale, offer for sale or importation of such Product in such country would no
longer infringe, but for the license granted herein, a Valid Claim of a Licensed Patent Right. Capitalized terms in this paragraph have the meanings set forth
in the Gedatolisib License Agreement.
We have the right to terminate the Gedatolisib License Agreement for convenience upon 90 days’ prior written notice. Pfizer may not terminate the
agreement for convenience. Either we or Pfizer may terminate the Gedatolisib License Agreement if the other party is in material breach and such breach is
not cured within the specified cure period. In addition, either we or Pfizer may terminate the Gedatolisib License Agreement in the event of specified
insolvency events involving the other party.
Manufacturing
We rely on third parties to manufacture gedatolisib. We expect to enter into agreements with contract manufacturing organizations, or CMOs, to
produce drug substance for gedatolisib. We require all of our CMOs to conduct manufacturing activities in compliance with current good manufacturing
practice, or cGMP, requirements. We anticipate that these CMOs will have the capacity to support both clinical supply and commercial-scale production,
but we do not have any formal agreements at this time to cover commercial production. We may also elect to enter into agreements with other CMOs to
manufacture supplies of drug substance and finished drug product.
Sales and Marketing
If any of our product candidates are approved, we intend to market and commercialize them in the U.S. and select international markets, either alone or
in partnership with others. Cancer patients are managed by oncologists, medical geneticists and neurologists, and therefore we believe can be reached with
a targeted sales force.
14
Competition for Gedatolisib
The pharmaceutical industry is characterized by rapid evolution of technologies and intense competition. While we believe that our product candidates,
technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and
biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates
that we successfully develop and commercialize will compete with approved treatment options, including off-label therapies, and new therapies that may
become available in the future. Key considerations that would impact our ability to effectively compete with other therapies include the efficacy, safety,
method of administration, cost, level of promotional activity and intellectual property protection of our products. Many of the companies against which we
may compete have significantly greater financial resources and expertise than we do in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining regulatory approvals and marketing approved products.
There are several PI3K and mTOR inhibitors approved by the FDA, including Piqray and Afinitor from Novartis AG, Aliqopa from Bayer
Corporation, Copiktra from Verastem, Inc., Zydelig from Gilead Sciences, Inc. and we are aware that other companies are, or may be, developing products
for this indication, including AstraZeneca plc, BridgeBio Inc., Eli Lilly and Company, F. Hoffmann-La Roche Ltd, Kazia Therapeutics Limited, Infinity
Pharmaceuticals, Inc., Relay Therapeutics, Revolution Medicines Inc., and Takeda Pharmaceutical Company Limited. There may be additional companies
with programs suitable for addressing these patient populations that could be competitive with our efforts but that have not yet disclosed specific clinical
development plans. Smaller or early-stage companies, including oncology-focused therapeutics companies, may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These companies may also compete with us in recruiting and
retaining qualified scientific and management personnel, establishing clinical trial sites, enrolling patients in clinical trials and acquiring technologies
complementary to, or necessary for, our programs. The availability of reimbursement from government and private payors will also significantly impact the
pricing and competitiveness of our products. Our competitors may obtain FDA or other regulatory approvals for their products more rapidly than we may
obtain approvals for our product candidates, which could result in our competitors establishing a strong market position before we are able to
commercialize our product candidates.
CELsignia Development and CDx Programs
Overview
Our proprietary CELsignia diagnostic platform is the only commercially ready technology we are aware of that uses a patient’s living tumor cells to
identify the specific abnormal cellular process driving a patient’s cancer and the targeted therapy that best treats it. This enables us to identify patients
whose tumors may respond to a targeted therapy, even though they lack a previously associated molecular mutation. By identifying cancer patients whose
tumors lack an associated genetic mutation but have abnormal cellular activity a matching targeted therapeutic is designed to inhibit, we believe our
CELsignia CDx can expand the markets for a number of already approved targeted therapies. Our current CDx identifies breast and ovarian cancer patients
whose tumors have cancer drivers potentially responsive to treatment with human epidermal growth factor receptor 2-negative (HER2), mesenchymal-
epithelial transition factor (c-MET), or phosphatidylinositol 3-kinases (PI3K) targeted therapeutics.
Our CELsignia platform provides an important advantage over traditional molecular diagnostics. Current molecular diagnostics analyze fragmented
cells to obtain a snapshot of the genetic mutations present in a patient’s tumor. Using cell fragments prevents molecular diagnostics from analyzing the
dynamic cellular activities, known as cell signaling, that regulate cell proliferation or survival. Cancer can develop when critical cell signaling, regulating
physiologic activity such as cell proliferation, becomes abnormal or dysregulated. Since genetic mutations are often only weakly correlated to the
dysregulated cell signaling activity driving a patient’s cancer, a molecular diagnostic is prone to providing an incomplete diagnosis. CELsignia tests
overcome this limitation by measuring dynamic cell signaling activity in a cancer patient’s living tumor cells. When a CELsignia test detects abnormal
signaling activity, a more accurate diagnosis of the patient’s cancer driver is obtained.
We are supporting the advancement of new potential indications for four different targeted therapies, controlled by other pharmaceutical companies,
that would rely on a CELsignia CDx to select patients. Our first analytically validated and commercially ready test using our CELsignia platform, the
CELsignia HER2 Pathway Activity Test for breast cancer, diagnoses two new sub-types of HER2-negative breast cancer that traditional molecular
diagnostics cannot detect. Our internal studies show that approximately 15-20% of HER2-negative breast cancer patients have abnormal HER2 signaling
activity similar to levels found in HER2-positive breast cancer cells. As a result, these HER2-negative patients have undiagnosed HER2-driven breast
cancer and would be likely to respond to the same anti-HER2 targeted therapies only HER2-positive patients receive today. We have three interventional
clinical trials underway to evaluate the efficacy of HER2 targeted therapies in breast cancer patients selected with our CELsignia HER2 Pathway Activity
Test.
Our second CELsignia test for breast cancer evaluates independent c-Met signaling activity and its involvement with HER family signaling in HER2-
negative breast cancer tumor cells. Our internal studies show that approximately 20%-25% of HER2-negative breast cancer patients have abnormal c-Met
signaling activity that is co-activated with abnormal HER family signaling. These studies suggest that this sub-group of HER2-negative breast cancer
patients may best respond to treatment with a combination of HER family and c-Met inhibitors. We have one interventional clinical trial underway to
evaluate the efficacy of HER2 and c-Met targeted therapies, in previously treated metastatic HER2-negative breast cancer patients selected with our
CELsignia Multi-Pathway Activity Test, or CELsignia MP Test.
15
Our third CELsignia test for breast cancer evaluates PI3K signaling in HER2-negative breast cancer tumor cells. Our internal studies demonstrate how
measurement of PI3K-involved signaling may provide a more sensitive and specific method of identifying patients most likely to benefit from PI3K
inhibitors than current genetic tests that measure PI3K mutations. We intend to combine these three tests to expand the CELsignia MP Test. With this next
generation CELsignia test, we plan to provide an analysis of EGFR/HER1, HER2, HER3, c-MET, and PI3K-node involved signaling activity for each
patient tumor specimen received.
In addition, we completed development of our first CELsignia test for ovarian cancer in 2020. This test identifies a new sub-group of ovarian cancer
patients with tumors that have abnormal c-Met and HER2 signaling activity. These findings suggest that a significant sub-group of ovarian cancer patients
may respond to treatment with a combination of ErbB and c-Met inhibitors. Nearly 14,000 women a year die from ovarian cancer, a disease that has less
than a 50% five-year survival rate and a limited range of targeted therapy options. There is thus a significant unmet need for additional therapeutic options
for ovarian cancer patients. As a companion diagnostic, our CELsignia test for ovarian cancer will be intended to help pharmaceutical companies obtain
new drug indications and expand treatment options for this challenging tumor type.
Our overall commercialization strategy is to develop diagnostics that expand the patient population eligible for targeted therapies. In furtherance of this
strategy, we have been and will continue to seek collaborations with pharmaceutical companies to field clinical trials to advance the clinical development of
their targeted therapies with the eventual goal of obtaining FDA approval of a new drug indication.
CELsignia Clinical Trials
We are currently collaborating on four Phase 2 clinical trials to evaluate the efficacy of our collaboration partners’ targeted therapies in patients
selected with one of our CELsignia tests. The goal of these trials is to support the development of four potential new drug indications to treat patient groups
found responsive by our CELsignia test to their approved targeted therapies. These clinical trials include:
● FACT-1 Clinical Trial to Evaluate Efficacy of Genentech’s HER2 Targeted Therapies. We are collaborating with NSABP Foundation, Inc.
(“NSABP”) and Genentech, Inc. (“Genentech”) to evaluate the efficacy and safety of Genentech’s drugs, Herceptin (trastuzumab) and Perjeta
(pertuzumab), and chemotherapy in breast cancer patients selected with our CELsignia test. The goal is to demonstrate that patients who have an
abnormal HER2 signaling pathway, as identified by our CELsignia test, respond to treatment with a matching targeted therapy.
● FACT-2 Clinical Trial to Evaluate Efficacy of Puma’s HER2 Targeted Therapy. We are collaborating with Puma Biotechnology, Inc. (“Puma”) and
West Cancer Center to conduct a Phase 2 single-arm interventional trial to evaluate the efficacy and safety of Puma’s drug, Nerlynx (neratinib),
and chemotherapy in breast cancer patients selected with our CELsignia test. The goal of the trial is to demonstrate that triple-negative breast
cancer patients who have a hyperactive HER2 signaling tumor, as identified by the CELsignia test, respond to treatment with Nerlynx, a matching
HER2 therapy.
● FACT-5 Clinical Trial to Evaluate Efficacy of Puma’s pan-HER Inhibitor and chemotherapy. We are collaborating with University of Rochester
Wilmot Cancer Center and Puma to evaluate the efficacy and safety of Puma’s drug, Nerlynx (neratinib), and the chemotherapy capecitabine, in
previously treated metastatic HER2-negative breast cancer patients with brain metastases selected with our CELsignia HER2 Pathway Activity
Test. The goal of the trial is to demonstrate that previously treated HER2-negative metastatic breast cancer patients with brain metastases who
have hyperactive HER2 signaling tumors, as identified by the CELsignia test, respond to treatment with Nerlynx in combination with
capecitabine.
● FACT-6 Clinical Trial to Evaluate Efficacy of Novartis’s c-Met Inhibitor and Puma’s pan-HER Inhibitor. We are collaborating with MD Anderson
Cancer Center, Novartis AG, and Puma, to conduct a Phase 1/2 clinical trial. This open-label Phase 1/2 trial will evaluate the efficacy and safety of
Novartis’ c-Met inhibitor, Tabrecta (capmatinib), and Puma’s pan-HER inhibitor, Nerlynx (neratinib), in previously treated metastatic HER2-
negative breast cancer patients selected with our CELsignia MP Test. The goal of the trial is to demonstrate that previously treated HER2-negative
metastatic breast cancer patients who have hyperactive HER2 and c-Met signaling tumors, as identified by the CELsignia test, respond to
treatment with Tabrecta in combination with Nerlynx.
16
Companion Diagnostics Industry
According to the Centers for Disease Control and Prevention, cancer was the second-leading cause of death in the United States in 2020, responsible
for nearly one of every four deaths. There are many types of cancer treatment options, including surgery, radiation therapy, chemotherapy, immunotherapy,
hormone therapy, stem cell transplant, and targeted therapy. Targeted therapies are drugs or other substances that block the growth and spread of cancer by
interfering with specific molecular targets involved in the progression of cancer. Targeted therapies differ from standard chemotherapy drugs in that they
are often cytostatic (block tumor cell proliferation) rather than cytotoxic (kill tumor cells). According to the National Cancer Institute, there are currently
more than 90 approved targeted oncology therapies, some of which cost more than $100,000 per treatment course.
Diagnostic tests to detect single biomarkers are now widely used by pathologists to determine the molecular sub-type of a cancer. When a molecular
biomarker test is used to support the choice of therapy to prescribe, it is often referred to as a “companion diagnostic.” Increasing numbers of targeted
therapeutics are prescribed based on the results from a companion diagnostic test to detect the presence of a molecular biomarker. Only patients testing
positive for the biomarker are eligible to receive the associated therapy.
Companion diagnostics are becoming increasingly important to the pharmaceutical industry. The use of companion diagnostics to better match patients
to effective treatments positively impacts clinical outcomes and lowers expenditures on drugs that do not benefit patients. Stratifying the eligible patient
population to include only likely responders is particularly important when the percentage of likely responders is only a fraction of the total cancer
population. In these circumstances, narrowing the eligible patient population is often necessary to meet the clinical endpoint targets required to receive
FDA drug approval.
CELsignia Testing Opportunities
We expect to generate recurring companion diagnostic testing revenues once a CELsignia companion diagnostic-linked drug therapy is approved for
patient use. On average, we believe that the lifetime value of providing the companion diagnostic test will significantly exceed the revenue generated from
the companion diagnostic development program. We expect to offer each CELsignia test to patients at prices ranging from $4,000–$7,000, depending on
the number of pathways evaluated. No tests directly comparable to the CELsignia tests are available today to offer reference points for pricing purposes.
Pricing for several proprietary complex genomic tests, however, fall within this range and we believe this provides guidance on the amount insurance
companies are willing to pay for highly informative tests that guide patient care.
Our CELsignia Platform
We have made significant investments in research and development of our CELsignia platform. To measure dynamic cellular activity, we internally
developed two distinct but complementary technologies, which now comprise our CELsignia platform:
● our proprietary cell microenvironment; and
● our method to quantify dynamic patient cell signaling dysfunction.
We utilize our CELsignia platform to create CELsignia tests that measure specific signaling pathway activity in various tumor types.
Cell microenvironment. Previous research has shown that cancer cells extracted from a patient’s tumor share the molecular features of the primary
cancers from which they were derived and could provide an ex vivo (outside the patient) model of a patient’s tumor. The technology around tumor cell
extraction from individual patients and culturing techniques, however, has largely remained undeveloped. For instance, we are not aware of any competing
diagnostic tests that use live patient tumor cells to measure dynamic cell signaling activity. Studies on the topic have historically highlighted the challenges
of deriving a viable patient tumor cell sample from an individual patient tumor specimen.
We have developed a cell microenvironment to extract and expand viable tumor cells from fresh human tumor tissue, which meets the three critical
clinical parameters a patient-derived tumor cell sample would need to satisfy in order to meet the regulatory and clinical requirements for a diagnostic test
measuring signaling activity:
● The patient cell sample tested must reflect the starting tumor’s composition. If samples do not reflect the original tumor’s composition, test
results derived from that sample may not be representative of the patient’s tumor.
● The sample must be available for testing in less than 21 days. Clinicians generally require test results in cases of complex diseases such as
cancer within two to three weeks so they can begin treatment of their patient as soon as the initial symptoms are evaluated or a preliminary
diagnosis is made.
● At least 90% of the tumor specimens obtained from a patient must yield testable samples. Clinicians will only order tests that require a
patient specimen when they are highly likely to receive a test result.
17
Dynamic patient cell signaling quantification. The second component of our CELsignia platform involves methods to quantify specific dynamic signal
transduction events in patient derived tumor cells. The complexity of signal transduction processes is immense, and the permutations of the pathway
variables are practically unquantifiable. Current analytical methods to assess these variables use cell fragments. Point-in-time measurements are limited to
assessment of the compositional status (e.g., mutation), concentration level (e.g., protein amount), or activation status (e.g., phosphorylation) of a finite
number of signaling pathway components. A key insight underlying our technology was our observation that, no matter how sophisticated or detailed, a
point-in-time molecular profile would only provide a snapshot. These methods could not provide a complete, dynamic assessment of the signaling activity
driving a patient’s cancer. These point-in-time molecular analyses would, in many cases, only provide a weak correlation to the presence of the signaling
pathway dysfunction driving a patient’s cancer. Instead, we concluded that a complete diagnosis of cancer and an assessment of a patient’s response to
treating their disease requires measurement of the underlying activity of signaling pathways in live patient tumor cells.
To measure live real-time dynamic cell signaling activity, we utilize an impedance biosensor instrument. An impedance biosensor is an analytical
platform that converts changes in cellular activity to a measurable electrical signal. When cells are stimulated and change their function, the accompanying
changes alter the electrical signal that is measured. The output value is quantified over time and used to determine a Signaling Function Score. To
determine the activity of a specific signaling pathway, an activating agent specific to a pathway receptor is used to turn on the pathway and a corresponding
inhibitory agent specific to the pathway receptor is used to turn signaling off. When signaling pathways are stimulated in this manner, a change in the
electrical signal occurs and Signaling Function Score recorded. By relying on the principle of detecting signaling pathway activity, we believe we can
develop tests for a range of disease types and targeted therapies that affect various cellular pathways.
CELsignia Multi-Pathway Activity Test
Our CELsignia MP Test is a qualitative laboratory developed test or LDT that measures HER2, c-Met, and PI3K signaling activity in breast and
ovarian tumor cells obtained from patients previously diagnosed with cancer to determine whether or not the patients have one of the following cancer sub-
types:
1. Abnormal HER2 signaling driven cancer.
2. Abnormal c-Met and HER2 signaling driven cancer.
3. Abnormal PI3K-involved signaling driven cancer.
CELsignia’s Commercialization Strategy
Our commercial activities will target three complementary groups at various phases of the development of our CELsignia tests.
● Pharmaceutical companies. For each CELsignia test we develop to diagnose a new cancer sub-type, we intend to identify the matching targeted
therapies, either currently approved or in the investigational phase, and the manufacturer of those therapies. We intend to initiate discussions and
seek to reach development agreements with each of these pharmaceutical companies when we have verified the prevalence of the cancer sub-type
and completed successful animal studies.
● Medical and surgical oncologists. We plan to initially target key opinion leaders (KOLs) in each cancer type once we have completed the
analytical validation of a CELsignia test. This will allow us to build awareness and credibility for the CELsignia test as we are generating clinical
validation data. When a new drug indication is received that requires use of a CELsignia companion diagnostic to identify eligible patients, we
will coordinate the pharmaceutical company’s go-to-market activities with our own. This coordination will allow us to significantly leverage the
pharmaceutical company’s sales, marketing, and reimbursement activities, unlike traditional molecular diagnostic companies.
● Payors. When a new drug indication is received that requires use of a CELsignia companion diagnostic to identify eligible patients, we expect to
coordinate the pharmaceutical company’s reimbursement activities with our own.
18
Our CELsignia tests are laboratory developed tests, or LDTs, and subject to regulation under the Clinical Laboratory Improvement Amendments, or
CLIA. We completed the analytical validation of our first CELsignia test and received CLIA certification in 2016. Our current focus is to field clinical trials
with leading cancer centers in collaboration with pharmaceutical companies to demonstrate that cancer patients diagnosed with an abnormal signaling
pathway by a CELsignia test respond efficaciously to treatment with a matching targeted therapy. Once favorable efficacy data is available, we expect to
generate revenues from CELsignia tests performed in conjunction with the clinical trials a pharmaceutical company will field during the registrational
phase of our partners’ drug approval process. We also expect that the agreements we enter into with the pharmaceutical companies partnering with us on
these registrational trials will include milestone payments at initiation and completion of trials and perhaps at various other negotiated points during the
trials. We expect to generate revenue from the sale of CELsignia tests ordered by physicians upon the approval of our pharmaceutical company’s matching
drug, as a companion diagnostic. A key requirement for success of these partnerships will be clinical trial results that demonstrate the advantages of using a
CELsignia test as a companion diagnostic.
A CELsignia test would be launched upon the approval of a pharmaceutical company’s matching drug as a companion diagnostic. We would expect
physicians, typically a medical or surgical oncologist, to order our tests in conjunction with the roll-out of the pharmaceutical company’s matching drug.
The physician will prescribe a CELsignia test and coordinate provision of a patient specimen from a biopsy or surgical procedure. The fresh tissue would
then be shipped overnight directly to our laboratory where we would use our proprietary methods to extract diseased cell samples from the patient’s tissue
and perform the CELsignia tests ordered. Test results would typically be available in 10 to 14 days after receipt of the patient specimen. For each patient
sample analyzed, a Signaling Function Score would be calculated quantitatively and converted into a final qualitative result: abnormal or normal. For
patients found to have an abnormal signaling pathway, clinicians would use the results of the CELsignia test as a guide to select a targeted drug that inhibits
the abnormal signaling activity identified.
Pricing and Reimbursement
The principal groups that we expect to pay us in the future for our CELsignia tests include:
● commercial third-party payors;
● government payors, including Medicare and state Medicaid plans;
● biopharmaceutical customers;
● hospitals, cancer centers, and other institutions; and
● patients.
Adequate reimbursement will be an important factor in achieving broad clinical adoption of our CELsignia tests. At the same time, we believe broad
clinical adoption will help drive favorable reimbursement decisions. To achieve broad reimbursement coverage with commercial third-party payors and
government payors, including Medicare and Medicaid, we plan to demonstrate the economic and clinical value of our CELsignia tests to payors by
employing a multi-pronged strategy:
● Set a high bar for analytical validation. We expect to present data on the characterization of new cancer sub-types by CELsignia tests at
conferences and will seek to publish the results in peer-reviewed journals.
● Meet the evidence standards necessary to be consistent with leading clinical guidelines. We believe inclusion in leading clinical practice
guidelines plays a critical role in payers’ coverage decisions. We plan to conduct clinical validation and clinical utility studies that are consistent
with the requirements of the widely recognized National Comprehensive Cancer Network clinical practice guidelines.
● Execute an internal managed care policy and claims adjudication function as part of our core business operations. We plan to make
obtaining adequate and widespread reimbursement a critical component of our business operations. We expect to hire a team of in-house claims
processing and reimbursement specialists who will work with patients and payors to navigate the claims process and obtain maximum
reimbursement.
19
● Cultivate a network of KOLs. KOLs are able to influence clinical practice by publishing research and determining whether new tests should be
integrated into practice guidelines. We expect to collaborate with KOLs early in the development process to ensure our clinical studies are
designed and executed in a way that clearly demonstrates the benefits of our tests to physicians and payers.
● Compile a growing library of peer-reviewed studies that demonstrate the test is effective. We will seek to publish peer-reviewed articles and
review papers to help support our efforts to obtain widespread adoption and reimbursement of our CELsignia tests. In each disease area we pursue,
we intend to conduct studies in order to develop similar supporting literature.
● Reduce expenditures. We intend to build economic models to measure the financial benefits of using our CELsignia test in guiding patient
treatment and minimizing the use of drugs that will not likely have a positive impact. We plan to use the data we gather through the use of these
models as we meet with commercial third-party payors and government payors.
● Exploit efforts by commercial third-party and government payors to contain healthcare costs. A major cost reduction opportunity is to
reduce expenditures for drug courses that provide no patient benefit. Our technology will enable physicians to prescribe therapies that have
significantly higher response rates than has been the case with targeted therapies to date. Since this will lower the drug cost per responsive patient,
we believe widespread use of our CELsignia tests is consistent with payors goals of delivering health care more cost effectively.
CELsignia’s Competition
At present, we are not aware of any other companies that offer diagnostic tests that use a patient’s live tumor cells to identify the signaling pathway
driving a patient’s cancer. There are several companies focused on developing genomic or proteomic analyses of a patient’s diseased cells. Initial efforts
identified protein targets or genetic mutations, oftentimes referred to as “biomarkers,” that are associated with a disease process to enable development of
drugs more closely tailored to specific patient populations.
As tools for human genome analysis have become less expensive, a number of companies have also recently launched more complex genomic test
panels and gene expression signatures tests. These tests rely on a static measurement of molecular properties and mathematical analysis to identify
statistically significant correlations between the selected molecular properties and a clinical condition or outcome of populations of patients with the
“same” disease.
These genetic tests often have limited predictive success because they only identify some, but not all, of, the molecular and cellular conditions required
for a drug therapy to function in a patient. They may identify the presence of the genes associated with a disease, but they cannot determine how the gene
products function in the context of a particular individual.
Providers of genomic or proteomic tests include diagnostic kit manufacturers, hospitals, and independent laboratories. We do not plan to develop tests
where a molecular biomarker can identify drug responsive patients, so our current tests will not compete directly against the tests provided by these other
companies.
Diagnostics competitors that have molecular method-based tests include, but are not limited to, Foundation Medicine, Caris Life Sciences,
NeoGenomics, LabCorp, Quest, Nanostring, Paradigm, Biocept, Exosome Diagnostics, Guardant Health, Roche Diagnostics, Qiagen, Myriad, and
Genomic Health.
Principal Suppliers for CELsignia
We purchase commercially available reagents and instruments from a variety of suppliers. Our principal reagent suppliers include Bio-Techne
Corporation, Selleck Chemicals, Sigma-Aldrich, and VWR International. Our principal instrument suppliers include Agilent Technologies, Integra
Biosciences, Invitrogen, and Thermo Fisher Scientific. These items are purchased on a purchase order basis pursuant to the applicable supplier’s standard
terms and conditions. The items purchased from these suppliers are standard products sold widely to the biotechnology industry. All items purchased are
typically available within several days after an order is placed.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, manufacturing and process
discoveries and other know-how, to operate without infringing the proprietary rights of others, and to prevent others from infringing our proprietary rights.
We plan to protect our proprietary positions using a variety of methods, which include protecting current U.S. and foreign patents related to proprietary
technology, inventions and improvements and prosecuting additional U.S. and foreign patents that we determine are important to the development and
implementation of our business. For example, we, our licensors, or our collaborators currently have, or are pursuing, patents covering the composition of
matter for our drug product candidates and we plan to generally pursue patent protection covering methods-of-use for one or more clinical programs. We
also rely on trade secrets, trademarks, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our
proprietary position.
20
Gedatolisib Patents
We entered into the Gedatolisib License Agreement with Pfizer in April 2021, pursuant to which we acquired exclusive worldwide rights under Pfizer
patents and know-how to develop, manufacture and commercialize gedatolisib. We have exclusive licenses under the Gedatolisib License Agreement to
patent rights in the U.S. and numerous foreign jurisdictions relating to gedatolisib. The patent rights in-licensed under the Gedatolisib License Agreement
include 11 granted patents in the U.S. and more than 290 patents granted in foreign jurisdictions including Australia, Canada, China, France, Germany,
Spain, United Kingdom and Japan. A U.S. patent covering gedatolisib as a composition of matter has a statutory expiration date in December 2029 and a
U.S. composition of matter patent that covers the lactic acid form of gedatolisib that is currently in clinical development expires in December 2035, in each
case, not including patent term adjustment or any patent term extension, and relevant foreign counterparts.
CELsignia Patents
With respect to CELsignia, we have six issued U.S. patents and 30 issued international patents covering our diagnostic approach using cell signaling
analysis in living patient cells to guide treatment of patients with targeted therapies and cell sample preparation methods. The earliest expiration date of
patents is 2033. In addition, we have developed significant proprietary know-how and trade secrets for the various cell sample preparation and cellular
analysis methods we have developed.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We typically rely on trade secrets to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We protect trade secrets and know-
how by establishing confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and
partners. These agreements generally provide that all confidential information developed or made known during the course of an individual or entity’s
relationship with us must be kept confidential during and after the relationship. These agreements also generally provide that all inventions resulting from
work performed for us or relating to our business and conceived or completed during the period of employment or assignment, as applicable, shall be our
exclusive property. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against
misappropriation of our proprietary information by third parties.
Government Regulation
Approval of Gedatolisib and Other Drug Products in the United States
Government authorities in the U.S. at the federal, state and local level and in other countries and jurisdictions, including the EU, extensively regulate,
among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products, such as gedatolisib. Generally, before
a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each
regulatory authority and submitted for review and approved by the regulatory authority.
Overview of FDA Approval Process
In the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and
other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical
products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA
refusal to approve pending New Drug Applications, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the U.S. typically involves preclinical laboratory
and animal tests, the submission to the FDA of an investigational new drug applicable, or IND, which must become effective before clinical testing may
commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval
is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon
the type, complexity and novelty of the product or disease.
21
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and
potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good
laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about
product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive
toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the
commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial
proposed in the IND may begin.
The clinical stage of development involves the administration of the investigational product to healthy volunteers or disease-affected patients under the
supervision of qualified investigators, generally physicians not employed by, or under control of, the trial sponsor, in accordance with Good Clinical
Practices, or GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and
exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the
protocol, must be submitted to the FDA as part of an investigational new drug applicable, or IND. Furthermore, each clinical trial must be reviewed and
approved by an Institutional Review Board, or IRB, for each institution at which the clinical trial will be conducted to ensure that the risks to individuals
participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that
must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There also are
requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about most clinical trials
must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population,
phase of investigation, trial sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial.
Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in some
cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the
progress of development programs. Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
● Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose
and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action,
side effect tolerability and safety of the drug.
● Phase 2 clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time,
safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified, and a
preliminary evaluation of efficacy is conducted.
● Phase 3 clinical trials generally involve a larger number of patients at multiple sites and are designed to provide the data necessary to demonstrate
the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide
an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of
treatment is often extended to mimic the actual use of a product during marketing.
A registrational trial is a clinical trial that adequately meets regulatory agency requirements for the evaluation of a drug candidate’s efficacy and safety
such that it can be used to justify the approval of the drug. Generally, registrational trials are Phase 3 trials but may be Phase 2 trials if the trial design
provides a reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain
additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow up. In certain instances,
the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a Biologics License Application, or BLA.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events
occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time, or the FDA may impose other sanctions on various grounds, including
a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial
at its institution if the clinical trial is not being conducted in accordance with the requirements of the IRB or if the drug has been associated with
unexpected serious harm to patients. There are also requirements related to registration and reporting of certain clinical trials and completed clinical trial
results to public registries.
22
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing of the product may begin in the U.S. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data
relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission
of most NDAs is additionally subject to a substantial application user fee, currently $3,242,026 for Fiscal Year 2023, and the manufacturer and/or sponsor
under an approved NDA are also subject to annual program fees for eligible products, which are currently $393,933 for Fiscal Year 2023.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold
determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review.
The FDA has agreed to certain performance goals in the review of new drug applications. Most such applications for standard review drug products are
reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to
drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process for both
standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended
to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory
committee—typically a panel that includes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should
be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving
an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the
facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains
data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete
response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to
reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue
an approval letter. The FDA has committed to reviewing such resubmissions in two to six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA
approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks.
REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU can include,
but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the
use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval
may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling or manufacturing processes or
facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new
indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA
supplements as it does in reviewing NDAs.
U.S. Exclusivity
Upon NDA approval of a new chemical entity, or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other
NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any Abbreviated New Drug Application, or ANDA,
seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated
with a three-year period of exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change. An ANDA may be
submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a
Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.
23
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension for one patent. The allowable patent term
extension is calculated as half of the drug’s testing phase—the time between IND and NDA submission—and all of the review phase—the time between
NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval
with due diligence. The total patent term after the extension may not exceed 14 years from approval.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension
increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is
reduced by one year. The director of the U.S. Patent and Trademark Office must determine that approval of the drug covered by the patent for which a
patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment, and which demonstrate the potential to address unmet medical needs for the condition. Under
the Fast Track program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a Fast
Track drug concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for Fast Track
Designation within 60 days of receipt of the sponsor’s request.
Under the Fast Track program and the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life-threatening illness
that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical
benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack
of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement
of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug
candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval
clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-
marketing studies, will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product candidates
approved under accelerated regulations are subject to prior review by the FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with the FDA, the FDA may initiate
review of sections of a Fast Track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA
approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for
reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the Fast Track Designation may be withdrawn by the
FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
Breakthrough Therapy Designation by the FDA provides more extensive development consultation opportunities with FDA senior staff, allows for the
rolling review of the drug’s application for approval and indicates that the product could be eligible for priority review if supported by clinical data at the
time of application submission for drugs that are intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence
indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Under the
breakthrough therapy program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a
breakthrough therapy concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for
Breakthrough Therapy Designation within 60 days of receipt of the sponsor’s request.
24
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information.
Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made
public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these
trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available
information to gain knowledge regarding the progress of development programs.
Approval of Gedatolisib and Other Drug Products in the European Union
Overview
In the EU, our product candidates also may be subject to extensive regulatory requirements. As in the U.S., medicinal products can be marketed only if
a marketing authorization from the competent regulatory agencies has been obtained. Similar to the U.S., the various phases of preclinical and clinical
research in the EU are subject to significant regulatory controls.
The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP, and the related national implementing provisions of the individual EU
Member States govern the system for the approval of clinical trials in the EU. Under this system, an applicant must obtain prior approval from the
competent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical
trial at a specific trial site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by,
among other documents, an Investigational Medicinal Product Dossier or IMPD, or the Common Technical Document, with supporting information
prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU Member States and
further detailed in applicable guidance documents. All suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical
trial have to be reported to the competent national authority and the Ethics Committee of the Member State where they occurred.
The new Clinical Trials Regulation (EU) No 536/2014 came into effect in 2022. The Clinical Trials Regulation will be directly applicable in all the EU
Member States, repealing the current Clinical Trials Directive 2001/20/EC. The new Clinical Trials Regulation aims to simplify and streamline the
approval of clinical trials in the EU. The main characteristics of the regulation include: a streamlined application procedure via a single-entry point, the
“EU portal”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors;
and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent
authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Member States concerned). Part II is
assessed separately by each Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the
relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU Member State. However,
overall related timelines will be defined by the Clinical Trials Regulation.
To obtain a marketing authorization of a drug in the EU, we may submit Marketing Authorization Applications, or MAA, either under the so-called
centralized or national authorization procedures.
Centralized Procedure
The centralized procedure provides for the grant of a single marketing authorization following a favorable opinion by the European Medicines Agency,
or EMA, that is valid in all EU Member States, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for medicines
produced by specified biotechnological processes, products designated as orphan medicinal products, advanced therapy medicines (such as gene-therapy,
somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated for the treatment of specified diseases, such as
HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions and viral diseases. The centralized
procedure is optional for products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest
of public health. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops,
when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee of Medicinal Products for
Human Use, or the CHMP. Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a
major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the
accelerated assessment procedure is of 150 days, excluding stop-clocks.
25
National Authorization Procedures
There are also two other possible routes to authorize medicinal products in several EU countries, which are available for investigational medicinal
products that fall outside the scope of the centralized procedure:
● Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EU country
of medicinal products that have not yet been authorized in any EU country and that do not fall within the mandatory scope of the centralized
procedure.
● Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one EU Member State, in accordance with the
national procedures of that country. Following this, further marketing authorizations can be sought from other EU countries in a procedure
whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.
Under the above-described procedures, before granting an MAA, the EMA or the competent authorities of the Member States of the European
Economic Area, or EEA, make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and
efficacy.
EU Regulatory Exclusivity
In the EU, new products authorized for marketing (i.e., reference products) qualify for eight years of data exclusivity and an additional two years of
market exclusivity upon marketing authorization. The data exclusivity period prevents generic applicants from relying on the preclinical and clinical trial
data contained in the dossier of the reference product when applying for a generic marketing authorization in the EU during a period of eight years from the
date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic applicant from
commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU. The ten-year market
exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder
obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a
significant clinical benefit in comparison with existing therapies.
Drug Approval-Related Regulations – Rest of the World
For other countries outside of the EU and the U.S., such as countries in Eastern Europe, Latin America or Asia, the requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary from jurisdiction to jurisdiction. Additionally, the clinical trials must be
conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the
Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension
or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Regulations of CELsignia Tests
CLIA and CMS for Diagnostic
The Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, regulates all clinical
laboratory testing (except research) performed on humans in the United States through CLIA. All clinical laboratories that perform clinical lab services on
human specimens for the purpose of providing information on the diagnosis, prevention or treatment of disease must receive CLIA certification. This
covers approximately 175,000 laboratories as of 2017. Laboratories must obtain CLIA certification and demonstrate compliance with CLIA requirements
as confirmed by an inspection by CMS. We received our CLIA certification in 2016. We also had our laboratory certified by the College of American
Pathologies, or CAP, in 2016, an organization recognized by CMS as a third-party reviewer of clinical laboratories. Several states, including, among others,
New York and California, require licensure of out-of-state labs that receive specimens from the state and compliance with the state’s individual laboratory
regulations.
If our laboratory is out of compliance with CLIA requirements, we may be subject to sanctions such as suspension, limitation or revocation of our
CLIA certificate, as well as directed plan of correction, state on-site monitoring, civil money penalties, civil injunctive suit or criminal penalties. We must
maintain CLIA compliance and certification to be eligible to bill for services provided to Medicare and Medicaid beneficiaries. If we were to be found out
of compliance with CLIA program requirements and subjected to sanction, our business could be harmed. Failure to comply with state licensure laws, if
applicable, could subject us to additional sanctions imposed by state licensing authorities.
26
FDA for Diagnostics
FDA approval or clearance is not currently required for CELsignia tests offered as a stand-alone LDT test. If we are partnered with a drug company to
launch a CELsignia test as a companion diagnostic for a new drug indication, we would be required to obtain premarket approval, or PMA, in conjunction
with the pharmaceutical company seeking a new drug approval for the matching therapy. Historically, the FDA has exercised enforcement discretion with
respect to tests performed solely in a central laboratory, like the CELsignia tests or LDTs. The FDA has not required laboratories that furnish only LDTs to
comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket
clearance or premarket approval, and post-market controls).
Although the FDA proposed regulations that would apply to LDTs, the FDA decided that, at present, those regulations are not moving forward towards
approval and implementation. In mid-2014, the FDA published a draft Guidance Document describing a proposed approach for a regulatory framework for
LDTs that would have resulted in most of the high-value LDT tests marketed today eventually being required to obtain 510(k) clearances or PMAs. If
implemented, this regulatory framework would require most hospital clinical labs to abandon a number of tests they perform or to pursue regulatory
clearances or approvals to perform them. These proposals met significant resistance from Congress, the hospital industry, and independent clinical
laboratories. The FDA indicated in late 2016 that it does not intend to finalize the draft Guidance Document at this time. However, the FDA continues to
discuss potential regulatory approaches to LDTs.
Pricing and Reimbursement of our Product Candidates
Significant uncertainty exists as to the coverage and reimbursement status of any products we sell or may sell. Sales of any of our products will
depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs such as
Medicare and Medicaid, commercial health insurers, managed care organizations or pharmaceutical companies. The process for determining whether a
third-party payor will provide coverage for a test sometimes is separate from the process for setting the price of a drug product or for establishing the
reimbursement rate that a payor will pay for the drug product. Third-party payors may limit coverage to specific testing products on an approved list, which
might not include all of the tests available for a particular indication.
In order to obtain coverage and reimbursement for any product, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the medical necessity and cost-effectiveness of the test. Whether or not we conduct such studies, our products may not be considered medically necessary
or cost-effective. A third-party payor’s decision to provide coverage for a test does not imply that an adequate reimbursement rate will be approved.
Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and adequate
reimbursement, for the product. Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate
return on our investment in product development.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of tests and drugs have been a
focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity
and reviewing the cost-effectiveness of testing products, drug products and medical services and questioning safety and efficacy. If these third-party payors
do not consider our products to be cost-effective compared to other available tests, they may not cover our products or, if they do, the level of payment may
not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest
in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on
reimbursement. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could
limit payments for our testing products or drugs that require use of our testing products and could adversely affect our net revenue and results.
We expect to see continued focus by Congress and the Biden Administration on regulating pricing, which could result in legislative and regulatory
changes designed to control costs. For example, in August 2022, the IRA was signed into law, which, among other things, requires manufacturers of certain
drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price
increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in
2025). We continue to evaluate the impact of the IRA on our business, operations and financial condition and results as the full effect of the IRA on our
business and the pharmaceutical industry remains uncertain. In addition, changes to the Medicaid program or the federal 340B drug pricing program, which
imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities, could have a material impact on our
business.
Pricing and reimbursement schemes vary widely from country to country. Some countries may require the completion of additional studies that
compare the cost-effectiveness of a particular test to currently available tests. The downward pressure on healthcare costs in general, particularly
prescription drugs and testing products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In
addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any
country that has price controls or reimbursement limitations for testing products may not allow favorable reimbursement and pricing arrangements for any
of our products.
Coverage policies, third-party reimbursement rates and pricing regulation may change at any time.
27
Other Healthcare Laws
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the
U.S. in addition to the FDA, including CMS, the HHS Office of Inspector General and HHS Office for Civil Rights, other divisions of the HHS and the
Department of Justice.
Healthcare providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products for which we
obtain marketing approval. Our current and future arrangements with third-party payors, healthcare providers and physicians may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
which we market, sell and distribute our drug and diagnostic products. In the U.S., these laws include, without limitation, state and federal anti-kickback,
false claims, physician transparency, and patient data privacy and security laws and regulations, including but not limited to those described below.
The U.S. federal Anti-Kickback Statute, or AKS, prohibits, among other things, any person or entity from knowingly and willfully offering, paying,
soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or
arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare,
Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The AKS has been
interpreted to apply to arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers, purchasers, formulary
managers and beneficiaries on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common
activities from prosecution, the exceptions and safe harbors are drawn narrowly. Failure to meet all of the requirements of a particular applicable statutory
exception or regulatory safe harbor does not make the conduct per se illegal under the AKS. Instead, the legality of the arrangement will be evaluated on a
case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean
that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.
In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Moreover, a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal civil
False Claims Act. On November 20, 2020, the Office of Inspector General, or OIG finalized further modifications to the AKS. Under the final rule, OIG
added safe harbor protections under the AKS for certain coordinated care and value-based arrangements among clinicians, providers, and others. The final
rule (with some exceptions) became effective January 19, 2021. We continue to evaluate what effect, if any, this rule will have on our business.
In addition, under a federal law directed at “self-referral,” commonly known as the “Stark Law,” there are prohibitions, with certain exceptions, on
referrals for certain designated health services, including laboratory services, that are covered by the Medicare and Medicaid programs by physicians who
personally, or through a family member, have an investment or ownership interest in, or a compensation arrangement with, an entity performing the tests.
The prohibition also extends to payment for any testing referred in violation of the Stark Law. A person who engages in a scheme to circumvent the Stark
Law’s referral prohibition may be fined up to $100,000 for each such arrangement or scheme. In addition, any person who presents or causes to be
presented a claim to the Medicare or Medicaid programs in violation of the Stark Law is subject to civil monetary penalties of up to $15,000 per bill
submission, an assessment of up to three times the amount claimed and possible exclusion from participation in federal governmental payor programs. Bills
submitted in violation of the Stark Law may not be paid by Medicare or Medicaid, and any person collecting any amounts with respect to any such
prohibited bill is obligated to refund such amounts. Many states have comparable laws that are not limited to Medicare and Medicaid referrals.
Furthermore, we could be held liable under the federal False Claims Act, which imposes civil penalties, including through civil whistleblower or qui
tam actions, against individuals or entities (including manufacturers) for, among other things, knowingly presenting, or causing to be presented to federal
programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent, claims for items or services not provided as claimed,
or claims for medically unnecessary items or services. This could apply even if we are not submitting claims directly to payors as would be the case with
drug products. The government may deem manufacturers of such products to have “caused” the submission of false or fraudulent claims by, for example,
providing inaccurate billing or coding information to customers or promoting a product off-label. Several biopharmaceutical, medical device and other
healthcare companies have been prosecuted under federal false claims and civil monetary penalty laws for, among other things, allegedly providing free
product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for
causing false claims to be submitted because of the companies’ marketing of products for unapproved (e.g., or off-label), and thus non-covered, uses. In
addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to
a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
28
Our future marketing and activities relating to the reporting of wholesaler or estimated retail prices for our products, if approved, the reporting of
prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the
sale and marketing of our product candidates, are subject to scrutiny under these laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among
other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses,
representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-
party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a
healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the AKS, a person or entity does not need to
have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare
providers. The Affordable Care Act, or the ACA, imposed, among other things, new annual reporting requirements through the Physician Payments
Sunshine Act for covered manufacturers for certain payments and “transfers of value” provided to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers
such as physician assistants and nurse practitioners. Failure to submit timely, accurately and completely the required information for all payments, transfers
of value and ownership or investment interests may result in civil monetary penalties. Covered manufacturers must submit reports by the 90th day of each
subsequent calendar year and the reported information is publicly made available on a searchable website.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing
regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013, impose specified requirements relating to the privacy, security and
transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made
HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive,
maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity, although it is unclear that we
would be considered a “business associate” in the normal course of our business. HITECH also increased the civil and criminal penalties that may be
imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.
In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and may not have the same requirements, thus complicating compliance efforts. See “European Data Collection” below for a discussion of data
privacy and security enactments of the EU.
For example, California’s Consumer Privacy Act, or CCPA, went into effect in January 2020, and the California Attorney General has since
promulgated final regulations. The law provides broad rights to California consumers with respect to the collection and use of their personal information
and imposes data protection obligations on certain businesses. While the CCPA does not apply to protected health information that is subject to HIPAA or
personal information collected, used or disclosed in research, as defined by federal law, the CCPA may still affect our business activities. Moreover, on
November 3, 2020, California voters passed the California Privacy Rights Act, or CPRA, under a ballot initiative. The CPRA amends the existing CCPA to
include new consumer rights and additional data protection obligations. The new data protection requirements under the CPRA apply to information
collected on or after January 1, 2022. With the promulgation of final regulations, the California State Attorney General has commenced enforcement
actions against CCPA violators. The uncertainty surrounding the implementation of CCPA and the amendments under the CPRA exemplifies the
vulnerability of our business to the evolving regulatory environment related to personal data and protected health information. The California law further
expands the need for privacy and process enhancements and commitment of resources in support of compliance. Moreover, more than ten states have
proposed bills in the last year with provisions similar to the CCPA and CPRA. It is likely that other states will pass laws similar to the CCPA and the CPRA
in the near future and a federal data protection law may also be on the horizon.
29
Similar state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services. Such laws are generally broad and are enforced by various state agencies and private
actions. Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition
to items and services reimbursed under Medicaid and other state programs. Some state laws require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the relevant federal government compliance guidance, and require drug manufacturers to
report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing.
In order to sell products, we must also comply with state laws, including those that require the registration of manufacturers and wholesale distributors
of drug and biological products. These include, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers
or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree
of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing
product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to
establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials
and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain
physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing
practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in
light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between
healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or
any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines,
disgorgement, contractual damages, reputational harm, diminished profits and future earnings, imprisonment, exclusion of drugs from government funded
healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, as well as additional reporting obligations and
oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of
which could adversely affect our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or entities
with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or
administrative sanctions, including exclusions from government funded healthcare programs. Ensuring business arrangements comply with applicable
healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource consuming and can divert a
company’s attention from the business.
European Data Collection
The collection and use of personal health data in or arising from the EU are governed by the provisions of the Data Protection Directive, and the
General Data Protection Regulation, or GDPR. This directive imposes several requirements relating to the consent of the individuals to whom the personal
data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and
the security and confidentiality of the personal data. The Data Protection Directive and GDPR also impose strict rules on the transfer of personal data out of
the EU, to the U.S. Failure to comply with the requirements of the Data Protection Directive, the GDPR and the related national data protection laws of the
EU Member States may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the EU and substantial
fines for breaches of the data protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we
process, including in respect of clinical trials, and we may be required to put in place additional mechanisms ensuring compliance with the new data
protection rules. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.
30
Current and Future Legislation
In the U.S. and other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare
system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to
profitably sell any product candidates. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may
result in more rigorous coverage criteria and additional downward pressure on the price that we, or any collaborators, may receive.
The ACA, for example, revised the methodology by which rebates owed by manufacturers for covered outpatient drugs are calculated under the
Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to utilization of covered drugs dispensed to individuals enrolled in Medicaid
managed care organizations and subjected manufacturers to new annual fees for certain branded prescription drugs. As the price of our test may be included
in the reimbursement rates for certain drugs, this could significantly impact our pricing. Even if favorable coverage and reimbursement status is attained for
one or more products, less favorable coverage policies and reimbursement rates may be implemented in the future.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we
expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the ACA are currently undergoing
legal and constitutional challenges in the U.S. Supreme Court, and the Trump Administration issued various Executive Orders which eliminated cost
sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals,
healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Additionally, Congress has introduced several pieces of
legislation aimed at significantly revising or repealing the ACA. In December 2018, the CMS published a final rule permitting further collections and
payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome
of the federal district court litigation regarding the method CMS uses to determine this risk adjustment. Since then, the ACA risk adjustment program
payment parameters have been updated annually. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot
predict what affect further changes to the ACA would have on our business, especially given the new Biden Administration.
Additionally, other federal health reform measures have been proposed and adopted in the U.S. since the ACA was enacted:
● The Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach
required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate
reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative
amendments to the statute, including the BBA, will remain in effect through 2027, unless additional Congressional action is taken. However,
pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and subsequent legislation, these Medicare sequester
reductions are suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would
extend this suspension until the end of the pandemic.
● The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years.
Further, there has been heightened governmental scrutiny over the manner in which companies set prices for their products, which have resulted in
several recent Congressional inquiries and proposed and enacted bills designed to, among other things, bring more transparency to product pricing, review
the relationship between pricing and patient programs, and reform government program reimbursement methodologies for products. In addition, the U.S.
government, state legislatures, and foreign governments have shown significant interest in implementing cost containment programs, including price-
controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of
government paid healthcare costs.
31
Individual states in the U.S. have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Congress and the Biden administration have
each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the U.S. have also been
increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
Other Regulatory Requirements
Our operations use small amounts of hazardous materials in research and development and generate regulated medical waste in the normal course of
performing our CELsignia tests. This subjects us to a variety of federal, state and local environmental and safety laws and regulations. Some of the
regulations under the current regulatory structure provide for strict liability, holding a party potentially liable without regard to fault or negligence. We
could be held liable for damages and fines as a result of our, or others’, business operations should contamination of the environment or individual
exposure to hazardous substances occur. We cannot predict how changes in laws or development of new regulations will affect our business operations or
the cost of compliance.
Impact of COVID-19 on our Business
As a result of the COVID-19 pandemic, we experienced delays in the enrollment of patients in our ongoing FACT-1 and FACT-2 clinical trials. While
the COVID-19 pandemic has significantly subsided, future outbreaks or variants of the virus may cause additional delays in our clinical trial work.
Corporate History
We were organized as a Minnesota limited liability company in 2011 and commenced operations in 2012. On September 15, 2017, we converted from
a Minnesota limited liability company into a Delaware corporation and changed our name from Celcuity LLC to Celcuity Inc.
Employees and Labor Relations
As of December 31, 2022, we had 45 full-time employees, most of which were engaged in research and development activities. None of our employees
are currently represented by a labor union or covered by a collective bargaining agreement and we believe that our relations with our employees are good.
During 2022, our voluntary turnover rate was approximately 14%.
32
ITEM 1A. Risk Factors
Risk factors that could cause actual results to differ from our expectations and that could negatively impact our financial condition and results of
operations are discussed below and elsewhere in this Annual Report. Additional risks and uncertainties not presently known to us or that are currently not
believed to be significant to our business may also affect our actual results and could harm our business, financial condition and results of operations. If
any of the risks or uncertainties described below or any additional risks and uncertainties actually occur, our business, results of operations and financial
condition could be materially and adversely affected.
Risks Relating to Our Business
We have a limited operating history and we may never generate revenue or profit.
We are a clinical-stage biotechnology company that commenced activities in January 2012. We only have a limited operating history and our business
plan has not been tested. Since inception, we have had no revenue and have incurred significant operating losses. We have financed our operations
primarily through equity and debt offerings. To generate revenue and become and remain profitable, we need to develop and commercialize gedatolisib
pursuant to our license agreement with Pfizer and successfully complete our existing clinical trial collaborations and cultivate partnerships with
pharmaceutical companies. We must also build operational and financial infrastructure to support commercial operations, train and manage employees, and
market and sell our anticipated drug products and our CELsignia tests (as a companion diagnostic and/or as a stand-alone test).
We may never succeed in any of these activities and, even if we do, we may never generate revenue that is sufficient to achieve profitability. We expect
to continue to incur significant expenses and operating losses for the foreseeable future, and the net losses we incur may fluctuate significantly from quarter
to quarter. Our failure to become and remain profitable would decrease our value and could impair our ability to raise capital, maintain or expand our
research and development efforts, expand our business, or continue our operations.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize our integrated therapeutic
(Rx) and companion diagnostic (CDx) strategy.
We may require additional capital to finance capital expenditures and operating expenses over the next several years as we launch our integrated
therapeutic and companion diagnostic strategy and expand our infrastructure, commercial operations and research and development activities. We may seek
to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements. Additional funding may not be available to us
on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued may also
provide for rights, preferences or privileges senior to those of holders of our existing securities. The incurrence of additional indebtedness or the issuance of
certain equity securities could result in increased fixed payment obligations and could also include restrictive covenants, such as limitations on our ability
to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions
that could adversely affect our ability to conduct our business. In the event that we enter into collaborations or licensing arrangements to raise capital, we
may be required to accept unfavorable terms. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or
eliminate one or more research and development programs or selling and marketing initiatives. In addition, we may have to work with a partner on one or
more of our products or market development programs, which could lower the economic value of those programs to our company.
We will be dependent on our ability to attract and retain key personnel.
Our operations will be materially dependent upon the services of our officers and key employees, including Brian F. Sullivan, our Chief Executive
Officer, and Dr. Lance G. Laing, our Chief Science Officer. Successful implementation of our business plan will also require the services of other
consultants and additional personnel. We cannot assure you that we will be able to attract and retain such persons as employees, independent contractors,
consultants or otherwise. If we are not able to attract individuals with the skills required for our business, or if we lose the services of either Mr. Sullivan or
Dr. Laing, we may be unable to successfully implement our business plan.
33
The COVID-19 pandemic may materially and adversely impact our business, including ongoing clinical trials.
The outbreak of COVID-19 and government measures taken in response have had a significant impact on the global economy, with healthcare systems
particularly affected. As a result of the COVID-19 outbreak and related public health measures, we have and may in the future experience disruptions that
could materially and adversely impact our clinical trials, business, financial condition and results of operations. Potential disruptions include but are not
limited to:
● delays or difficulties in enrolling patients in clinical trials and obtaining the results of completed clinical trials;
● increased rates of patients withdrawing from clinical trials following enrollment as a result of quarantine or concerns about COVID-19;
● diversion of healthcare resources away from the conduct of clinical trials;
● delays in prospective clinical trial collaborations with pharmaceutical companies and sponsors;
● interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;
● limitations on our ability to recruit and hire key personnel due to our inability to meet with candidates because of travel restrictions; and
● limitations on employee resources that would otherwise be focused on the conduct of clinical trials and research as a result of focus addressing
COVID-19 mitigation and loss of productivity from remote work.
All of the effects of COVID-19 described herein are expected to apply to any future recurrences of COVID-19 and any other pandemics that may occur
in the future.
Risks Related to Our Drug Product, Gedatolisib
Our future strategy is dependent on the success of our initial drug product, gedatolisib, as well as other drug products we may develop. If we are unable
to successfully complete clinical development of, obtain regulatory approval for or commercialize our drug products, or if we experience delays in
doing so, our business will be materially harmed.
To date, we have not yet completed any registrational clinical trials or the development of any drug products. Our future success and ability to generate
revenue from our drug products, which we do not expect will occur for several years, if ever, is dependent on our ability to successfully develop, obtain
regulatory approval for and commercialize one or more drug products. We may not have the financial resources to continue development of, or to modify
existing or enter into new collaborations for, a drug product if we experience any issues that delay or prevent regulatory approval of, or our ability to
commercialize, our drug products, including:
● our inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our drug products are safe and
effective;
● insufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;
● negative or inconclusive results from our preclinical studies, clinical trials or the clinical trials of others for drug products similar to ours, leading
to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon a program;
● product-related adverse events experienced by subjects in our clinical trials or by individuals using drugs or therapeutic biologics similar to our
drug products;
● delays in submitting applications, or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial or a
suspension or termination of a clinical trial once commenced;
● conditions imposed by the FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials;
● poor effectiveness of our drug products during clinical trials;
● better than expected performance of control arms, such as placebo groups, which could lead to negative or inconclusive results from our clinical
trials;
● delays in enrolling subjects in clinical trials;
● high drop-out rates of subjects from clinical trials;
● inadequate supply or quality of drug products or other materials necessary for the conduct of our clinical trials;
● greater than anticipated clinical trial or manufacturing costs;
● unfavorable FDA or comparable regulatory authority inspection and review of a clinical trial site;
● failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a
timely manner, or at all;
● delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical
testing generally or with respect to our therapies in particular; or
● varying interpretations of data by the FDA and comparable foreign regulatory authorities.
34
We were not involved in the early development of gedatolisib; therefore, we are dependent on third parties having accurately generated, collected,
interpreted and reported data from certain preclinical and clinical trials of gedatolisib.
We had no involvement with or control over the initial preclinical and clinical development of gedatolisib. We are dependent on third parties having
conducted their research and development in accordance with the applicable protocols and legal, regulatory and scientific standards; having accurately
reported the results of all preclinical studies and clinical trials conducted with respect to such drug product; and having correctly collected and interpreted
the data from these trials. If these activities were not compliant, accurate or correct, the clinical development, regulatory approval or commercialization of
our drug product will be adversely affected.
As an organization, we have never successfully completed any registrational clinical trials, and we may be unable to do so for any drug candidates we
may develop.
We will need to successfully complete registrational clinical trials in order to obtain the approval of the FDA or comparable foreign regulatory
authorities to market our drug products. Carrying out clinical trials, including later-stage registrational clinical trials, is a complicated process. As an
organization, we have not previously completed any registrational clinical trials. In order to do so, we will need to build and expand our clinical
development and regulatory capabilities, and we may be unable to recruit and train qualified personnel. We also expect to continue to rely on third parties
to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory
requirements, we may not be able to obtain regulatory approval of or commercialize any potential product candidates. Consequently, we may be unable to
successfully and efficiently execute and complete necessary clinical trials in a way that leads to submission and approval of our drug products. We may
require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approval of any drug products that we develop.
Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our drug products.
If we encounter difficulties enrolling patients in any of our clinical trials, our clinical development activities could be delayed or otherwise adversely
affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of
patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons,
including:
● the patient eligibility and exclusion criteria defined in the protocol;
● the size of the patient population required for analysis of the clinical trial’s primary endpoints;
● the proximity of patients to clinical trial sites;
● the design of the clinical trial;
● our ability to recruit clinical trial investigators with the appropriate competencies and experience, and the ability of these investigators to identify
and enroll suitable patients;
● perception of the safety profile of our drug products;
● our ability to obtain and maintain patient consents; and
● the risk that patients enrolled in clinical trials will drop out of the trials before completion.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our clinical trials, which could prevent completion of
these trials and adversely affect our ability to advance the development of our product candidates.
Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in
completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
To obtain the requisite regulatory approvals to commercialize any drug products, we must demonstrate through extensive preclinical studies and
clinical trials that such drug product is safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is
inherently uncertain. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a
clinical trial can fail at any stage of testing.
35
Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical
trials to later clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed
their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products. Additionally, we
are conducting and plan to conduct some open-label trials, where both the patient and investigator know whether the patient is receiving the investigational
product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate
and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as
patients in those trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive
their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be
subject to an “investigator bias” where those assessing and reviewing the outcomes of the clinical trials are aware of which patients have received treatment
and may interpret the information of the treated group more favorably given this knowledge. Where a randomized, placebo-controlled clinical trial is
designed to allow enrolled subjects to cross-over to the treatment arm, there may be a risk of inadvertent unblinding of subjects prior to cross-over, which
may limit the clinical meaningfulness of those data and may require the conduct of additional clinical trials. As such, the results from an open-label trial
may not be predictive of future clinical trial results with any of our product candidates for which we include an open-label clinical trial when studied in a
controlled environment with a placebo or active control.
Successful completion of clinical trials is a prerequisite to submitting a new drug application, or NDA, to the FDA and similar marketing applications
to comparable foreign regulatory authorities for each drug product and, consequently, the ultimate approval and commercial marketing of any drug
products. We may experience delays in initiating or completing clinical trials and preparing for regulatory submissions. We also may experience numerous
unforeseen events during, or as a result of, any future clinical trials that we could conduct that could delay or prevent our ability to receive marketing
approval or commercialize our current product candidates or any future product candidates. Our costs will increase if we experience delays in clinical
testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be reassigned or will be completed on
schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our
product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully
commercialize our product candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our
business, financial condition and results of operations significantly.
For a new drug to be approved for marketing, the FDA and other regulatory authorities must determine that the drug is safe and effective. Because all
drugs can have adverse effects, the data from our Phase 3 clinical study must demonstrate to the satisfaction of the FDA and other health authorities
that the benefits of gedatolisib in combination with palbociclib and fulvestrant, or gedatolisib in combination with fulvestrant, outweigh its risks.
Failure to demonstrate sufficient magnitude of benefit, even if the benefit is found to be statistically significant, may not support regulatory approval.
If a drug meets its primary efficacy endpoint objective in a Phase 3 clinical trial, and the drug sponsor has additional nonclinical and clinical data
required by the FDA or other regulatory authorities, the drug sponsor may submit an NDA seeking marketing approval. Upon submission of an NDA, these
health authorities perform a benefit-risk assessment that considers the strength and quality of evidence available and takes remaining uncertainties into
account. These considerations include an assessment of the strengths and limitations of clinical trials, including design, and potential implications for
assessing drug efficacy, the magnitude of benefit and interpretation of clinical importance, the benefit attributed to the drug when studied in combination
with other therapies, and the clinical relevance of the study endpoints. We have sought feedback from the FDA and other regulatory authorities on the
design of our Phase 3 clinical trial with the goal of addressing these considerations in the clinical trial’s design. However, due to the complexity of clinical
trials, the uncertainty of outcomes, and the uncertainty of how the FDA and other regulatory authorities may balance benefits and risks in their review of an
NDA, it may not be practical or possible to address all benefit-risk assessment considerations in a Phase 3 clinical trial so that sufficient evidence is
generated to support a marketing approval, even if the primary endpoint objective is achieved. The FDA or other regulatory authorities may require us to
redesign or conduct additional unplanned clinical trials before granting any approval and we may not get approval at all. If we are required to conduct
additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete
clinical trials or other testing of our product candidates, or if the results of these trials or tests are not positive or are only modestly positive or if there are
safety concerns, we may:
● be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;
● obtain approval for indications or patient populations that are not as broad as intended or desired;
● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
36
● be subject to changes in the way the product is administered;
● be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
● have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a REMS or
through modification to an existing REMS;
● be sued; or
● experience damage to our reputation.
The successful development of biopharmaceuticals is highly uncertain.
Successful development of biopharmaceuticals is highly uncertain and is dependent on numerous factors, many of which are beyond our control.
Product candidates that appear promising in the early phases of development may fail to reach the market for several reasons including, among other
things, that clinical trial results may show the product candidates to be less effective than expected or to have unacceptable side effects or toxicities; we
may fail to receive the necessary regulatory approvals or there may be a delay in receiving such approvals; or the proprietary rights of others and their
competing products and technologies that may prevent our product candidates from being commercialized.
The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory
authority varies significantly from one drug product to the next and from one country to the next and may be difficult to predict. Even if we are successful
in obtaining marketing approval, commercial success of any approved products will also depend in large part on the availability of coverage and adequate
reimbursement from third-party payors, including government payors such as the Medicare and Medicaid programs and managed care organizations in the
U.S. or country specific governmental organizations in foreign countries, which may be affected by existing and future healthcare reform measures
designed to reduce the cost of healthcare. Third-party payors could require us to conduct additional studies, including post-marketing studies related to the
cost effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. If government and other healthcare payors
were not to provide coverage and adequate reimbursement for our products once approved, market acceptance and commercial success would be reduced.
In addition, if any of our drug products receive marketing approval, we will be subject to significant post-approval regulatory obligations. In addition,
there is always the risk that we, a regulatory authority or a third party might identify previously unknown problems with a product post-approval, such as
adverse events of unanticipated severity or frequency. Compliance with these requirements is costly, and any failure to comply or other issues with our drug
products post-approval could adversely affect our business, financial condition and results of operations.
We face significant competition from other biopharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other
compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies,
established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have
substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing
organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly as they develop
novel approaches to treating disease indications that our product candidates are also focused on treating. Established pharmaceutical companies may also
invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that
we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in
our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital
for investment in these industries. Our competitors, either alone or with collaboration partners, may succeed in developing, acquiring or licensing on an
exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may
develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key
competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability,
convenience of use, price and reimbursement.
37
Even if we obtain regulatory approval of drug products, the availability and price of our competitors’ products could limit the demand and the price we
are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by
price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other
new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.
Even if any drug product we develop receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-
party payors and others in the medical community necessary for commercial success.
If any future drug product we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may
nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If the product
candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become
profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, will depend on a number of factors, including:
● efficacy and potential advantages compared to other treatments;
● the ability to offer our products, if approved, for sale at competitive prices;
● convenience and ease of administration compared to other treatments;
● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
● the strength of marketing and distribution support;
● the ability to obtain sufficient third-party coverage, market access and adequate reimbursement; and
● the prevalence and severity of any side effects.
Risks Related to Intellectual Property for Gedatolisib
We depend on intellectual property licensed from third parties, including from Pfizer for our lead product candidate, and termination of this license
could result in the loss of significant rights, which would harm our business.
We are dependent on patents, know-how and proprietary technology, both our own and licensed from others. All patents covering gedatolisib and any
combination therapies using our product candidates are licensed from third parties. Any termination of a product license could result in the loss of
significant rights and would cause material adverse harm to our ability to commercialize our product candidates.
Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including:
● the scope of rights granted under the license agreement and other interpretation-related issues;
● whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing
agreement;
● our right to sublicense patent and other rights to third parties under collaborative development relationships;
● our diligence obligations with respect to the use of licensed technology in relation to our development and commercialization of our product
candidates and what activities satisfy those diligence obligations; and
● the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our
partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected product candidates.
We are generally also subject to all of the same risks with respect to protection of intellectual property that we own, as we are for intellectual property
that we license. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could materially suffer.
38
If we fail to comply with our obligations under our patent license with Pfizer, we could lose license rights that are important to our business.
We are a party to a license agreement with Pfizer pursuant to which we in-license key patents for gedatolisib. This license imposes various diligence,
milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, Pfizer may have the right to terminate the
license, in which event we would not be able to develop or market the products covered by such licensed intellectual property. We may have limited control
over the maintenance and prosecution of these in-licensed rights, activities or any other intellectual property that may be related to our in-licensed
intellectual property. For example, we cannot be certain that such activities by these licensors have been or will be conducted in compliance with applicable
laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We have limited control over the manner in which
our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual
property that is licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than had we conducted
them ourselves.
We may not be successful in obtaining or maintaining necessary rights to develop any future product candidates on acceptable terms.
Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our
business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license any
compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary or important to our
business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which could harm our business. We
may need to cease use of the compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative
approaches that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we were able to
develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors
access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement
technology.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established, or have
greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or
attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash
resources and greater clinical development and commercialization capabilities. There can be no assurance that we will be able to successfully complete
such negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to acquire.
Risks Related to Government Regulation for Gedatolisib
We may not obtain the necessary regulatory approvals to commercialize our product candidate.
We will need FDA approval to commercialize our product candidate in the U.S. In order to obtain FDA approval, we must submit to the FDA a new
drug application, or NDA, demonstrating that the drug product is safe for humans and effective for its intended use. This demonstration requires significant
research and animal tests, which are referred to as pre-clinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the
FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the drug product and requires substantial
resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in a drug that the FDA
considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require us to conduct
additional pre-clinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government
regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining
regulatory approvals may delay commercialization of, and our ability to derive product revenues from, our drug product; impose costly procedures on us;
or diminish any competitive advantages that we may otherwise enjoy. Even if we comply with all FDA requests, the FDA may ultimately reject our NDA.
We cannot be sure that we will ever obtain regulatory clearance for our drug product. Failure to obtain FDA approval of our drug product will severely
undermine our business by reducing our number of salable products and, therefore, corresponding product revenues.
The FDA or comparable foreign regulatory authorities may disagree with our regulatory plan for our product candidates.
The general approach for FDA approval of a new drug is dispositive data from one or more well-controlled Phase 3 clinical trials of the product
candidate in the relevant patient population. Phase 3 clinical trials typically involve a large number of patients, have significant costs and take years to
complete.
39
Our clinical trial results may not support approval of our product candidates. In addition, our product candidates could fail to receive regulatory
approval, or regulatory approval could be delayed, for many reasons, including the following:
● the FDA or comparable foreign regulatory authorities may disagree with the dosing regimen, design or implementation of our clinical trials;
● we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe
and effective for any of their proposed indications;
● we may encounter safety or efficacy problems caused by the COVID-19 pandemic;
● the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for
approval;
● we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
● the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
● the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign
regulatory authorities to support the submission of an NDA or other comparable submission in foreign jurisdictions or to obtain regulatory
approval in the U.S. or elsewhere;
● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial supplies; and
● the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
Breakthrough Therapy Designation or Fast Track Designation from the FDA may not actually lead to a faster development or regulatory review or
approval process.
If a drug is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical
needs for this condition, the product sponsor may apply for Fast Track Designation. The designation offers the opportunity for frequent interactions with
the FDA to discuss the drug’s development plan and to ensure collection of appropriate data needed to support drug approval, as well as eligibility for
submission of a New Drug Application.
In addition, a drug may receive Breakthrough Therapy Designation if it is intended, alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The benefits
of Breakthrough Therapy Designation include more intensive guidance from the FDA on an efficient development program, access to a scientific liaison to
help accelerate review time, and potential eligibility for priority review if relevant criteria are met. This designation can expedite the development and
regulatory review of an investigational medicine that is intended to treat a serious or life-threatening condition.
Both Fast Track and Breakthrough Therapy Designations are within the discretion of the FDA. While the FDA has granted both designations to our
lead drug candidate, gedatolisib, such designations may not result in a faster development process, review or approval compared to products considered for
approval under conventional FDA procedures, and neither designation assures ultimate approval by the FDA. In addition, the FDA may later decide that
the product no longer meets the qualification conditions and may rescind either or both such designations.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or
maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative
effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, a comparable foreign
regulatory authority must also approve the manufacturing, marketing and promotion of the product candidate in those countries.
Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those
in the U.S., including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory
authorities in other jurisdictions. In many jurisdictions outside the U.S., a product candidate must be approved for reimbursement before it can be approved
for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
40
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the U.S. have requirements for
approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and
compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction
of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing
approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Even if we receive regulatory approval of any product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our product candidates.
If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,
advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-marketing
information, including both federal and state requirements in the U.S. and requirements of comparable foreign regulatory authorities. In addition, we will
be subject to continued compliance with requirements for any clinical trials that we conduct post-approval.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements.
Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including
manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product
may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and
surveillance to monitor the safety and efficacy of the product candidate. Certain endpoint data we hope to include in any approved product labeling also
may not make it into such labeling, including exploratory or secondary endpoint data such as patient-reported outcome measures. The FDA may impose
consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product
reaches the market. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or
frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to
the approved labeling to add new safety information, imposition of post-marketing studies or clinical trials to assess new safety risks or imposition of
distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
● restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary or mandatory product
recalls;
● fines, warning letters or holds on clinical trials;
● refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license
approvals;
● product seizure or detention or refusal to permit the import or export of our product candidates; and
● injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only
for the approved indications and in accordance with the provisions of the approved label. The policies of the FDA and comparable foreign regulatory
authorities may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action,
either in the U.S. or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we
are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain
profitability.
41
If we commercialize any product candidates, we will be subject to U.S. and foreign governmental regulations as well as private payor policies that
mandate price controls or limitations on patient access to our products or establish prices paid by government entities or programs for our products.
Our business, and our future results could be adversely affected by changes in such regulations.
Government and private payors routinely seek to manage utilization and control the costs of our products, and there is considerable public and
government scrutiny of pharmaceutical pricing. Efforts by states and the federal government to regulate prices or payment for pharmaceutical products,
including proposed actions to facilitate drug importation, limit reimbursement to lower international reference prices, require deep discounts, and require
manufacturers to report and make public price increases and sometimes provide a written justification for such price increases, could adversely affect our
business if implemented.
U.S. and foreign governmental regulations that mandate price controls or limitations on patient access to our products or establish prices paid by
government entities or programs for our products could impact our business, and our future results could be adversely affected by changes in such
regulations or policies. The adoption of restrictive price controls in new jurisdictions, more restrictive controls in existing jurisdictions or the failure to
obtain or maintain timely or adequate pricing could also adversely impact revenue. We expect pricing pressures will continue globally. In the U.S.,
pharmaceutical product pricing is subject to government and public scrutiny and calls for reform, and many of our products are subject to increasing pricing
pressures as a result. We expect to see continued focus by the federal government on regulating pricing which could result in legislative and regulatory
changes designed to control costs. For example, in August 2022, the IRA was signed into law, which, among other things, requires manufacturers of certain
drugs to engage in price negotiations with Medicare, imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace
inflation, and replaces the Part D coverage gap discount program with a new discounting program. Some states have implemented, and others are
considering implementing, patient access constraints or cost cutting under the Medicaid program, and some are considering measures that would apply to
broader segments of their populations that are not Medicaid-eligible. State legislatures also have continued to focus on addressing drug costs, generally by
increasing price transparency or limiting drug price increases. Measures to regulate prices or payment for pharmaceutical products, including legislation on
drug importation, could adversely affect our business.
Risks Related to Our CELsignia Tests
Our success with CELsignia is heavily dependent on the success of our first CELsignia trials.
Our business strategy is focused on attracting pharmaceutical company partnerships that provide revenue from the sale of CELsignia tests during
clinical trials, from milestone payments during clinical trials, from sales of our CELsignia tests as companion diagnostics or stand-alone tests thereafter,
and, potentially, from royalties on the incremental drug revenues our tests enable. Our ability to obtain such partnerships and generate such revenue
depends in part on the ability of our first CELsignia tests to demonstrate the potential incremental opportunity available for pharmaceutical companies. We
do not expect to receive the first interim results for our prospective clinical trials for the CELsignia HER2 Pathway Activity Test until the second half of
2023. Success of the clinical trials using the CELsignia HER2 Pathway Activity Test or CELsignia Multi-Pathway Activity Test will depend on many
factors, such as successfully enrolling patients, meeting trial endpoint goals, and completing the trial in a timely manner. Our ability to complete the trial
could be delayed or prevented for several reasons that are out of our control, such as the FDA withdrawing its authorization and approval to perform the
study, NSABP, West Cancer Center, MD Anderson Cancer Center, or University of Rochester determining that the human and/or toxicology test results do
not support continuing the trial, or participants having adverse reactions or side-effects to the drugs administered in the study. If we are unable to
demonstrate that the CELsignia HER2 Pathway Activity Test or CELsignia Multi-Pathway Activity Test is suitable as a companion diagnostic for the
targeted therapy, we will likely not be able to generate future revenue from our CELsignia HER2 Pathway Activity Test or CELsignia Multi-Pathway
Activity test and may not be able to attract other pharmaceutical companies to partner with us for the development and commercialization of other
CELsignia tests. Further, potential pharmaceutical company partners may delay negotiating development agreements until results of the first clinical trial
using our CELsignia HER2 Pathway Activity Test trial are available. Even if the ultimate outcome of the first clinical trial using a CELsignia HER2
Pathway Activity Test trial is positive, any delays could materially and adversely affect our business.
We may not be successful in finding pharmaceutical company partners for continuing development of additional CELsignia tests.
We intend to develop strategic partnerships with pharmaceutical companies for developing additional CELsignia tests. Many of the potential partners
are global, multi-billion-dollar pharmaceutical companies with sophisticated research and development organizations and multiple priorities. We may not
be successful in our efforts to establish such a strategic partnership or other alternative arrangements for our CELsignia tests because, among other things,
our research and development pipeline may be insufficient, such tests may be deemed to be at too early of a stage of development for collaborative effort,
or third parties may not view such tests as having the requisite potential to demonstrate efficacy. In addition, we may be restricted under collaboration
agreements from entering into future agreements with other partners. Even if we are able to find suitable partners, we may not be successful in negotiating
development agreements with such partners that provide revenue from the sale of our CELsignia tests, from milestone payments, and/or from royalties on
the incremental drug revenues that our tests enable. If we are unable to reach agreements with suitable strategic partners on a timely basis, on acceptable
terms or at all, we may have to curtail the development of additional CELsignia tests, our expected revenue opportunities may be significantly smaller than
expected and our business may fail.
42
While our CELsignia HER2 Pathway Activity Test and CELsignia Multi-Pathway Activity Test are commercially ready, we have not attempted to
market these to physicians or their patients as stand-alone tests and have no ability to determine if these tests or any of our other tests will be
commercially viable.
While our CELsignia HER2 Pathway Activity Test and CELsignia Multi-Pathway Activity Test are analytically validated, conducted in our CLIA
certified and CAP accredited laboratory, and currently ready for commercial use as an LDT, we have not attempted to market them to physicians or their
patients. Furthermore, we have commenced only limited communications with KOLs to build awareness and credibility of our CELsignia diagnostic
platform and CELsignia tests. Accordingly, we have no ability to determine whether our CELsignia HER2 Pathway Activity Test, CELsignia Multi-
Pathway Activity Test or any other future CELsignia tests, will be commercially viable as stand-alone tests. We may never be successful in generating
revenue from our CELsignia tests as stand-alone tests, and if we are unable to build pharmaceutical partnerships that enable us to market the CELsignia
HER2 Pathway Activity Test, the CELsignia Multi-Pathway Activity Test, and other tests as companion diagnostic tests, we may never generate any
revenue and our business may fail.
Developing our CELsignia tests involves a lengthy and complex process that may not be successful.
Our CELsignia tests may take several years to develop from the time they are discovered to the time they are available for patient use, if ever. In order
to develop additional CELsignia tests into commercially ready products, we need to successfully complete a variety of activities, including, among others,
conducting substantial research and development, conducting extensive analytical testing, and maintaining our CLIA certified and CAP accredited
laboratory. In addition, our business strategy is focused on our CELsignia tests being sold as companion diagnostics. This will require obtaining and
maintaining partnerships with pharmaceutical companies and successfully completing clinical studies that demonstrate the suitability of the applicable
CELsignia test as a companion diagnostic for their targeted therapies.
These activities will require us to expend significant resources. Based on comparable companies in this industry, few research and development
projects result in commercially viable products, and success in early clinical studies often is not replicated in later studies. At any point, we may abandon
development of a product candidate for several reasons, such as a clinical validation study failing to demonstrate the prospectively defined endpoints of the
study. We may also be required to expend considerable resources repeating clinical studies, which would adversely affect the timing for generating
potential revenue from a new product and our ability to invest in other products in our pipeline.
Clinical trials are expensive and complex with uncertain outcomes, which may prevent or delay commercialization of our CELsignia tests.
For our CELsignia tests to become a companion diagnostic for a matching targeted therapy, we must conduct clinical trials to demonstrate that patients
who have an abnormal signaling pathway, as identified by our CELsignia tests, respond to treatment with a matching targeted therapy. Clinical testing is
expensive, is difficult to design and implement, and can take many years to complete, and its outcome is inherently uncertain. As a company, we have
limited experience in conducting or participating in clinical trials. We cannot be certain that any future clinical trials will conclusively demonstrate that any
CELsignia test is effective as a companion diagnostic. If our trials do not yield positive results, we may be unable to maintain the pharmaceutical company
partnerships we build or find additional partners, we may not be able to successfully commercialize our CELsignia tests or generate any revenue, our
business may fail, and you may lose part or all of your investment.
We cannot be certain that our existing clinical trial or future clinical trials, if any, will begin or be completed on time, if at all. We may experience
numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to commercialize our CELsignia tests, such as:
● delay or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with planned trial sites and/or strategic
partners;
● delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design, in obtaining authorization from
such authorities to commence the trial, and/or in complying with conditions or other requirements imposed by such regulatory authorities with
respect to the trial;
● delay or failure in recruiting and enrolling suitable subjects to participate in one or more clinical trials, or in such participants completing a trial or
returning for follow-up during or after the trial;
● clinical sites, investigators or other third-parties deviating from the trial protocol, failing to conduct the trial in accordance with regulatory and
contractual requirements, and/or dropping out of a trial;
● regulatory imposition of a clinical hold for any of our clinical trials, where a clinical hold in a trial in one indication would result in a clinical hold
for clinical trials in other indications; and
● changes in governmental regulations or administrative actions.
43
Significant nonclinical or clinical trial delays could prevent us from maintaining and/or developing new pharmaceutical company partnerships. Delays
could also shorten any periods during which we may have the exclusive right to commercialize our CELsignia tests or allow our competitors to bring
products to market before we do. As such, any delays could impair our ability to successfully commercialize our CELsignia tests and may materially and
adversely affect our business, financial condition, results of operations and prospects.
Even if our CELsignia tests achieve positive clinical trial results, they may fail to achieve the degree of market acceptance by physicians, patients,
third-party payors and others in the medical community necessary for commercial success.
If any of our potential CELsignia tests, including our first CELsignia HER2 Pathway Activity Test and CELsignia Multi-Pathway Activity Test,
achieve positive clinical trial results, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in
the medical community necessary for commercial success. For example, conventional genomic- or proteomic-based analyses are commonly used today to
diagnose cancer and prescribe cancer medications, and physicians may continue to rely on these diagnostic tests instead of adopting the use of a CELsignia
test. The degree of market acceptance of our CELsignia tests will depend on a number of factors, including:
● their efficacy and other potential advantages compared to alternative diagnostic tests;
● our ability to offer them for sale at competitive prices;
● their convenience and ease of obtaining patient specimens compared to alternative diagnostics;
● the willingness of the target patient population to try new diagnostics and of physicians to initiate such diagnostics;
● the strength of marketing and distribution support;
● the availability of third-party coverage and adequate reimbursement for our diagnostic tests; and
● our ability to partner with pharmaceutical companies to develop companion diagnostic programs for the new cancer sub-types we discover.
If our CELsignia tests do not achieve an adequate level of acceptance, we may never generate significant product revenues and we may not become
profitable.
Our CELsignia related business, operational and financial goals may not be attainable if the market opportunities for our CELsignia tests or our
pharmaceutical company partners are smaller than we expect. Our internal research and estimates on market opportunities have not been verified by
independent sources, and we have not independently verified market and industry data from third-parties that we have relied on.
The total market opportunities that we believe exist are based on a variety of assumptions and estimates, including the number of potential companion
diagnostic programs we will be able to successfully pursue, the amount of potential milestone payments that we could receive in companion diagnostic
programs, the number of patients we will test in clinical trials, the price we will be able to charge for our tests and the total annual number of cancer
patients with undiagnosed abnormal cell signaling. In addition, we have relied on third-party publications, research, surveys and studies for information
related to determining market opportunities, including without limitation, information on the number of cancer patients and those receiving various forms
of treatment, the cost of drug therapy, the amount of revenue generated from various types of drug therapy, the objective response rates of drug therapies,
the number of deaths caused by cancer and the expected growth in cancer drug therapy and diagnostic markets. Our internal research and estimates on
market opportunities have not been verified by independent sources, and we have not independently verified market and industry data from third-parties
that we have relied on. Any or all of our assumptions and/or estimates may prove to be incorrect for several reasons, such as inaccurate reports or
information that we have relied on, potential patients or providers not being amenable to using our CELsignia platform for diagnostic testing or such
patients becoming difficult to identify and access, limited reimbursement for companion diagnostics, pricing pressure due to availability of alternative
diagnostic tests, or an inability of the CELsignia tests’ companion drugs to obtain the necessary regulatory approvals for new indications. If any or all of
our assumptions and estimates prove inaccurate, we and our companion diagnostic pharmaceutical partners may not attain our business, operational and
financial goals.
44
The expected selling price range of our CELsignia tests is an estimate. We have not yet sold any such tests and the actual price we are able to charge
may be substantially lower than our expected price range.
We have estimated the selling price range of our CELsignia tests based on the pricing of other diagnostic tests currently available and assumptions
regarding the efficacy and market acceptance of our tests. We have not yet sold our CELsignia tests and cannot be certain of the actual price we may be
able to charge. The availability and price of our competitors’ products could limit the demand and the price we are able to charge. We may not achieve our
business plan if acceptance is inhibited by price competition, if pharmaceutical companies refuse to pay our expected prices for CELsignia tests in clinical
trials, if physicians are reluctant to switch from other diagnostic tests to our CELsignia tests or if physicians switch to other new products or choose to
reserve our CELsignia tests for use in limited circumstances. Furthermore, reductions in the reimbursement rate of third-party payors have occurred and
may occur in the future. Each of these factors could cause our selling price to be substantially lower than expected, and we may fail to generate revenue or
become profitable.
The insurance coverage and reimbursement status of new diagnostic products is uncertain. Failure to obtain or maintain adequate coverage and
reimbursement for CELsignia tests could limit our ability to market those CELsignia tests and decrease our ability to generate revenue.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive
diagnostic tests and treatments. Sales of any of our potential CELsignia tests will depend substantially, both in the United States and internationally, on the
extent to which the costs of our CELsignia tests will be paid by health maintenance, managed care, and similar healthcare management organizations, or
reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. Reimbursement by a payor may
depend on a number of factors, including a payor’s determination that the CELsignia tests are neither experimental nor investigational, appropriate for the
specific patient, cost-effective, supported by peer-reviewed publications, and included in clinical practice guidelines.
If reimbursement is not available, or is available only to a limited amount, we may not be able to successfully commercialize our CELsignia tests at
expected levels, or potentially at all. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or
maintain pricing sufficient to realize a sufficient return on our research and development investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved diagnostic products. In the United States, the
principal decisions about reimbursement for new diagnostic products and services are typically made by CMS. CMS decides whether and to what extent a
new product or service will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. As such, a significant
portion of our potential revenue depends on CMS approving coverage and reimbursement of our CELsignia tests.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing
and usage of diagnostic tests such as our potential CELsignia tests. In many countries, particularly the countries of the European Union, the prices of
medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with
governmental authorities can take considerable time. To obtain reimbursement or pricing approval in some countries, we may be required to demonstrate
the cost-effectiveness of our CELsignia tests relative to other available diagnostic tests. The prices of products under such systems may be substantially
lower than in the United States. Other countries allow companies to fix their own prices for products but monitor and control company profits. Additional
foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our CELsignia tests. Accordingly, in
markets outside the United States, the reimbursement for our potential CELsignia tests may be reduced compared with the United States and may be
insufficient to generate commercially reasonable revenue and profit.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may
cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide
adequate payment for our potential CELsignia tests. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical
procedures and other treatments, has become very intense. We expect to experience pricing pressures in connection with the sale of any CELsignia tests due
to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
45
We may encounter difficulties in commercializing and marketing our CELsignia products, including in hiring and retaining a qualified sales force.
In order to commercialize any CELsignia test, we must build marketing, sales, managerial and other non-technical capabilities or make arrangements
with third parties to perform these services, and we may not be successful in doing so. For each CELsignia test we develop, we intend to pursue
development agreements with the pharmaceutical companies that provide matching targeted therapies. Once we have completed the analytical validation of
a CELsignia test, we plan to target KOLs to build product awareness. Once we have clinical validation data available, we expect to expand our sales and
marketing efforts to target the broader market and coordinate our go-to-market activities with those of our partner pharmaceutical companies. These
activities will be expensive and time consuming and will require significant attention of our executive officers to manage. In particular, there is intense
competition for qualified sales personnel and our inability to hire or retain an adequate number of sales representatives could limit our ability to maintain or
expand our business and increase sales. Furthermore, there is no guarantee that any new drug indications will require our CELsignia tests as a companion
diagnostic or that any pharmaceutical company will effectively coordinate sales and marketing activities with us. Any failure or delay in these activities,
including if we are unable to develop our marketing and sales networks or if our sales personnel do not perform as expected, would adversely impact the
commercialization our CELsignia platform, and our business, financial condition, results of operations and prospects may be materially and adversely
affected.
We face significant competition from other diagnostic companies and our operating results will suffer if we fail to compete effectively.
The diagnostic testing industry is intensely competitive. We have competitors both in the United States and abroad, including universities and other
research institutions and providers of diagnostics that focus on developing genomic or proteomic analyses of a patient’s diseased cells or theranostic tests to
predict specific patient responses to a drug therapy. Many of our competitors have substantially greater financial, technical and other resources, such as
larger research and development staff and well-established marketing and sales forces. Our competitors may succeed in developing, acquiring or licensing,
on an exclusive basis, products or services that are more effective or less costly than the CELsignia tests that we are currently developing or that we may
develop. In addition, established medical technology, biotechnology and/or pharmaceutical companies may invest heavily to accelerate discovery and
development of diagnostic tests that could make our CELsignia tests less competitive.
Our ability to compete successfully will depend largely on our ability to:
● discover and develop CELsignia tests for cancer sub-types that are superior to other products in the market;
● demonstrate compelling advantages in the efficacy and convenience of our CELsignia tests on a cost competitive basis;
● attract qualified scientific, product development and commercial personnel;
● obtain and maintain patent and other proprietary protection as necessary for our CELsignia platform;
● obtain required U.S. and international regulatory approvals;
● successfully collaborate with research institutions and pharmaceutical companies in the discovery, development and commercialization of our
current and future CELsignia tests; and
● successfully expand our operations and build a sales force to support commercialization.
If our sole laboratory facility becomes inoperable, we will be unable to perform our tests and our business will be harmed.
We do not have redundant laboratory facilities. We perform all of our diagnostic services in our laboratory located in Minneapolis, Minnesota. Our
facility and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to repair or replace. The facility
may be harmed or rendered inoperable by physical damage from fire, floods, tornadoes, power loss, telecommunications failures, break-ins and similar
events, which may render it difficult or impossible for us to perform our tests for some period of time. The inability to perform our tests may result in the
loss of customers or harm our reputation, and we may be unable to regain those customers in the future. Although we possess insurance for damage to our
property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to
us on acceptable terms, or at all.
In order to rely on a third party to perform our tests, we could only use another facility with established state licensure and CLIA accreditation under
the scope of which our potential CELsignia tests could be performed following validation and other required procedures. We cannot assure you that we
would be able to find another CLIA-certified facility willing to adopt CELsignia tests and comply with the required procedures, or that this laboratory
would be willing to perform the tests for us on commercially reasonable terms.
Our instrument or reagent suppliers may fail to meet our quality requirements for the items we purchase or fail to provide a continuous supply of the
items we utilize to perform our CELsignia tests.
We utilize highly specialized reagents and instruments to perform our CELsignia tests. We may be unable to find suitable replacement reagents and
instruments on a timely basis, if at all. Interruption in the supply of these items or degradation in their quality could delay analytical and clinical studies,
and/or render us unable to deliver CELsignia tests. This would interrupt sales and adversely affect our business, results of operations and financial
condition.
46
Performance issues or price increases by our shipping carriers could adversely affect our business, results of operations and financial condition, and
harm our reputation and ability to provide our CELsignia tests on a timely basis.
Expedited, reliable shipping is essential to our operations. Should our shipping carrier encounter delivery performance issues such as loss, damage or
destruction of a sample, such occurrences may damage our reputation and lead to decreased demand for our services and increased cost and expense to our
business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes,
severe weather, natural disasters or other service interruptions by delivery services we use would adversely affect our ability to receive and process patient
samples on a timely basis. There are only a few providers of overnight nationwide transport services, and there can be no assurance that we will be able to
maintain arrangements with providers on acceptable terms, if at all.
Our CELsignia tests represent a novel approach to companion diagnostics, which could result in heightened regulatory scrutiny, delays in clinical
development, or delays in our ability to commercialize any products.
Our unique and proprietary CELsignia technology is the first cancer diagnostic platform we are aware of that can detect the underlying signaling
dysfunction driving a patient’s cancer. Because this is a novel approach to companion diagnostics, there can be no assurance as to the length of a clinical
trial period, the number of patients the FDA or another applicable regulatory authority will require to be enrolled in the trials in order to establish the safety
and efficacy of our CELsignia tests and the companion drugs, or that the data generated in these trials will be acceptable to the FDA or another applicable
regulatory authority to support marketing approval of new indications for the companion drugs. This could delay or prohibit our clinical trials and/or
commercialization of our CELsignia tests.
If the FDA were to begin regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket clearance or
approval.
Most LDTs are not currently subject to FDA regulation, although reagents, instruments, software or components provided by third parties and used to
perform LDTs may be subject to regulation. We believe that the CELsignia tests are LDTs, which is a term that describes tests that are designed and
performed within a single laboratory. As a result, we believe the CELsignia tests are not currently subject to regulation by the FDA in accordance with the
FDA’s current policy of exercising enforcement discretion regarding LDTs.
Historically, the FDA has not required laboratories that furnish only LDTs to comply with the agency’s requirements for medical devices (e.g.,
establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls). In mid-2014,
the FDA published a draft Guidance Document describing a proposed approach for a regulatory framework for LDTs, but in late 2016, the FDA indicated it
did not intend to finalize the LDT Guidance Document at that time. It is not clear when or if the FDA will seek to alter the current LDT regulatory
framework in the future. We cannot provide any assurance that FDA regulation, including premarket review, will not be required in the future for our tests,
whether through additional guidance issued by the FDA, new enforcement policies adopted by the FDA or new legislation enacted by Congress. We cannot
predict with certainty the timing or content of future legislation enacted or guidance issued regarding LDTs, or how it will affect our business.
If premarket review is required by the FDA at a future date or if we decide to voluntarily pursue FDA premarket review of our CELsignia tests, there
can be no assurance that our CELsignia tests or any tests we may develop in the future will be cleared or approved by the FDA on a timely basis, if at all,
nor can there be assurance that labeling claims will be consistent with our current claims or adequate to support continued adoption of and reimbursement
for our CELsignia tests. If our CELsignia tests are allowed to remain on the market but there is uncertainty in the marketplace about our tests, if they are
labeled investigational by the FDA, or if labeling claims the FDA allows us to make are more limited than we expect, reimbursement may be adversely
affected and we may not be able to sell our CELsignia tests. Compliance with FDA regulations would increase the cost of conducting our business and
subject us to heightened regulation and scrutiny by the FDA and penalties for failure to comply with these requirements.
If we fail to obtain required federal and state laboratory licenses, we could lose the ability to perform our tests.
Clinical laboratory tests, including our CELsignia tests, are regulated under CLIA. CLIA is a federal law that regulates clinical laboratories that
perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA
regulations mandate specific standards for laboratories in the areas of personnel qualifications, administration, and participation in proficiency testing,
patient test management and quality assurance. CLIA certification is also required in order for us to be eligible to bill state and federal healthcare programs,
as well as many private third-party payers, for any tests we launch. We will also be required to maintain state licenses in certain states to conduct testing in
our laboratories. While we currently have CLIA certification for our Minnesota laboratory, failure to maintain this certification would adversely affect our
ability to launch our CELsignia tests.
47
CELsignia Risks Related to Intellectual Property
If we are unable to obtain and maintain intellectual property protection for our CELsignia technology, or if the scope of the intellectual property
protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and diagnostic tests similar or identical to
ours, and our ability to successfully commercialize our technology and diagnostic tests may be impaired.
Our ability to compete successfully will depend in part on our ability to obtain and enforce patent protection for our products, preserve our trade
secrets and operate without infringing the proprietary rights of third parties. We have applied for patents that protect our technology. Our patent portfolio
includes six issued U.S. patents and 30 issued international patents. Each patent and patent application covers methods of use. However, we cannot assure
you that our intellectual property position will not be challenged or that all patents for which we have applied will be granted. The validity and breadth of
claims in patents involve complex legal and factual questions and, therefore, may be highly uncertain. Uncertainties and risks that we face include the
following:
● our pending or future patent applications may not result in the issuance of patents;
● the scope of any existing or future patent protection may not exclude competitors or provide competitive advantages to us;
● our patents may not be held valid if subsequently challenged;
● other parties may claim that our products and designs infringe the proprietary rights of others, and even if we are successful in defending our
patents and proprietary rights, such litigation may be costly; and
● other parties may develop similar products, duplicate our products, or design around our patents.
The patent prosecution process is expensive and time-consuming, and we may not be able to file, prosecute, maintain, enforce or license all necessary
or desirable patent applications at a reasonable cost or in a timely manner, or in all jurisdictions. We may choose not to seek patent protection for certain
innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual
property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our discovery and nonclinical
development output before it is too late to obtain patent protection.
The patent position of companies like ours is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of
much litigation. The U.S. Patent and Trademark Office, or U.S. PTO, has not established a consistent policy regarding the breadth of claims that it will
allow in medical technology patents. In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of the United
States. For example, India and China do not allow patents for methods of treating the human body. Publications of discoveries in the scientific literature
often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after
filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or
licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope,
validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents
being issued that protect our technology or CELsignia tests, in whole or in part, or which effectively prevent others from commercializing competitive
technologies and diagnostic tests. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may
diminish the value of our patents or narrow the scope of our patent protection.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. PTO or patent offices in foreign jurisdictions, or become
involved in opposition, derivation, reexamination, inter parties review, post-grant review or interference proceedings challenging our patent rights or the
patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights,
allow third parties to commercialize our technology and compete directly with us, without payment to us, or result in our inability to commercialize
CELsignia platform without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent
applications is threatened, it could dissuade companies from collaborating with us to develop or commercialize current or future CELsignia tests.
48
Even if our owned patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent
competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned
patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned patents may be challenged in the
courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being
narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or
identical technology and product candidates, or limit the duration of the patent protection of our technology and potential diagnostic tests. Given the
amount of time required for the development, testing and regulatory review of new diagnostic tests, patents protecting such tests might expire before or
shortly after such candidates are commercialized. As a result, our owned patent portfolio may not provide us with sufficient rights to exclude others from
commercializing diagnostic tests similar or identical to ours.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain
and could have a material adverse effect on the success of our business.
The commercial success of CELsignia tests depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our
CELsignia tests and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property
litigation in the medical technology, biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial
proceedings or litigation regarding intellectual property rights with respect to our CELsignia platform, including interference or derivation proceedings
before the U.S. PTO and similar bodies in other jurisdictions. Third parties may assert infringement claims against us based on existing patents or patents
that may be granted in the future.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue
developing and marketing our CELsignia platform and CELsignia tests. However, we may not be able to obtain any required license on commercially
reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same
technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we
could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our CELsignia platform or force us to cease some of our business operations, which could materially
harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact
on our business.
If we are not able to prevent disclosure of our trade secrets and other proprietary information, the value of our CELsignia platform could be
significantly diminished.
We rely on trade secret protection to protect our interests in proprietary know-how and in processes for which patents are difficult to obtain or enforce.
We may not be able to protect our trade secrets adequately. We have a policy of requiring our consultants, advisors and strategic partners to enter into
confidentiality agreements and our employees to enter into invention, non-disclosure and non-compete agreements. However, no assurance can be given
that we have entered into appropriate agreements with all parties that have had access to our trade secrets, know-how or other proprietary information.
There is also no assurance that such agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure of information. Furthermore, we cannot provide assurance that any of our employees, consultants, contract
personnel, or strategic partners, either accidentally or through willful misconduct, will not cause serious damage to our programs and/or our strategy, for
example by disclosing important trade secrets, know-how or proprietary information to our competitors. It is also possible that our trade secrets, know-how
or other proprietary information could be obtained by third parties as a result of breaches of our physical or electronic security systems. Any disclosure of
confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets and use the information in competition
against us. In addition, others may independently discover our trade secrets and proprietary information. Any action to enforce our rights is likely to be time
consuming and expensive, and may ultimately be unsuccessful, or may result in a remedy that is not commercially valuable. These risks are accentuated in
foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States. Any unauthorized disclosure
of our trade secrets or proprietary information could harm our competitive position.
49
Other Risks Related to Government Regulation for Our Business
Failure to comply with the HIPAA security and privacy regulations may increase our operational costs.
A portion of the data that we obtain and handle for or on behalf of our clients is considered protected health information, or PHI, subject to HIPAA.
Under HIPAA and our contractual agreements with our HIPAA-covered entity health plan customers, we are considered a “business associate” to those
customers and are required to maintain the privacy and security of PHI in accordance with HIPAA and the terms of our business associate agreements with
our clients, including by implementing HIPAA-required administrative, technical and physical safeguards. We are also required to maintain similar
business associate agreements with our subcontractors that have access to PHI of our customers in rendering services to us or on our behalf. We will incur
significant costs to establish and maintain these safeguards and, if additional safeguards are required to comply with HIPAA regulations or our clients’
requirements, our costs could increase further, which would negatively affect our operating results. Furthermore, we cannot guarantee that such safeguards
have been and will continue to be adequate under applicable laws. If we have failed, or fail in the future, to maintain adequate safeguards, or we or our
agents or subcontractors use or disclose PHI in a manner prohibited or not permitted by HIPAA, our subcontractor business associate agreements, or our
business associate agreements with our customers, or if the privacy or security of PHI that we obtain and handle is otherwise compromised, we could be
subject to significant liabilities and consequences.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and
process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material
adverse effect on our business, financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding, transfer and other processing of information is rapidly evolving and is likely to remain
uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks
with which we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the
European Union, including personal health data, is subject to the EU General Data Protection Regulation (the “GDPR”), which took effect across all
member states of the European Economic Area (the “EEA”) in May 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on
companies that process personal data, including requirements relating to the processing of health and other sensitive data, obtaining consent of the
individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect
the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.
In addition, the GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and,
as a result, increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are
considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction
of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up to 4% of global revenue
or €20 million, whichever is greater, and it also confers a private right of action on data subjects and consumer associates to lodge complaints with
supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR
provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or
health data.
Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our
activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns
based on general consumer protection laws. The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data
security protections for consumers. New laws are also being considered at both the state and federal levels. For example, the California Consumer Privacy
Act (the “CCPA”), which went into effect on January 1, 2020, and was amended by the California Privacy Rights Act (the “CPRA”), effective January 1,
2023, secure new privacy rights for consumers and impose new obligations on us. Many other states have implemented or are considering similar
legislation which will change the privacy law landscape in the United States. For example, Virginia, Colorado, Utah and Connecticut have all adopted
privacy laws, which take effect in 2023. A broad range of legislative measures also have been introduced at the federal level. Accordingly, failure to
comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could
expose us to fines and penalties under such laws. There also is the threat of consumer class actions related to these laws and the overall protection of
personal data.
50
Given the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements is rigorous and time
intensive and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators,
service providers, contractors or consultants that process or transfer personal data collected in the European Union. The GDPR and other changes in laws or
regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our
clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our
development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions,
private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of
operations. Similarly, failure to comply with federal and state laws regarding privacy and security of personal information could expose us to fines and
penalties under such laws. Even if we are not determined to have violated these laws, government investigations into these issues typically require the
expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.
We will also need to expend a considerable amount of resources complying with other federal, state and foreign laws and regulations. If we are unable
to comply or have not complied with such laws, we could face substantial penalties or other adverse actions.
Our operations are subject, directly or indirectly, to other federal, state and foreign laws and regulations that are complex and their application to our
specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Compliance with laws
and regulations will require us to expend considerable resources implementing internal policies and procedures for compliance and ongoing monitoring and
will require significant attention of our management team. This will be challenging as an early-stage company with limited financial resources and human
capital. These laws include, for example:
● Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, which prohibits the knowing and willful offer,
payment, solicitation or receipt of remuneration, directly or indirectly, in cash or in kind, in return for or to reward the referral of patients or
arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are
covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid;
● The civil False Claims Act, that forbids the knowing submission or “causing the submission” of false or fraudulent information or the failure to
disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, federal healthcare
programs or private health plans;
● The federal Physician Self-referral Law, commonly known as the Stark Law, which prohibits physicians from referring Medicare or Medicaid
patients to providers of ”designated health services” with whom the physician or a member of the physician’s immediate family has an ownership
interest or compensation arrangement, unless a statutory or regulatory exception applies, and similar state equivalents that may apply regardless of
payor; and
● The U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S.
Travel Act, and the USA PATRIOT Act, which among other things, prohibit companies and their employees, agents, third-party intermediaries,
joint venture partners and collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or benefits
to recipients in the public or private sector.
Many states and foreign governments have adopted similar laws and regulations. Violations of law could subject us to civil or criminal penalties,
monetary fines, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings and curtailment of
our operations. We could also be required to change or terminate some portions of operations or business or could be disqualified from providing services
to healthcare providers doing business with government programs.
Risks Related to Our Reliance on Third Parties
We will rely on third parties to conduct certain aspects of our preclinical studies and clinical trials. If these third parties do not successfully carry out
their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for, or
commercialize, any potential product candidates.
We will depend upon third parties to conduct certain aspects of our preclinical studies and depend on third parties, including independent investigators,
to conduct our clinical trials, under agreements with universities, medical institutions, contract research organizations, or CROs, strategic partners and
others. We expect to negotiate budgets and contracts with such third parties, which may result in delays to our development timelines and increased costs.
51
We continue to build our infrastructure and hire personnel necessary to execute our operational plans. We will rely especially heavily on third parties
over the course of our clinical trials, and, as a result, may have limited control over the clinical investigators and limited visibility into their day-to-day
activities, including with respect to their compliance with the approved clinical protocol. Nevertheless, we are responsible for ensuring that each of our
clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third
parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCP requirements, which are
regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory
authorities enforce these GCP requirements through periodic inspections of clinical trial sponsors, clinical investigators and clinical trial sites. If we or any
of these third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the
FDA or comparable foreign regulatory authorities may require us to suspend or terminate these trials or perform additional preclinical studies or clinical
trials before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our
clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements and may
require a large number of patients.
Our failure or any failure by these third parties to comply with these regulations may require us to repeat clinical trials, which would delay the
regulatory approval process. Moreover, our business may be adversely affected if any of these third parties violates federal or state fraud and abuse or false
claims laws and regulations or healthcare privacy and security laws.
Any third parties conducting aspects of our preclinical studies or our clinical trials will not be our employees and, except for remedies that may be
available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our preclinical
studies and clinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they
may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do
not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the
preclinical or clinical data they obtain is compromised due to the failure to adhere to our protocols or regulatory requirements or for other reasons, our
development timelines, including clinical development timelines, may be extended, delayed or terminated and we may not be able to complete
development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial
prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed or precluded entirely.
The pharmaceutical companies that we partner with may not be successful in receiving regulatory approval for drug indications or may not
commercialize their companion therapies for our expected companion diagnostic programs.
While we intend to provide our pharmaceutical company partners with new patient populations for such partners’ existing or investigational targeted
therapies, there can be no assurances that such partners will be able to obtain regulatory approval for new indications to treat these patient populations or
otherwise be successful in commercializing these new therapies. The pharmaceutical companies we partner with:
● may not meet clinical trial endpoint targets in evaluating efficacy of a targeted therapy in the patient population;
● may encounter regulatory or production difficulties that could constrain the supply of the companion therapies;
● may have difficulties gaining acceptance of the use of the companion therapies in the clinical community;
● may not pursue commercialization of any companion therapies;
● may elect not to continue or renew commercialization programs based on changes in their strategic focus or available funding, or external factors,
such as an acquisition, that divert resources or create competing priorities;
● may not commit sufficient resources to the marketing and distribution of such companion therapies; or
● may terminate their relationship with us.
Any of these factors could adversely affect our commercialization strategy, business, results of operations and financial condition.
52
Our reliance on third parties to formulate and manufacture our drug product will expose us to a number of risks that may delay the development,
regulatory approval and commercialization of our drug product or result in higher product costs.
We have no direct experience in drug formulation or manufacturing and do not intend to establish our own manufacturing facilities. We lack the
resources and expertise to formulate or manufacture our own product candidates. Instead, we will contract with one or more manufacturers to manufacture,
supply, store and distribute drug supplies for our clinical trials. If our drug product receives FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to risks that, among other
things, we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA
must approve any replacement contractor; our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the
quality required to meet our clinical and/or commercial needs, if any; our future contract manufacturers may not perform as agreed or may not remain in
the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products; and our
contract manufacturers may fail to comply with good manufacturing practice and other government regulations and corresponding foreign standards. Each
of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates
or result in higher costs or deprive us of potential product revenues.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number
of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent
litigation. The U.S. PTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013.
Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its
implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents, all of which could have a material adverse effect on our business and financial condition. Depending on future actions by the U.S. Congress,
the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to
obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, there may be patent law reforms in foreign
jurisdictions that could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents in those foreign jurisdictions.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership
of what we regard as our own intellectual property.
Our current and future employees may have been previously employed at universities or other biotechnology, diagnostic technology or pharmaceutical
companies, including our competitors or potential competitors and strategic partners. Although we try to ensure that our employees do not use the
proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed
intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to
defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops
intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced
to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to
management.
Any lawsuits relating to infringement of intellectual property rights necessary to defend ourselves or enforce our rights will be costly and time
consuming and could be unsuccessful.
Because competition in our industry is intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other
intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time
consuming, and could distract our technical and management personnel from their normal responsibilities. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop
the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license
agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay
royalties and other fees that could be significant. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of our confidential information could be compromised by disclosure.
53
Risks Relating to Our Common Stock
Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our
company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These
provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price
of our common stock. In addition, because our board of directors will be responsible for appointing the members of our management team, these provisions
may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace members of our board of directors. Among other things, these provisions:
● allow the authorized number of our directors to be changed only by resolution of our board of directors;
● limit the manner in which stockholders can remove directors from our board of directors;
● establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of
directors;
● require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
● limit who may call stockholder meetings;
● authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would
work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of
directors; and
● require the approval of the holders of at least two-thirds of the votes that all our stockholders would be entitled to cast to amend or repeal specified
provisions of our certificate of incorporation or bylaws.
Moreover, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess
of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person
acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Any of these provisions of our charter documents or Delaware law could, under certain circumstances, depress the market price of our common stock.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock
or could subject us to securities litigation.
Our stock price may be extremely volatile. The stock market in general and the market for smaller medical technology companies in particular have
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors
may not be able to sell our common stock at or above the price they paid for such stock. The market price for our common stock may be influenced by
many factors, including:
● the success of competitive products or technologies;
● results of planned clinical trials of our Phase 3 (VIKTORIA-1), CELsignia HER2 Pathway Activity Test, CELsignia Multi-Pathway Activity Test
or other CELsignia tests may develop in the future;
● regulatory or legal developments in the United States and other countries;
● developments or disputes concerning patent applications, issued patents or other proprietary rights;
● the recruitment or departure of key personnel;
● the level of expenses related to any of our CELsignia tests or clinical development programs;
● actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
● operating results that fail to meet expectations of securities analysts that cover our company;
● variations in our financial results or those of companies that are perceived to be similar to us;
● changes in the structure of healthcare payment systems;
54
● market conditions in the pharmaceutical, biotechnology and medical technology sectors;
● sales of our stock by us, our insiders and our other stockholders;
● general economic and market conditions; and
● the other factors described in this “Risk Factors” section.
Additionally, companies that have experienced volatility in the market price of their stock have been subject to an increased incidence of securities
class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert
our management’s attention from other business concerns, which could seriously harm our business.
Future sales of shares of our common stock, including by us and significant stockholders, could negatively affect our stock price.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. Such sales, or the perception in the market
that the holders of a large number of shares of our common stock intend to sell their shares, could reduce the trading price of our common stock.
On December 9, 2022, we issued 6,182,574 shares of common stock, 1,120,873 shares of Series A Preferred Stock and warrants exercisable for
6,956,450 shares of common stock to certain institutional and other accredited investors in a private placement pursuant to a securities purchase agreement
entered into on May 15, 2022. Each share of Series A Preferred Stock is convertible at the option of the holder, subject to the Beneficial Ownership
Limitation described below, into 10 shares of common stock. Under the terms of the Series A Preferred Stock and the warrants, we will not effect the
conversion of any Series A Preferred Stock or the exercise of any such warrant, and the investor will not have the right to convert any portion of the Series
A Preferred Stock or to exercise any portion of any warrant, to the extent that, after giving effect to an attempted conversion or exercise, the aggregate
number of shares of common stock beneficially owned by the investor, together with its affiliates, would exceed 9.99% of the number of shares of common
stock outstanding immediately after giving effect to the conversion or exercise, which percentage may be reset at the investor’s election to a higher
percentage, not to exceed 19.9%, upon 61 days’ notice to us, or to a lower percentage, effective immediately after notice to us. We refer to such percentage
limitation as the Beneficial Ownership Limitation. We filed a registration statement on Form S-3 covering the resale of up to 24,347,754 shares of common
stock, consisting of (i) 6,182,574 shares of common stock purchased by the investors under the securities purchase agreement, (ii) 11,208,730 shares of
common stock issuable upon conversion of the Series A Preferred Stock and (iii) 6,956,450 shares of common stock issuable upon exercise of the warrants,
which was declared effective in January 2023. The Form S-3 covers the resale of the number of shares of common stock issued or issuable to the investors
without giving effect to the Beneficial Ownership Limitation, but the investors may not convert or exercise, and subsequently resell the underlying shares
of common stock of, any portion of the Series A Preferred Stock or the warrants to the extent such conversion or exercise would result in the investor
exceeding the applicable Beneficial Ownership Limitation. The investors may resell all, some or none of the shares of common stock registered pursuant to
the Form S-3 at any time or in their discretion, subject to the Beneficial Ownership Limitation.
On February 4, 2022, we entered into an Open Market Sale AgreementSM with Jefferies LLC, as agent, pursuant to which we may offer and sell, from
time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $50,000,000. On October 12, 2022, pursuant to this
agreement, we sold 500,000 shares of common stock in a single transaction at a price of $10.35 per share, generating gross proceeds of $5.2 million ($4.8
million net of commissions and offering expenses). At December 31, 2022, $44.8 million of common stock remains available for sale under the Jefferies
agreement. The extent to which we utilize the Open Market Sale AgreementSM as a source of funding will depend on a number of factors, including the
prevailing market price of our common stock, general market conditions and the extent to which we are able to secure funds from other sources.
Sales of substantial amounts of shares of our common stock or other securities by our stockholders, by us under the Open Market Sale AgreementSM,
by the private placement investors pursuant to the Form S-3 or through any other means could also lower the market price of our common stock, make it
more difficult for you to sell your shares at a price that you desire and impair our ability to raise capital through the sale of equity or equity-related
securities.
55
Our Series A Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our common
stock.
The Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock provides that, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company, or in the event of a Deemed Liquidation Event (as defined in the
Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock), the holders of Series A Preferred Stock are
entitled to be paid from assets of the Company available for distribution to its stockholders, before any payment is made to the holders of common stock by
reason of their ownership thereof, an amount per share equal to the greater of (i) the original issue price ($5.75 on an as-converted-to-common stock basis),
plus all accrued and unpaid dividends and (ii) the amount that the holder would have been entitled to receive at such time if the Series A Preferred Stock
were converted into common stock. The Company may not, without the consent of holders of a majority of the outstanding shares of Series A Preferred
Stock, amend its charter in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock or issue or obligate itself to
issue shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of
assets on the liquidation, dissolution or winding up of the Company and the payment of dividends.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price
and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our
business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide favorable coverage. If one or
more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our
stock price or trading volume to decline.
We incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives and corporate governance practices.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the continued listing requirements of The Nasdaq Stock Market and other
applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective
disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time
to these compliance initiatives. Moreover, these rules and regulations have increased our ongoing legal and financial compliance costs and will make some
activities more time-consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control over
financial reporting. Depending upon our filer status, we could also be required to include an attestation report on internal control over financial reporting
issued by our independent registered public accounting firm as required by Section 404(b). While we, as of December 31, 2022, concluded that our internal
control over financial reporting was effective, we may need to dedicate additional internal resources and engage outside consultants to maintain compliance
with Section 404 in the future. Any material weaknesses that we may identify in the future could result in an adverse reaction in the financial markets due
to a loss of confidence in the reliability of our financial statements.
56
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
We currently lease and occupy approximately 16,000 square feet in Minneapolis, Minnesota, which includes our clinical laboratory and offices. On
March 13, 2023, we signed the fourth amendment to our lease agreement, which expires in April 2026. The lease provides for monthly rent, real estate
taxes and operating expenses. We believe that this leased space is adequate to meet current and anticipated future requirements and that additional or
substitute space will be available as needed to accommodate any expansions that our operations require.
ITEM 3. Legal Proceedings
From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any legal
proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition and results of operations.
ITEM 4. Mine Safety Disclosures
Not applicable.
57
PART II
ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Price Information
Our common stock has been listed on The Nasdaq Capital Market under the symbol “CELC” since September 20, 2017.
As of March 14, 2023, there were approximately 54 holders of record of our common stock. The actual number of holders of common stock is greater
than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and nominees.
The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the
operation and expansion of our business. We do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of future cash
dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating
results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Equity Compensation Plan Information
The information required by this Item concerning equity compensation plans is incorporated herein by reference from Part III, Item 11 of this Annual
Report.
58
ITEM 6. Reserved.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our financial
statements and the related notes included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and expected financial results, includes
forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” discussed in Item 1A of Part I of this Annual Report.
OVERVIEW
Celcuity is a clinical-stage biotechnology company focused on development of targeted therapies for treatment of multiple solid tumor indications. The
Company’s lead therapeutic candidate is gedatolisib, a pan-PI3K/mTOR inhibitor. Its mechanism of action and pharmacokinetic properties are highly
differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or together. The Company initiated VIKTORIA-
1, a Phase 3 study evaluating gedatolisib in patients with HR+/HER2- advanced breast cancer in 2022 and is currently enrolling patients. Its CELsignia
companion diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from already
approved targeted therapies.
Gedatolisib, is a potent, well-tolerated, small molecule reversible dual inhibitor, administered intravenously, that selectively targets all Class I isoforms
of PI3K and mammalian target of rapamycin (mTOR). In April 2021, we obtained exclusive global development and commercialization rights to
gedatolisib under a license agreement with Pfizer, Inc. We believe gedatolisib’s unique mechanism of action, differentiated chemical structure, favorable
pharmacokinetic properties, and intravenous formulation offer distinct advantages over currently approved and investigational therapies that target PI3K or
mTOR alone or together.
● Overcomes limitations of therapies that only inhibit a single Class I PI3K isoform or only one mTOR kinase complex.
Gedatolisib is a pan-class I isoform PI3K inhibitor with low nanomolar potency for the p110α, p110β, p110γ, and p110δ isoforms and mTORC1
and mTORC2 complexes. Each PI3K isoform and mTOR complex is known to preferentially affect different signal transduction events that
involve tumor cell survival, depending upon the aberrations associated with the linked pathway. When a therapy only inhibits a single Class I
isoforms (e.g., alpelisib, a PI3K-α inhibitor ) or only one mTOR kinase complex (e.g., everolimus, an mTORC1 inhibitor), numerous feedforward
and feedback loops between the PI3K isoforms and mTOR complexes cross-activates the uninhibited sub-units. This, in turn, induces
compensatory resistance that reduces the efficacy of isoform specific PI3K or single mTOR kinase complex inhibitors. Inhibiting all four PI3K
isoforms and both mTOR complexes, as gedatolisib does, thus prevents the confounding effect of isoform interaction that may occur with isoform-
specific PI3K inhibitors and the confounding interaction between PI3K isoforms and mTOR.
● Better tolerated by patients than oral PI3K and mTOR drugs.
Gedatolisib is administered intravenously (IV) on a four-week cycle of three weeks-on, one week-off, in contrast to the orally administered pan-
PI3K or dual PI3K/mTOR inhibitors that are no longer being clinically developed. Oral pan-PI3K or PI3K/mTOR inhibitors have repeatably been
found to induce significant side effects that were not well tolerated by patients. This typically leads to a high proportion of patients requiring dose
reductions or treatment discontinuation. The challenging toxicity profile of these drug candidates ultimately played a significant role in the
decisions to halt their development, despite showing promising efficacy. By contrast, gedatolisib stabilizes at lower concentration levels in plasma
compared to orally administered PI3K inhibitors, resulting in less toxicity, while maintaining concentrations sufficient to inhibit PI3K/mTOR
signaling.
Isoform-specific PI3K inhibitors administered orally were developed to reduce toxicities in patients. While the range of toxicities associated with
isoform-specific inhibitors is narrower than oral pan-PI3K or PI3K/mTOR inhibitors, administering them orally on a continuous basis still leads to
challenging toxicities. The experience with an FDA approved oral p110-α specific inhibitor, Piqray, illustrates the challenge. In its Phase 3 pivotal
trial Piqray was found to induce a Grade 3 or 4 adverse event (AE) related to hyperglycemia in 39% of patients evaluated. In addition, 26% of
patients discontinued alpelisib due to treatment related adverse events. By contrast, in the 103-patient dose expansion portion of the Phase 1b
clinical trial with gedatolisib, only 7% of patients experienced Grade 3 or 4 hyperglycemia and less than 10% discontinued treatment.
59
As of December 31, 2022, 492 patients with solid tumors have received gedatolisib in eight clinical trials sponsored by Pfizer. Of the 492 patients, 129
were treated with gedatolisib as a single agent in three clinical trials. The remaining 363 patients received gedatolisib in combination with other anti-cancer
agents in five clinical trials. Additional patients received gedatolisib in combination with other anti-cancer agents in nine investigator sponsored clinical
trials.
A Phase 1b trial (B2151009) evaluating patients with ER+/HER2- metastatic breast cancer was initiated in 2016 and subsequently enrolled 138
patients. Seven patients from this study continue to receive study treatment, as of December 31, 2022, each of which have received study treatment for
more than four years. The B2151009 clinical trial was an open label, multiple arm Phase 1b study that evaluated gedatolisib in combination with
palbociclib (CDK4/6 inhibitor) and fulvestrant or letrozole in patients with HR+/HER2- advanced breast cancer. Thirty-five patients were enrolled in two
dose escalation arms to evaluate the safety and tolerability and to determine the maximum tolerated dose (MTD) of gedatolisib when used in combination
with the standard doses of palbociclib and endocrine therapy (letrozole or fulvestrant). The MTD was determined to be 180 mg administered intravenously
once weekly. A total of 103 patients were subsequently enrolled in one of four expansion arms (A, B, C, D).
High objective overall response rates were observed in all four expansion arms and were comparable in each arm for PIK3CA WT and PIK3CA MT
patients. In treatment-naïve patients (Arm A), ORR was 85%. In patients who received prior hormonal therapy alone or in combination with a CDK4/6
inhibitor (Arms B, C, and D), ORR ranged from 36% to 77%. Each arm achieved its primary endpoint target, which was reporting higher ORR in the study
arm than ORR from either the PALOMA-2 (ORR=55%) study that evaluated palbociclib plus letrozole for Arm A or the PALOMA-3 study (ORR=25%)
that evaluated palbociclib plus fulvestrant for Arms B, C, and D. For all enrolled patients, a clinical benefit rate (CBR) of ≥79% was observed. Median
progression-free survival (PFS) was 12.9 months for patients who received a prior CDK4/6 inhibitor and were treated with the Phase 3 dosing schedule
(Arm D). For the Arm A patients that were treatment naive in the advanced setting, median PFS had not yet been reached.
Gedatolisib combined with palbociclib and endocrine therapy demonstrated a favorable safety profile with manageable toxicity. The majority of
treatment emergent adverse events were Grade 1 and 2. The most frequently observed adverse events included stomatitis/mucosal inflammation, the
majority of which were Grade 1 and 2. The most common Grade 4 AEs were neutropenia and neutrophil count decrease, which were assessed as related to
treatment with palbociclib. No grade 5 events were reported in this study.
We activated VIKTORIA-1, a Phase 3, open-label, randomized clinical trial to evaluate the efficacy and safety of two regimens in adults with
HR+/HER2- advanced breast cancer whose disease has progressed after prior CDK4/6 therapy in combination with an aromatase inhibitor: 1) gedatolisib in
combination with palbociclib and fulvestrant: and 2) gedatolisib in combination with fulvestrant. Two hundred clinical sites in North America, Europe,
South America, Asia, and Australia have been selected to participate in the study. The first clinical site was activated in the third quarter. The first dosage of
a patient in the trial occurred in December 2022.
The clinical trial will enable separate evaluation of subjects according to their PIK3CA status. Subjects who meet eligibility criteria and are PIK3CA
WT will be randomly assigned (1:1:1) to receive a regimen of either gedatolisib, palbociclib, and fulvestrant (Arm A), gedatolisib and fulvestrant (Arm B),
or fulvestrant (Arm C). Subjects who meet eligibility criteria and are PIK3CA MT will be randomly assigned (3:3:1) to receive a regimen of either
gedatolisib, palbociclib, and fulvestrant (Arm D), alpelisib and fulvestrant (Arm E), or gedatolisib and fulvestrant (Arm F).
Our proprietary CELsignia diagnostic platform is the only commercially ready technology we are aware of that uses a patient’s living tumor cells to
identify the specific abnormal cellular process driving a patient’s cancer and the targeted therapy that best treats it. This enables us to identify patients
whose tumors may respond to a targeted therapy, even though they lack a previously associated molecular mutation. By identifying cancer patients whose
tumors lack an associated genetic mutation but have abnormal cellular activity a matching targeted therapeutic is designed to inhibit, CELsignia CDx can
expand the markets for a number of already approved targeted therapies. Our current CDx identifies breast and ovarian cancer patients whose tumors have
cancer drivers potentially responsive to treatment with human epidermal growth factor receptor 2-negative (HER2), mesenchymal-epithelial transition
factor (c-MET), or phosphatidylinositol 3-kinases (PI3K) targeted therapeutics. While U.S. Food and Drug Administration (“FDA”) approval or clearance
is not currently required for CELsignia tests offered as a stand-alone laboratory developed test, if we are partnered with a drug company to launch a
CELsignia test as a companion diagnostic for a new drug indication, we would be required to obtain premarket approval, or PMA, in conjunction with the
pharmaceutical company seeking a new drug approval for the matching therapy.
We are supporting the advancement of new potential indications for four different targeted therapies, controlled by other pharmaceutical companies,
that would rely on a CELsignia CDx to select patients. Four Phase 2 trials are underway to evaluate the efficacy and safety of these therapies in CELsignia
selected patients. These patients are not currently eligible to receive these drugs and are not identifiable with a molecular test.
60
Supporting the development of a potential first-in-class targeted therapy for breast cancer, like gedatolisib, with our CELsignia platform is a natural
extension of our strategy to use our CELsignia CDx to enable new indications for other companies’ targeted therapies. By combining companion
diagnostics designed to enable proprietary new drug indications with targeted therapies that treat signaling dysregulation our CDx identifies, we believe we
are uniquely positioned to improve the standard-of-care for many early and late-stage breast cancer patients. Our goal is to play a key role in the multiple
treatment approaches required to treat breast cancer patients at various stages of their disease. With each program, we are:
● Leveraging the proprietary insights CELsignia provides into live patient tumor cell function
● Using a CELsignia CDx to identify new patients likely to respond to the paired targeted therapy
● Developing a new targeted therapeutic option for breast cancer patients
● Maximizing the probability of getting regulatory approval to market the targeted therapy indication
Recent Developments
On December 22, 2022, Celcuity closed on a $20.0 million term loan (the “Term B Loan”) with an affiliate of Innovatus Capital Partners, LLC
(“Innovatus”), pursuant to a Loan and Security Agreement, dated April 8, 2021 (the “Loan Agreement”), as amended by that First Amendment to Loan and
Security Agreement, dated August 9, 2022 (the “Amendment and collectively with the Loan Agreement, the “Amended Loan Agreement”). The Company
became eligible to draw down the Term B Loan upon the closing of the Company’s previously disclosed $100 million private placement on December 9,
2022. As previously disclosed, the Amended Loan Agreement may provide the Company with up to $75.0 million through funding of up to five term loans.
Funding of the first $15.0 million term loan occurred on April 8, 2021 in connection with entering into the original Loan Agreement. As of December 31,
2022, term loans totaling $35 million are outstanding under the Amended Loan Agreement. Celcuity will be able to draw on two additional tranches of $10
million each and one additional tranche of $20 million upon achievement of certain clinical trial milestones and satisfaction of certain financial covenants
determined on a pro forma as-funded basis. Funding of these additional tranches is also subject to other customary conditions and limits on when the
Company can request funding for such tranches. Celcuity is entitled to make interest only payments for the 48-month period from the original agreement
date or for the 60-month period from the original agreement date if certain conditions are met. The loans will mature on April 8, 2027, the sixth anniversary
of the initial funding date. Innovatus has the right to convert outstanding principal into shares of Celcuity common stock until the third anniversary of the
loan amendment date, with such amount limited to an aggregate of up to $6.6 million assuming all tranches are funded. The loan is secured by all of
Celcuity’s assets.
On December 9, 2022, Celcuity closed on a private placement of common stock and preferred stock, resulting in gross proceeds of approximately $100
million, before deducting placement agent fees and other expenses. Celcuity issued 6,182,574 shares of common stock, 1,120,873 shares of Series A
Preferred Stock and warrants exercisable for 6,956,450 shares of common stock to certain institutional and other accredited investors pursuant to a
securities purchase agreement entered into on May 15, 2022. Pursuant to the securities purchase agreement, the closing (funding) of the private placement
followed dosage of the first patient in Celcuity’s Phase 3 clinical trial, VIKTORIA-1, evaluating gedatolisib, Celcuity’s lead therapeutic candidate.
Investors purchased shares of common stock and Series A Preferred Stock at a price of $5.75 per share (on an as converted to common stock basis), with
forty percent (40%) warrant coverage (on an as converted to common stock basis) and customary resale registration rights. The warrants have an exercise
price of $8.05 per share.
On December 7, 2022, Celcuity announced that the first patient was dosed in it Phase 3 VIKTORIA-1 clinical trial. Operational activities continue to
focus on facilitating activation of sites and enrolling patients. The clinical trial protocol was updated to include an additional study arm (Arm F) to evaluate
gedatolisib plus fulvestrant in 50 patients who have PIK3CA mutations. This update was made in response to a recommendation from the European
Medicines Agency (EMA) that the study arms for PIK3CA mutated patients mirror the same study arms for PIK3CA non-mutated patients. No changes
were made to the primary endpoints. VIKTORIA-1 will evaluate the safety and efficacy of gedatolisib in combination with fulvestrant with or without
palbociclib in adults with HR+/HER2- advanced breast cancer whose disease progressed while receiving prior CDK4/6 therapy. Further details about the
study are available at ClinicalTrials.gov.
61
We have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related to our
ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since we began operations in 2012. For
the years ended December 31, 2022 and 2021, we reported a net loss of approximately $40.4 million and $29.6 million, respectively. As of December 31,
2022, our cash and cash equivalents and short-term investments were approximately $168.6 million, and we had an accumulated deficit of approximately
$96.3 million.
Impact of COVID-19 on our Business
Although we have largely returned to normal operations in our facility, the COVID-19 pandemic continues and its effect on our operations and
financial condition will depend in large part on future developments which cannot be reasonably estimated at this time. Future developments include the
duration, scope and severity of the pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, actions taken by
governmental authorities, suppliers, clinical trial sites, and other business partners to contain or mitigate the pandemic’s impact, and the potential adverse
effects on the suppliers, labor market and general economic activity.
As we continue to advance our clinical trial collaborations, we remain in close contact with our current clinical sponsors, and principal investigators, as
well as prospective pharmaceutical company and clinical collaborators, to monitor the impact of COVID-19 on our trial enrollment timelines and
collaboration discussions. We experienced delays in the enrollment of patients in our ongoing CELsignia Phase 2 clinical trials and now expect interim
results from FACT-1 and FACT-2 to be delayed until the second half of 2023. We could experience further delays in clinical trials and collaborations with
pharmaceutical companies and sponsors if new variants emerge or if the spread of COVID-19 once again accelerates. Due to the inherent uncertainty
associated with the COVID-19 pandemic, we are unable to predict the impact the pandemic may have on our clinical trial work and overall financial
condition.
RESULTS OF OPERATIONS
Components of Operating Results
Revenue
To date, we have not generated any revenue. With the execution of the Pfizer license agreement in April 2021, whereby we acquired exclusive world-
wide licensing rights to develop and commercialize gedatolisib, we initiated a Phase 3 clinical trial, VIKTORIA-1, in 2022 to support potential regulatory
approval to market gedatolisib. If we obtain regulatory approvals to market gedatolisib, we expect to generate revenue from sales of the drug for the
treatment of breast cancer patients. Additionally, we will seek to generate revenue from partnership agreements with pharmaceutical companies to provide
companion diagnostics for such pharmaceutical partners’ existing or investigational targeted therapies. If a new drug indication is received that requires use
of our companion diagnostic to identify eligible patients, we expect to generate revenues from sales of tests to treating physicians.
Research and Development
Since our inception, we have primarily focused on research and development of gedatolisib, a PI3K/mTOR targeted therapy and our CELsignia
platform and corresponding tests. Research and development expenses primarily include:
● employee-related expenses related to our research and development activities, including salaries, benefits, recruiting, travel and stock-based
compensation expenses;
● laboratory supplies;
● consulting fees paid to third parties;
● clinical trial costs;
● validation costs for gedatolisib;
● facilities expenses; and
● legal costs associated with patent applications.
62
Internal and external research and development costs are expensed as they are incurred. As we continue development of gedatolisib, manage the
VIKTORIA-1 Phase 3 trial and other clinical trials to evaluate the efficacy of targeted therapies in cancer patients selected with one of our CELsignia tests,
the proportion of research and development expenses allocated to external spending will grow at a faster rate than expenses allocated to internal expenses.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits and stock-based compensation related to our executive, finance and support
functions. Other general and administrative expenses include professional fees for auditing, tax, and legal services associated with being a public company,
director and officer insurance, investor relations and travel expenses for our general and administrative personnel.
Sales and Marketing
Sales and marketing expenses consist primarily of professional and consulting fees related to these functions. To date, we have incurred immaterial
sales and marketing expenses as we continue to focus primarily on the development of our first drug, gedatolisib, managing the VIKTORIA-1 Phase 3 trial,
and development of our CELsignia platform and corresponding CELsignia tests. We would expect to begin to incur increased sales and marketing expenses
in anticipation of the commercialization of our first drug, gedatolisib, and CELsignia tests. These increased expenses are expected to include payroll-related
costs as we add employees in the commercial departments, costs related to the initiation and operation of our sales and distribution network and marketing
related costs.
Interest Expense
Interest expense is primarily due to a Loan Agreement and finance lease obligations.
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents and investment balances.
63
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
Years Ended
December 31,
Increase (Decrease)
2022
2021
$
Percent Change
$
35,289,548 $
4,101,543
39,391,091
(39,391,091)
25,758,006 $
2,597,909
28,355,915
(28,355,915)
(2,106,111)
1,127,162
-
(978,949)
(40,370,040)
-
(1,262,350)
13,262
(263)
(1,249,351)
(29,605,266)
-
$
(40,370,040) $
(29,605,266) $
9,531,542
1,503,634
11,035,176
(11,035,176)
(843,761)
1,113,900
263
270,402
(10,764,774)
-
(10,764,774)
37%
58
39
39
67
8,399
n/a
(22)
36
-
36%
Statements of Operations Data:
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest expense
Interest income
Loss on sale of fixed assets
Other income (expense), net
Net loss before income taxes
Income tax benefits
Net loss
Research and Development
For the year ended December 31, 2022, our research and development expenses were approximately $35.3 million, representing an increase of
approximately $9.5 million, or 37%, compared to the same period in 2021. Included in the $9.5 million increase is a $10 million reduction in gedatolisib
licensing related expenses offset by increases of $19.5 million in other research and development expenses. In the 2021 period, research and development
expenses included a $10.0 million upfront license fee related to the execution of the Pfizer license agreement while there were no licensing agreement
expenses for gedatolisib in 2022. Of the $19.5 million increase in research and development expense, $4.9 million was related to increased employee and
consulting expenses, of which $0.9 million was in the form of non-cash stock-based compensation. The remaining $14.6 million increase of research and
development costs is related to costs for existing clinical trials and for activities supporting the initiation of the VIKTORIA-1 pivotal trial.
Conducting a significant amount of research and development is central to our business model. We plan to increase our research and development
expenses for the foreseeable future as we seek to develop gedatolisib, manage the VIKTORIA-1 Phase 3 trial, discover new cancer sub-types, and develop
and validate additional CELsignia tests to diagnose such sub-types. We also expect to incur increased expenses to support companion diagnostic business
development activities with pharmaceutical companies as we develop additional CELsignia tests and manage a clinical trial for gedatolisib.
64
General and Administrative
For the year ended December 31, 2022, our total general and administrative expenses were $4.1 million, representing an increase of approximately
$1.5 million, or 58%, compared to the same period in 2021. The increase primarily resulted from a $1.3 million increase in compensation related expenses,
including approximately $1.1 million of non-cash stock-based compensation. In addition, other general and administrative expenses increased $0.2 million
primarily due to professional fees associated with being a public company and director and officer insurance.
We anticipate that our general and administrative expenses will increase in future periods, reflecting both increased costs in connection with the
potential future commercialization of gedatolisib and CELsignia tests, an expanding infrastructure, and increased professional fees associated with being a
public company.
Interest Expense
For the year ended December 31, 2022, interest expense was $2.1 million and represents an increase of $0.8 million compared to the same period in
2021. The Loan Agreement that was executed in April 2021 amended in August 2022, and includes $0.9 million of non-cash interest expense. The increase
primarily reflects the loan being in place for the full year in 2022, while only a portion of the year in 2021.
Interest Income
For the year ended December 31, 2022, interest income increased approximately $1.1 million compared to the same period in 2021. The increase was
primarily the result of higher market interest rates and the closing of additional financing activities, leading to higher cash, cash equivalents and short-term
investment balances.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred losses and cumulative negative cash flows from operations. Through December 31, 2022, we have funded our
operations primarily through private placements and registered offerings of our equity securities and unsecured convertible notes, and borrowings under
loan agreements. From inception through December 31, 2022, we raised an aggregate of approximately $223.7 million of net proceeds through sales of our
securities, and as of December 31, 2022 had $35.0 million of borrowings under loan agreements. As of December 31, 2022, our cash and cash equivalents
and short-term investments were approximately $24.6 million and $144.0 million, respectively, and we had an accumulated deficit of approximately $96.3
million.
Private Placement. On December 9, 2022, we issued 6,182,574 shares of common stock, 1,120,873 shares of Series A Preferred Stock and warrants
exercisable for 6,956,450 shares of common stock to certain institutional and other accredited investors pursuant to a securities purchase agreement entered
into on May 15, 2022. Pursuant to the securities purchase agreement, the closing (funding) of the private placement occurred following dosage of the first
patient in the Company’s Phase 3 study, VIKTORIA-1. Investors purchased shares of common stock and Series A Preferred Stock at a price of $5.75 per
share (on an as converted to common stock basis), with forty percent (40%) warrant coverage (on an as converted to common stock basis) and customary
resale registration rights. The warrants have an exercise price of $8.05 per share. The private placement generated gross proceeds of approximately $100
million before deducting placement agent fees and other offering expenses of $4.3 million.
Open Market Sale AgreementSM. On February 4, 2022, we entered into an Open Market Sale AgreementSM with Jefferies LLC, as agent, pursuant to
which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $50,000,000. On
October 12, 2022, pursuant to this agreement, the Company sold 500,000 shares of common stock in a single transaction at a price of $10.35 per share,
generating gross proceeds of $5.2 million ($4.8 million net of commissions and offering expenses). At December 31, 2022, $44.8 million of common stock
remains available for sale under the Jefferies agreement.
Innovatus Loan Agreement. On April 8, 2021, we entered into a Loan Agreement with Innovatus Life Sciences Lending Fund I, LP (“Innovatus”),
under which Innovatus agreed to loan up to $25 million in three tranches consisting of (i) a $15.0 million non-contingent Term A loan that was funded on
April 8, 2021, (ii) a $5 million Term B loan with a deadline of March 31, 2022, and (iii) a $5 million Term C loan to be funded upon our request, subject to
our ability to achieve certain milestones, no later than March 31, 2023. On August 9, 2022, the Company amended the Loan Agreement with Innovatus to
provide for up to $75 million in term loans. As of December 31, 2022, term loans totaling $35 million are outstanding under the Loan Agreement,
including the initial Term A loan of $15 million which was funded on April 8, 2021, and a $20 million Term B loan which was funded on December 22,
2022 following the closing of the $100 million private placement described above. Additionally, the Company will be able to draw on two additional
tranches of $10 million and one additional tranche of $20 million upon achievement of certain clinical trial milestones and satisfaction of certain financial
covenants determined on a pro forma as-funded basis. Funding of these additional tranches is also subject to other customary conditions and limits on when
the Company can request funding for such tranches.
65
We expect that our research and development and general and administrative expenses will increase as we continue to develop gedatolisib, manage the
VIKTORIA-1 Phase 3 trial, conduct research related to the discovery of new cancer sub-types, conduct clinical trials, and pursue other business
development activities. We would also expect to incur sales and marketing expenses as we commercialize gedatolisib and our CELsignia tests. We expect
to use cash on hand to fund our research and development expenses, clinical trial costs, capital expenditures, working capital, sales and marketing
expenses, and general corporate expenses.
Based on our current business plan, we believe that our current cash, cash equivalents and short-term investments together with available borrowings
under the Innovatus Loan Agreement will provide sufficient cash to finance our operations and pay obligations when due through at least 2025.
Our expectations as to how long our current capital resources will be sufficient to fund our operations are based on assumptions that may not be
accurate, and we could use our current capital resources sooner than we currently expect. In addition, we may seek to raise additional capital to finance
capital expenditures and operating expenses over the next several years as we launch our integrated therapeutic and companion diagnostic strategy and
expand our infrastructure, commercial operations and research and development activities, and to take advantage of financing or other opportunities that we
believe to be in the best interests of the Company and our stockholders. Additional capital may be raised through the sale of common or preferred equity or
convertible debt securities, entry into debt facilities or other third-party funding arrangements. The sale of equity and convertible debt securities may result
in dilution to our stockholders and those securities may have rights senior to those of our common shares. Agreements entered into in connection with such
capital raising activities could contain covenants that would restrict our operations or require us to relinquish certain rights. Additional capital may not be
available on reasonable terms, or not at all.
Cash Flows
The following table sets forth the primary sources and uses of cash for the years ended December 31:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
December 31,
2022
2021
$
$
(36,008,171) $
(144,031,794)
120,325,141
(59,714,824) $
(20,311,940)
(81,398)
93,041,808
72,648,470
Net cash used in operating activities was approximately $36.0 million for the year ended December 31, 2022 and consisted primarily of a net loss of
approximately $40.4 million and working capital changes of $1.2 million, offset by non-cash expense items of approximately $5.6 million. Non-cash
expense items of approximately $5.6 million primarily consisted of $4.6 million of stock-based compensation expense, non-cash interest expense of $0.9
million and depreciation expense of $0.2 million. The approximately $1.2 million of working capital changes was primarily due to an increase in prepaid
assets, somewhat offset by increases in accounts payable and accrued expenses.
Net cash used in operating activities was approximately $20.3 million for the year ended December 31, 2021 and consisted primarily of a net loss of
approximately $29.6 million, adjusted for non-cash items of approximately $8.5 million and working capital changes of approximately $0.8 million. Non-
cash expense items of approximately $8.5 million consisted of $5.0 million for issuance of common stock related to a license agreement, stock-based
compensation expense of approximately $2.6 million, non-cash interest expense of $0.6 million and depreciation of approximately $0.3 million. The
working capital change of approximately $0.8 million was primarily due to an increase in accounts payable, slightly offset by an increase in prepaid assets.
66
Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 was approximately $144.0 million and consisted of approximately $143.9
million of short-term investments in government securities (U.S. Treasury Bills and U.S. government agency securities) and approximately $0.1 million in
purchases of property and equipment.
Net cash used in investing activities for the year ended December 31, 2021 was approximately $0.1 million and consisted of purchases of property and
equipment.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2022 was approximately $120.3 million. The $120.3 million primarily
consisted of net proceeds from a private placement offering and ATM offering totaling $100.5 million and $19.5 million from net proceeds related to the
closing of a Loan Agreement. The remaining $0.3 million was the result of proceeds from the exercise of employee stock options and proceeds from
employee stock purchases.
Net cash provided by financing activities for the year ended December 31, 2021 was approximately $93.0 million. The $93.0 million primarily
consisted of net proceeds from the sale of shares of our common stock through two follow-on offerings totaling $78.5 million and $14.4 million from net
proceeds related to the closing of a Loan Agreement. The remaining $0.1 million was the result of proceeds from the exercise of common stock warrants
and employee stock options and proceeds from employee stock purchases.
RECENT ACCOUNTING PRONOUNCEMENTS
From time-to-time new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies
and adopted by us as of the specified effective date. Unless otherwise discussed in Note 2 to our financial statements included elsewhere in this Annual
Report, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results
of operations upon adoption.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States, or Generally Accepted Accounted Principles (“U.S. GAAP”).
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. These
items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base
our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; the results of which form the
basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are
reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates.
Our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report. Of our
significant accounting policies, we believe that the following are the most critical:
Stock-Based Compensation
Our stock-based compensation consists of common stock options and restricted stock issued to certain employees and nonemployees and our
Employee Stock Purchase Plan (“ESPP”). We recognize compensation expense based on an estimated grant date fair value using the Black-Scholes option-
pricing method. We have elected to account for forfeitures as they occur.
The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to our IPO, the price per share of common
stock was determined by our board based on recent prices of common stock sold in private offerings. Subsequent to the IPO, the price per share of common
stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for
U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life was based on
the simplified method in accordance with SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility was estimated based on historical
volatility information of peer companies that are publicly available in combination with our calculated volatility since being publicly traded.
All assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options
granted to employees. In the event we terminate any of our consulting agreements, the unvested options issued in connection with such agreements would
also be cancelled.
For grants of restricted stock, we record compensation expense based on the quoted fair value of the shares on the grant date over the requisite service
period. Compensation expense for ESPP rights is recorded in line with each respective offering period.
Clinical Trial Costs
The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which
includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development
expenses. The Company primarily relies on a compilation of progress reports from third-party service providers, including the respective invoicing, to
record actual expenses, along with determining changes to prepaid assets and accrued liabilities. To date, the company believes utilization of third-party
reports most accurately reflects expenses. As the current VIKTORIA-1 Phase 3 trial ramps up site activation and patient enrollment, the Company may
need to estimate expenses in future periods and actual services performed may vary from these estimates. Changes in these estimates that result in material
changes to the Company’s prepaid assets or accrued expenses could materially affect the Company’s results of operations.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
67
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Celcuity Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Celcuity Inc. (the Company) as of December 31, 2022 and 2021, and the related statements of
operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
/s/ Boulay PLLP
We have served as the Company’s auditor since 2017.
Minneapolis, Minnesota
March 23, 2023
PCAOB ID: 542
68
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Assets
Current Assets:
Cash and cash equivalents
Investments
Deposits
Deferred transaction costs
Payroll tax receivable
Prepaid assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Total Assets
Celcuity Inc.
Balance Sheets
December 31, 2022
December 31, 2021
$
$
$
$
24,571,557 $
144,015,954
22,009
33,195
203,665
6,344,157
175,190,537
260,294
246,266
175,697,097 $
2,627,076 $
2,449
191,749
4,060,280
6,881,554
-
61,002
34,983,074
41,925,630
84,286,381
-
22,009
22,144
298,764
722,677
85,351,975
312,444
241,901
85,906,320
1,507,099
5,850
189,858
802,893
2,505,700
2,449
61,771
14,625,923
17,195,843
1,121
-
21,667
230,045,566
(96,296,887)
133,771,467
175,697,097 $
14,919
124,622,405
(55,926,847)
68,710,477
85,906,320
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable
Finance lease liabilities
Operating lease liabilities
Accrued expenses
Total current liabilities
Finance lease liabilities
Operating lease liabilities
Note payable, non-current
Total Liabilities
Commitments and Contingencies (Note 10)
Stockholders’ Equity:
Preferred stock, $0.001 par value: 2,500,000 shares authorized; 1,120,873 and 0 shares issued
and outstanding as of December 31, 2022 and December 31, 2021
Common stock, $0.001 par value: 65,000,000 and 25,000,000 shares authorized; 21,667,250
and 14,918,887 shares issued and outstanding as of December 31, 2022 and December 31,
2021, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to the financial statements
69
Celcuity Inc.
Statements of Operations
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest expense
Interest income
Loss on sale of fixed assets
Other income (expense), net
Net loss before income taxes
Income tax benefits
Net loss
Net loss per share, basic and diluted
Weighted average common shares outstanding, basic and diluted
Years Ended December 31,
2022
2021
$
$
$
35,289,548 $
4,101,543
39,391,091
(39,391,091)
(2,106,111)
1,127,162
-
(978,949)
(40,370,040)
-
(40,370,040) $
(2.64) $
15,418,543
25,758,006
2,597,909
28,355,915
(28,355,915)
(1,262,350)
13,262
(263)
(1,249,351)
(29,605,266)
-
(29,605,266)
(2.21)
13,382,553
See accompanying notes to the financial statements
70
Balance at December 31, 2020
Stock-based compensation
Employee stock purchases
Exercise of common stock warrants
Exercise of common stock options, net of
shares withheld for exercise price
Issuance of common stock upon closing of
follow-on offerings, net of underwriting
discounts and offering costs
Issuance of common stock in an at-the-
market (“ATM”) offering
Issuance costs associated with ATM offering
Issuance of common stock warrants, note
payable
Issuance of common stock, licensing
agreement
Net loss
Balance at December 31, 2021
Stock-based compensation
Employee stock purchases
Exercise of common stock options, net of
shares withheld for exercise price
Issuance of common and preferred stock
upon closing of private placement offering
Issuance costs associated with private
placement offering
Issuance of common stock in an ATM
offering
Issuance costs associated with an ATM
offering
Net loss
Balance at December 31, 2022
Celcuity Inc.
Statements of Changes in Stockholders’ Equity
Common Stock
Preferred Stock
Shares
Shares
Amount
10,299,822 $ 10,300
3
14
2
2,964
13,487
1,975
Amount
- $
-
-
-
Additional
Paid-In
Capital
Accumulated
Deficit
Total
- $ 38,013,551 $ (26,321,581) $ 11,702,270
2,609,935
-
65,839
-
18,762
-
2,609,932
65,825
18,760
-
-
-
27,051
27
4,221,100
4,221
3,082
-
-
3
-
-
349,406
-
14,918,887
3,523
32,669
349
-
14,919
2
33
29,597
30
-
-
-
-
-
-
-
-
-
-
-
-
63,393
-
63,420
-
78,526,363
-
78,530,584
-
-
-
-
-
-
-
-
-
38,959
(3,868)
289,839
-
-
-
38,962
(3,868)
289,839
4,999,651
-
124,622,405
4,638,203
171,677
-
(29,605,266)
(55,926,847)
-
-
5,000,000
(29,605,266)
68,710,477
4,638,205
171,710
152,382
-
152,412
6,182,574
6,183
1,120,873
1,121
99,992,696
-
100,000,000
-
-
500,000
500
-
-
-
-
(4,316,534)
5,174,500
-
-
(4,316,534)
5,175,000
-
-
-
-
21,667,250 $ 21,667
-
-
(389,763)
(40,370,040)
1,120,873 $ 1,121 $ 230,045,566 $ (96,296,887) $ 133,771,467
-
(40,370,040)
(389,763)
-
-
-
See accompanying notes to the financial statements
71
Celcuity Inc.
Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used for operations:
Depreciation
Stock-based compensation
Issuance of common stock, licensing agreement
Amortization of debt issuance costs and discount
PIK interest
Non-cash operating lease, net
Loss on sale of fixed assets
Change in accrued interest income
Changes in operating assets and liabilities:
Payroll tax receivable
Prepaid assets and deposits
Accounts payable
Accrued expenses
Net cash used for operating activities
Cash flows from investing activities:
Purchases of investments
Purchases of property and equipment
Proceeds from sale of property and equipment
Net cash used for investing activities
Cash flows from financing activities:
Proceeds from exercise of common stock warrants
Proceeds from exercise of employee stock options
Proceeds from employee stock purchases
Proceeds from follow-on offering, net of underwriting discounts and offering costs
Proceeds from an ATM offering, net of commission fees and offering costs
Proceeds from note payable, net of debt issuance and discount costs
Proceeds from a private placement offering, net of discounts and offering costs
Payments for finance leases
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosures of non-cash investing and financing activities:
Deferred financing costs and offering and registration statement costs included in accounts
payable
Issuance of common stock warrants and final fee recognized as discount to note payable
$
$
$
See accompanying notes to the financial statements
72
Years Ended December 31,
2022
2021
$
(40,370,040) $
(29,605,266)
210,918
4,638,205
-
395,757
455,074
(3,243)
-
(142,928)
95,099
(5,621,480)
1,077,080
3,257,387
(36,008,171)
(143,873,026)
(158,768)
-
(144,031,794)
-
152,412
171,710
-
4,776,046
19,509,037
95,721,786
(5,850)
120,325,141
(59,714,824)
84,286,381
24,571,557 $
303,235
2,609,935
5,000,000
267,821
300,001
(7,740)
263
-
(108,764)
(405,637)
1,305,932
28,280
(20,311,940)
-
(81,898)
500
(81,398)
18,762
63,420
65,839
78,530,585
21,073
14,347,939
-
(5,810)
93,041,808
72,648,470
11,637,911
84,286,381
1,255,280 $
694,528
51,020 $
-
8,123
964,839
CELCUITY INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization
Nature of Business
Celcuity Inc., a Delaware corporation (the “Company”), is a clinical-stage biotechnology company focused on development of targeted therapies for
multiple solid tumor indications. The Company’s lead therapeutic candidate is gedatolisib, a potent pan-PI3K and mTOR inhibitor. Its mechanism of action
and pharmacokinetic properties are highly differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or
together. A Phase 3 clinical trial, VIKTORIA-1, evaluating gedatolisib in combination with fulvestrant with or without palbociclib in patients with
HR+/HER2- advanced breast cancer is currently enrolling patients. Its CELsignia companion diagnostic platform is uniquely able to analyze live patient
tumor cells to identify new groups of cancer patients likely to benefit from already approved targeted therapies. The Company was co-founded in 2012 by
Brian F. Sullivan and Dr. Lance G. Laing and is based in Minnesota. The Company has not generated any revenues to date.
Private Placement Offering
On December 9, 2022, the Company completed the closing (funding) of its private placement offering with certain institutional and other accredited
investors for the sale of Company common stock, preferred stock that may be convertible into common stock and warrants exercisable for common stock
for $100 million in the aggregate, before deducting placement agent fees and other offering expenses of $4.3 million. The closing followed dosage of the
first patient in Celcuity’s Phase 3 clinical trial, VIKTORIA-1.
2. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Operating results for the year ended December
31, 2022 are not necessarily indicative of results to be expected for any future year.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with U.S. GAAP. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual
results could differ from those estimates and the difference could be significant. Significant items subject to such estimates and assumptions include the
valuation of stock-based compensation and prepaid or accrued clinical trial costs.
Cash and Cash Equivalents
The Company maintains its accounts at one financial institution. At times throughout the year, the Company’s cash balances may exceed amounts insured
by the Federal Deposit Insurance Corporation. At December 31, 2022 and December 31, 2021, the Company had $24,571,557 and $84,286,381,
respectively, in business checking accounts and money market funds that are considered cash equivalents and not insured by the Federal Deposit Insurance
Corporation.
Investments
The Company maintains its investments in U.S. governmental agency securities and U.S. treasury bills and has classified them as held-to-maturity at the
time of purchase. Held-to-maturity purchases are those securities in which the Company has the ability and intent to hold until maturity. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity security using a straight-line method. The difference between the carrying value, which is based on
cost, and the aggregate fair value of the held-to-maturity securities, was immaterial as of December 31, 2022. At December 31, 2022 and December 31,
2021, the Company had $144,015,954 and $0, respectively, of short-term investments.
73
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over estimated useful lives using the straight-line method. Maintenance and repairs are
expensed as incurred; major improvements and betterments are capitalized.
Estimated useful lives of property and equipment are as follows for the major classes of assets:
Asset Description
Furniture and Equipment
Leasehold Improvements
Long-Lived Assets
Estimated
Lives
4-5
2-3
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first
compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or
asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value.
Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent
appraisals, as considered necessary.
Deferred Transaction Costs
Deferred transaction costs for the year ended December 31, 2022, primarily consist of legal fees that were capitalized as incurred and will be offset against
the proceeds from future ATM offerings. The deferred transaction costs will be reviewed periodically to assess the probability that future securities will be
offered. In the event that no future offering will occur, any deferred transaction costs will be expensed. Total costs incurred, but not accounted for as a
reduction in equity, were $33,195 and $22,144 as of December 31, 2022 and 2021, respectively.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those
with stockholders. For all periods presented, there was no difference between net loss and comprehensive loss.
Risks and Uncertainties
The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and commercial
success of its initial drug product, gedatolisib, the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval for
gedatolisib and its diagnostic tests, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products,
if any, by physicians and consumers, and significant competition.
Fair Value of Financial Instruments
The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring or nonrecurring basis adheres to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the
fair value hierarchy are as follows:
●
●
●
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls, is based on the lowest level input that is significant to the
fair value measurement in its entirety.
74
The carrying values of cash equivalents, accounts payable, accrued expenses and other financial working capital items approximate fair value at December
31, 2022 and December 31, 2021, due to the short maturity nature of these items.
Income Taxes
The Company accounts for income taxes using the asset and liability method, as required by the accounting standard for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred taxes are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in results of operations in the period that includes the enactment date. The effects
of any future changes in tax laws or rates have not been considered. The Company regularly reviews deferred tax assets to assess their potential realization
and establish a valuation allowance for portions of such assets to reduce the carrying value if the Company does not consider it to be more likely than not
that the deferred tax assets will be realized.
The Company recognizes the impact of an uncertain tax position in its financial statements if, in management’s judgment, the position is more-likely-than-
not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of
applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary.
Stock-Based Compensation
The Company’s stock-based compensation consists of stock options and restricted stock issued to certain employees and nonemployees of the Company
and the Company’s 2017 Employee Stock Purchase Plan. The Company recognizes compensation expense based on an estimated grant date fair value
using the Black-Scholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation
expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis
over the requisite service period. The Company has elected to account for forfeitures as they occur.
Research and Development
Research and development costs are expensed as incurred. Research and development costs amounted to $35,289,548, for the year ended December 31,
2022 and $25,758,006, for the year ended December 31, 2021.
Clinical Trial Costs
The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which
includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development
expenses. The Company primarily relies on a compilation of progress reports from third-party service providers, including the respective invoicing, to
record actual expenses, along with determining changes to prepaid assets and accrued liabilities. To date, the Company believes utilization of third-party
reports most accurately reflects expenses incurred. As the current VIKTORIA-1 Phase 3 trial ramps up site activation and patient enrollment, the
Company’s estimated expenses in future periods and actual services performed may vary from these estimates, and these estimates may become more
significant. Changes in these estimates that result in material changes to the Company’s prepaid assets or accrued expenses could materially affect the
Company’s results of operations.
Segment Data
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of
Freestanding Equity-Classified Written Call Options, which provides guidance on how an issuer should account for modifications made to equity-classified
written call options. The guidance in the ASU requires the issuer to treat the modification of an equity-classified warrant that does not cause the warrant to
become liability-classified as an exchange of the original warrant for a new warrant. The issuer should measure the effect of a modification as the
difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The standard is effective for
all entities for all fiscal years beginning after December 15, 2021. The Company adopted this accounting standard effective January 1, 2022, and based on
the standard, determined that the Representative’s Warrant amendment was equity-classified, treated as a deemed dividend within Additional Paid-in
Capital, and the estimated incremental fair value of the modification for the Representative’s Warrant at the date of amendment was $271,988.
75
3. Liquidity
Based on the Company’s cash and cash equivalents and short-term investments on hand at December 31, 2022 of $24,571,557 and $144,015,954,
respectively, the Company believes that its cash and short-term investments will be sufficient to fund the Company’s current operating plan through at least
the next 12 months from the issuance date of this Annual Report.
4. Net Loss Per Common Share
Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common
shares outstanding during the period. For all periods presented, the common shares underlying the preferred stock, options, and warrants have been
excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic
and diluted loss per common share are the same.
For the years ended December 31, 2022 and 2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares
outstanding were preferred stock on an as-if-converted to common stock basis of 11,208,730 and zero shares of common stock, respectively, options to
purchase 1,976,586 and 1,315,321 shares of common stock, respectively, warrants to purchase 7,266,102 and 377,652 shares of common stock,
respectively, and 3,273 and 2,964 shares of restricted common stock, respectively.
In accordance with ASU 2021-04, for purposes of calculating basic and diluted net loss per share for the year ended December 31, 2022, the reported net
loss was increased by approximately $272,000 related to the deemed dividend resulting from the amendment to the warrant agreement as further discussed
in Note 11. This adjustment increased the basic and diluted net loss per share by $0.02 for the year ending December 31, 2022.
5. Investments
The following table summarizes the Company’s held-to-maturity investment securities at amortized cost as of December 31, 2022:
December 31, 2022
Amortized Cost,
as Adjusted
Gross
Unrealized
Gross
Unrealized
Holding Gains
Holding Losses
Estimated Fair
Value
Governmental Agency Securities
U.S. Treasury Notes
Total
$
$
46,230,893 $
97,785,061
144,015,954 $
29,517 $
41,639
71,156 $
- $
-
- $
46,260,410
97,826,700
144,087,110
The Company had no investments as of December 31, 2021.
The fair value of the Company’s held-to-maturity debt securities are determined based upon inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly and are classified as level 2 fair value instruments.
6. Payroll Tax Receivable
The payroll tax receivable is the result of the Company’s utilization of research and development tax credits as authorized by the Path Act. The balance at
December 31, 2022 was $203,665 and December 31, 2021 was $298,764.
7. Prepaid Assets
Prepaid assets consisted of the following at December 31:
Current:
Directors & officers’ insurance
Prepaid research & development
Clinical trial
Other
Total
2022
2021
$
$
173,416 $
421,800
5,656,737
92,204
6,344,157 $
313,958
338,760
-
69,959
722,677
76
8. Property and Equipment
Property and equipment consisted of the following at December 31:
Leasehold improvements
Furniture and equipment
Less: Accumulated depreciation
Total
2022
2021
$
302,577 $
1,676,935
1,979,512
(1,719,218)
$
260,294 $
302,848
1,517,896
1,820,744
(1,508,300)
312,444
Depreciation expense was $210,918 and $303,235 for the years ended December 31, 2022 and 2021, respectively.
9. Accrued Expenses
Accrued expenses consisted of the following at December 31:
Accrued compensation
Employee Stock Purchase Plan
Clinical trial costs
Other
Total
10. Commitments
Operating and Finance Leases
2022
2021
$
$
929,216 $
38,967
2,246,573
845,524
4,060,280 $
438,477
34,455
138,788
191,173
802,893
The Company leases its corporate space in Minneapolis, Minnesota. In September 2017, the Company entered into a non-cancelable operating lease
agreement for building space. The new lease commenced, and the Company moved to the facility in May 2018, in conjunction with the termination of its
then existing lease. Rent expense is recorded on a straight-line basis over the lease term. In July 2020 the Company signed an amendment to extend this
lease through April 30, 2022. The lease amendment provides for monthly rent, real estate taxes and operating expenses. As a result of the lease amendment,
the Company recorded an incremental $197,211 in the operating right-of-use (“ROU”) asset and lease liability. In July 2021, the Company signed the
second amendment to extend this lease through April 30, 2023. This amendment provides for monthly rent, real estate taxes and operating expenses. The
Company recorded an incremental $193,517 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this amendment. In July 2022, the
Company signed the third amendment to extend this lease through April 30, 2024. This amendment provides for monthly rent, real estate taxes and
operating expenses. The Company recorded an incremental $195,437 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this
amendment.
In May 2018, the Company entered into a non-cancelable finance lease agreement for office equipment with a five-year term. The underlying assets are
included in furniture and equipment. The lease contains a bargain purchase option at the end of the lease.
77
When an implicit rate is not provided, the Company uses its incremental borrowing rate based on the information available at the lease commencement date
in determining the present value of the lease payments.
Supplemental balance sheet information consisted of the following at December 31, 2022:
Operating Lease
Right-of-use assets
Operating lease liability
Less: short term portion
Long term portion
Finance Lease
Furniture and equipment
Less: Accumulated depreciation
Net book value of property and equipment under finance lease
Finance lease liability
Less: short term portion
Long term portion
$
$
$
$
$
$
$
246,266
252,751
(191,749)
61,002
28,932
(26,521)
2,411
2,449
(2,449)
-
Maturity analysis under lease agreements consisted of the following as of December 31, 2022:
Operating Leases
Finance Leases
2023
2024
Total minimum lease payments
Less: Present value discount
Less amount representing services
Present value of net minimum lease payments
Weighted Average
Operating lease
Finance lease
Lease costs for the years ended December 31:
Operating lease cost
Finance lease cost:
Amortization
Interest
Variable lease cost
$
$
206,957 $
69,439
276,396
(23,645)
-
252,751 $
Remaining Lease Term
Discount Rate
1.3 years
0.3 years
2022
2021
$
$
78
197,767 $
5,786
39
81,077
284,669 $
3,023
-
3,023
(5)
(569)
2,449
8.0%
1.0%
185,379
5,786
79
79,477
270,721
Supplemental cash flow information related to leases for the years ended December 31:
Cash paid for amounts included in operating and finance leases:
Operating cash outflow from operating leases
Operating cash outflow from finance leases
Financing cash outflow from finance leases
Clinical Research Studies
2022
2021
$
$
282,086 $
39
5,850
287,975 $
274,297
79
5,810
280,186
The Company enters into contracts in the normal course of business to conduct research and development programs internally and through third parties that
include, among others, arrangements with vendors, consultants, CMO’s, and CRO’s. The Company currently has four Phase 2 clinical trial agreements in
place to evaluate targeted therapies selected with one of our CELsignia tests. Timing of milestone payments related to the Phase 2 clinical trials are
uncertain and the contracts generally provide for termination following a certain period after notice, therefore the Company believes that non-cancelable
obligations under the agreements are not material. The Company also has a license agreement in place with Pfizer to research, develop, manufacture and
commercialize gedatolisib. In conjunction with the license agreement, the Company continued a Phase 1b study – B2151009 related to gedatolisib. These
patients subsequently transitioned to an Expanded Access study – CELC-G-001. Contracts related to the Phase 1B study and the Expanded Access study,
are generally based on time and material. In addition, contracts related to the Company’s Phase 3 clinical study (VIKTORIA-1) are generally cancelable
with reasonable notice within 120 days and the Company’s obligations under these contracts are primarily based on services performed through termination
dates plus certain cancelation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be
subjected to amendments as a result of any change orders executed by the parties. As of December 31, 2022, the Company had only one material non-
cancelable contractual commitment with respect to these arrangements, which totaled approximately $2.3 million.
11. Stockholders’ Equity
Capital Stock
At December 31, 2021, the Company’s authorized capital stock consisted of 25,000,000 shares of $.001 par value common stock, of which 14,918,887
shares were outstanding, and 2,500,000 shares of $.001 par value preferred stock, of which 0 were outstanding.
The authorized number of shares of common stock was increased to 30,000,000 shares on May 12, 2022 and to 65,000,000 shares on September 1, 2022.
On May 16, 2022, the Company designated 1,850,000 shares of the authorized preferred stock as Series A Convertible Preferred Stock (“Series A Preferred
Stock”). The Series A Preferred Stock is non-voting, and each share is convertible at the option of the holder, subject to certain limitations, into 10 shares
of common stock. Holders of Series A Preferred Stock are entitled to receive dividends, on an as-if-converted-to-common stock basis, when, as and if, and
in the same form as, dividends are actually paid on the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, or in the event of a Deemed Liquidation Event (as defined in the Certificate of Designations of Preferences, Rights and Limitations of Series
A Convertible Preferred Stock), the holders of Series A Preferred Stock are entitled to be paid from assets of the Company available for distribution to its
stockholders, before any payment is made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the greater of
(i) the original issue price ($5.75 on an as-converted-to-common stock basis), plus all accrued and unpaid dividends and (ii) the amount that the holder
would have been entitled to receive at such time if the Series A Preferred Stock were converted into common stock. The Company may not, without the
consent of holders of a majority of the outstanding shares of Series A Preferred Stock, amend its charter in a manner that adversely affects the powers,
preferences or rights of the Series A Preferred Stock or issue or obligate itself to issue shares of any additional class or series of capital stock unless the
same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company and
the payment of dividends.
At December 31, 2022, the Company’s authorized capital stock consisted of 65,000,000 shares of common stock, of which 21,667,250 shares were
outstanding, and 2,500,000 shares of preferred stock, including 1,850,000 shares designated as Series A Preferred Stock, of which 1,120,873 shares were
outstanding. As of December 31, 2022, no dividends have been declared on the Company’s capital stock.
79
Sale and Issuance of Stock
On December 9, 2022, the Company issued 6,182,574 shares of common stock, 1,120,873 shares of Series A Preferred Stock and warrants exercisable for
6,956,450 shares of common stock to certain institutional and other accredited investors pursuant to a securities purchase agreement entered into on May
15, 2022. Pursuant to the securities purchase agreement, the closing (funding) of the private placement occurred following dosage of the first patient in the
Company’s Phase 3 study, VIKTORIA-1. Investors purchased shares of common stock and Series A Preferred Stock at a price of $5.75 per share (on an as
converted to common stock basis), with forty percent (40%) warrant coverage (on an as converted to common stock basis) and customary resale
registration rights. The private placement generated gross proceeds of approximately $100 million before deducting placement agent fees and other offering
expenses of $4.3 million.
On February 4, 2022, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC, as agent (“Jefferies”), pursuant to which the
Company may offer and sell, from time to time, through Jefferies, shares of common stock having an aggregate offering price of up to $50,000,000. The
Company will pay Jefferies a commission equal to 3.0% of the aggregate gross proceeds from each sale of such shares. On October 12, 2022, pursuant to
the above agreement, the Company sold 500,000 shares of common stock in a single transaction at a price of $10.35 per share, generating gross proceeds of
$5.2 million before deducting commissions and other offering expenses of $0.4 million.
On February 26, 2021, the Company completed a follow-on offering in which it sold 1,971,100 shares of common stock (including 257,100 shares of
common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $14.00 per share.
The offering generated gross proceeds of approximately $27.6 million before deducting underwriting discounts and other offering expenses of
approximately $1.8 million.
On April 8, 2021, in conjunction with entering into a license agreement with Pfizer to research, develop, manufacture and commercialize gedatolisib, the
Company issued to Pfizer 349,406 shares of the Company’s common stock at a price of $14.31 per share, for an aggregate price of $5.0 million.
On July 1, 2021, the Company completed a follow-on offering in which it sold 2,250,000 shares of common stock at a public offering price of $25.00 per
share. The offering generated gross proceeds of approximately $56.3 million before deducting underwriting discounts and other offering expenses of
approximately $3.5 million.
Warrants
At December 31, 2022:
Issue Date
Expiration Date
# of Warrants
Outstanding
Exercise Price
Offering
1/21/2016
1/14/2026
5/2/2016
5/2/2026
4/28/2017
4/28/2027
5/17/2017
9/22/2017
9/22/2017
4/8/2021
12/9/2022
Total Warrants
Outstanding
5/17/2027
9/22/2024
9/19/2025
4/8/2031
see below
33,719 $
21,530 $
33,250 $
15,365 $
109,746 $
70,000 $
26,042 $
6,956,450 $
7,266,102
7.56
7.56
8.42
private placement offering - issued to placement
agent
private placement offering - issued to placement
agent
private placement offering - issued to placement
agent
private placement offering - issued to placement
agent
8.42
9.50 purchasers of convertible notes
10.45
14.40 debt financing - issued to lender
IPO - issued to underwriter
securities purchase agreement - issued to
institutional and other accredited investors
8.05
On December 9, 2022, in connection with entering into a securities purchase agreement on May 15, 2022, the Company issued warrants to certain
institutional and other accredited investors to purchase 6,956,450 shares of the Company’s common stock at a price of $8.05. The warrants may be
exercised at any time or from time to time on or after the date of issuance and on or before the earlier of (i) 5:00 p.m. (New York City time) on December 9,
2027 or (ii) seventy-five (75) days after the Company publicly announces (x) whether the progression-free survival (PFS) of gedatolisib in combination
with palbociclib and fulvestrant (Arm A) to fulvestrant (Arm C) in the Phase 3 study met its primary endpoint target, (y) whether the PFS of gedatolisib in
combination with fulvestrant (Arm B) to fulvestrant (Arm C) in the Phase 3 study met its primary endpoint target, and (z) the associated hazard ratios and
median PFS values for each of Arm A, Arm B, and Arm C. The warrants are equity classified and the $21.8 million of fair value allocated to the warrants is
reflected as Additional Paid-in Capital.
80
On September 13, 2022, the Company entered into a First Amendment to Representative’s Warrant (the “Warrant Amendment”) with Craig-Hallum Capital
Group LLC (“Craig-Hallum”), amending the terms of that certain Representative’s Warrant, dated September 22, 2017 (the “Representative’s Warrant”)
issued by the Company to Craig-Hallum in connection with the Company’s initial public offering. Under the terms of the Warrant Amendment, (i) the
number of shares of the Company’s common stock issuable upon exercise of the Representative’s Warrant was reduced from 138,000 shares to 70,000
shares, and (ii) the exercise period of the Representative’s Warrant was extended three years to September 19, 2025. There were no other material
amendments or modifications to the Representative’s Warrant. The estimated incremental fair value of the Representative’s Warrant at the date of
amendment was $271,988. As the Company has an accumulated deficit balance in Retained Earnings, the incremental impact will be recorded as a deemed
dividend, classified within Additional Paid-in Capital.
On April 8, 2021, in connection with entering into a loan and security agreement with Innovatus Life Sciences Lending Fund I, LP, the Company issued a
warrant to Innovatus to purchase 26,042 shares of the Company’s common stock at an exercise price of $14.40 per share. This warrant is equity classified
and the $289,839 fair value of the warrant was reflected as additional debt discount.
At December 31, 2022 and 2021, the Company had warrants to purchase 7,266,102 and 377,652 shares of common stock outstanding, at a weighted
average exercise price of $8.12 and $9.76, respectively. A total of 0 and 1,975 warrants were exercised in the years ended December 31, 2022 and 2021,
respectively.
12. Stock-Based Compensation
2012 Equity Incentive Plan
The 2012 Equity Incentive Plan, as amended, was adopted by the Company’s board and approved by the members of Celcuity LLC on August 10, 2012.
The Company reserved a maximum of 625,000 shares of common stock for issuance under the 2012 Equity Incentive Plan. The 2012 Equity Incentive Plan
provides for options, restricted stock awards, performance stock awards or stock bonuses. The exercise price of each option granted under the 2012 Equity
Incentive Plan is not less than 100% of the fair market value of one share on the date of grant. The maximum permitted term of options granted under the
2012 Equity Incentive Plan is ten years. The Company’s board administers the 2012 Equity Incentive Plan and determines the provisions of incentive
awards, including eligible recipients, number of shares subject to an incentive award, exercise price, vesting schedule, duration of an incentive award and
other restrictions an incentive award may be subject to. The 2012 Equity Incentive Plan was frozen on September 6, 2017 and any new awards will be
issued under the terms of the 2017 Amended and Restated Stock Incentive Plan.
2017 Stock Incentive Plan
The 2017 Amended and Restated Stock Incentive Plan (the “2017 Plan”) was adopted by the Company’s board on September 6, 2017, became effective
following the corporate conversion on September 15, 2017, and was approved by stockholders at the Company’s annual stockholder meeting on May 10,
2018. The 2017 Plan was amended and approved by stockholders at the Company’s annual stockholder meeting on May 14, 2020. The Company initially
reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Plan. The number of shares reserved for issuance was automatically
increased by 149,189 and 102,998 shares on January 1, 2022 and 2021, respectively and will increase automatically on January 1 of each of 2023 through
2027 by the number of shares equal to 1.0% of the aggregate number of outstanding shares of Company common stock as of the immediately preceding
December 31. However, the Company’s board may reduce the amount of the increase in any particular year. At the Annual Meeting held on May 12, 2021
and May 12, 2022, the stockholders approved a one-time, 500,000 increase each year for a total of 1,000,000 increase, to the number of shares reserved for
issuance under the 2017 Plan. The 2017 Plan provides for options, restricted stock awards, stock appreciation rights, restricted stock units, performance
awards and stock bonuses. The exercise price of each option granted under the 2017 Plan is not less than 100% of the fair market value of one share on the
date of grant. The maximum permitted term of options granted under the 2017 Plan is ten years. The 2017 Plan is generally administered by the
compensation committee of the Company’s board, which has the authority to interpret the 2017 Plan, grant awards and make all other determinations
necessary for the administration of the 2017 Plan.
81
The following table summarizes the activity for all stock options outstanding for the years ended December 31:
Options outstanding at beginning of year
Granted
Exercised
Forfeited
Balance at December 31:
Options exercisable at December 31:
Weighted Average Grant Date Fair Value for options
granted during the period:
2022
2021
Shares
Weighted Average
Exercise Price
Shares
Weighted Average
Exercise Price
1,315,321
843,797
(29,597)
(152,935)
1,976,586
995,629
$
$
$
$
11.97
7.64
5.15
9.70
6.34
5.91
849,949 $
538,567
(44,828)
(28,367)
1,315,321 $
592,141 $
9.33
16.09
7.06
18.72
11.97
9.53
5.22
$
14.93
The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2022:
Options Outstanding
Options Exercisable
Options
Outstanding
1,976,586
Weighted
Average
Remaining
Contractual Life
7.86
Weighted
Average Exercise
Price
$
6.34 $
Aggregate
Intrinsic Value
15,246,085
Weighted
Average
Options
Exercisable
995,629 $
Exercise Price
5.91
Aggregate
Intrinsic Value
8,157,756
The Company recognized stock-based compensation expense for stock options of $4,415,415 and $2,448,742 for the years ended December 31, 2022 and
2021, respectively. In May 2022, the Company modified the exercise price on 776,324 stock option awards to $5.50, the closing market price on the
Nasdaq Capital Market on May 17,2022. The effect of this modification on stock-based compensation was $517,000 for the year ended December 31,
2022. The effect of this modification on stock-based compensation over the remaining service period will be approximately $317,000. In December 2021,
the Company modified the exercise price on 311,000 stock option awards to $13.44, the closing market price on the Nasdaq Capital Market on December
15, 2021. No director or officer awards were modified. The effect on stock-based compensation was $92,000 and $53,000 for the years ended December
31, 2022 and 2021, respectively. The effect on stock-based compensation over the remaining service period will be approximately $173,000. In May 2020,
the Company modified the exercise price on 203,750 stock option awards to $5.10, the closing market price on the Nasdaq Capital Market on May 14,
2020. No director or officer awards were modified. The effect on stock-based compensation was $38,000 and $46,000 for the years ended December 31,
2022 and 2021, respectively. The effect on stock-based compensation over the remaining service period will be approximately $20,000.
The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for
the years ended December 31:
Risk-free interest rate
Expected volatility
Expected life (years)
Expected dividend yield
2022
1.68% - 4.22%
76.2% - 79.6%
5.29 to 6.25
0%
2021
0.63% - 1.39%
76.6% - 76.9%
5.0 to 6.11
0%
The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s initial public offering, the price
per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the
initial public offering, the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date.
The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life
at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The
expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s
calculated volatility since being publicly traded.
All assumptions used to calculate the grant date fair value of non-employee options are generally consistent with the assumptions used for options granted
to employees. In the event the Company terminates any of its consulting agreements, the unvested options issued in connection with the agreements would
also be cancelled.
82
The Company had 3,273 and 2,964 shares of restricted stock outstanding for the years ended December 31, 2022 and 2021, respectively, and 3,214 and
15,686 shares of restricted stock vested during the years ended December 31, 2022 and 2021, respectively. The Company recognized stock-based
compensation expense for restricted stock of $41,431 and $80,150 for the years ended December 31, 2022 and 2021, respectively.
The total remaining shares available for grant under the Company’s 2017 Plan as of December 31, 2022 was 242,435.
Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows:
2023
2024
2025
2026
Total estimated compensation cost to be recognized
2017 Employee Stock Purchase Plan
$
$
3,347,255
2,161,383
1,405,076
365,245
7,278,959
The Company’s 2017 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Company’s board on September 6, 2017 and approved by
stockholders at the Company’s annual stockholder meeting on May 10, 2018. The Company initially reserved a total of 100,000 shares for issuance under
the ESPP. The number of shares reserved for issuance was automatically increased by 74,595 and 51,499 shares on January 1, 2022 and 2021, respectively
and will increase automatically on each subsequent January 1 by the number of shares equal to 0.5% of the total outstanding number of shares of Company
common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year.
The total remaining shares available for issuance under the employee stock purchase plan as of December 31, 2022 is 192,148.
The ESPP provides participating employees with an opportunity to purchase shares of the Company’s common stock at a discount through payroll
deductions. The ESPP is available to all employees unless they are employed for less than 20 hours per week or own 5% or more of the total combined
voting power or value of the Company’s common stock. The ESPP is administered using overlapping 24 month offering periods, referred to as an Offering
Period. Each Offering Period has four six-month purchase periods. A new Offering Period and purchase period begin every six months on May 1 and
November 1 of each year. Participating employees may purchase common stock, on a voluntary after tax-basis, at a price equal to 85% of the fair market
value of a share of common stock on either the offering date or the purchase date, whichever is lower. If the purchase date has a lower price, the employee
will automatically be placed in the Offering Period beginning immediately after the purchase date. The Company recognized stock-based compensation
expense related to the ESPP of $181,359 and $41,043 for the years ended December 31, 2022 and 2021, respectively.
The Company recognized total stock-based compensation expense as follows for the years ended December 31:
Stock-based compensation expense in operating expenses:
Research and development
General and administrative
Total
Year Ended
December 31,
2022
2021
2,563,291 $
2,074,914
4,638,205 $
1,645,353
964,582
2,609,935
$
$
83
13. Debt
On April 8, 2021, the Company entered into a loan and security agreement (the “Loan Agreement”) with Innovatus Life Sciences Lending Fund I, LP, a
Delaware limited partnership (“Innovatus”) in its capacity as Collateral Agent and sole Lender. The Lender agreed to loan up to $25 million in three
tranches consisting of (i) a $15.0 million non-contingent term A loan that was funded on April 8, 2021, (ii) a $5 million term B loan with a deadline of
March 31, 2022 and (iii) a $5 million term C loan to be funded upon request, subject to our ability to achieve certain milestones, no later than March 31,
2023 (collectively the “Term Loans”).
The Loan Agreement also contains certain events of default, warranties and covenants of the Company. In connection with each funding of the Term Loans,
the Company is required to issue Innovatus a warrant (the “Warrants”) to purchase a number of shares of the Company’s stock equal to 2.5% of the
principal amount of the relevant Term Loan funded divided by the exercise price, which will be based on the lower of (i) $14.40 per share or (ii) the volume
weighted price per share of the Company’s stock for the five-trading day period ending on the last trading day immediately preceding the funding date of
the Term B or Term C Loan, as applicable. The warrants may be exercised on a cashless basis and are immediately exercisable through the tenth
anniversary of the applicable funding date. In connection with the first tranche of the Term Loans, the Company issued a warrant to Innovatus to purchase
26,042 shares of the Company’s common stock at an exercise price of $14.40 per share. The Company evaluated the warrant under ASC 470, debt, and
recognized an additional debt discount of approximately $0.3 million based on the relative fair value of the base instruments and warrants. The Company
calculated the fair value of the warrant using the Black-Scholes model. In connection with the funding of the first tranche of the Term Loans, a final fee of
approximately $0.7 million was recorded as additional principal as a debt discount, and a facility fee of approximately $0.1 million was recorded as
additional debt discount. The Company is also required to maintain a minimum cash balance in agreement with the term loans’ default terms.
On August 9, 2022, the Company amended the Loan Agreement. Under the amended Loan Agreement, Innovatus, as Lender, has agreed to loan up to $75
million, a $50 million increase from the original Loan Amount, in five tranches consisting of: (i) a $15 million term A loan that was funded on April 8,
2021 upon entering into the original Loan Agreement, (ii) a $20 million term B loan to be funded upon request of the Company no later than December 31,
2022, with such funding conditioned upon the closing of the Company’s $100 million private placement announced on May 16, 2022, (iii) a $10 million
term C loan to be funded upon request of the Company no later than April 1, 2024, (iv) a $20 million term D loan to be funded upon request of the
Company no later than November 1, 2024, and (v) a $10 million term E loan to be funded upon request of the Company no later than February 28, 2025.
As of December 31, 2022, term loans totaling $35 million are outstanding under the Loan Agreement, including the initial Term A loan of $15 million
which was funded on April 8, 2021, and a $20 million Term B loan which was funded on December 22, 2022 following the closing of the $100 million
private placement described above. Funding of the term C, D, and E loans are conditioned upon satisfaction of certain clinical trial milestones and certain
financial covenants determined on a pro forma as-funded basis. In connection with the original and amended Loan Agreement and the funding of the first
and second tranche of the Term Loans, the Company incurred debt issuance costs of approximately $1.1 million. The debt issuance costs and the debt
discount are amortized to interest expense using the effective interest method over the life of the Term Loans. The carrying value of the debt approximates
fair value as of December 31, 2022.
Under the amended Loan Agreement, Innovatus has the right, at its election and until August 9, 2025, the third anniversary of the loan amendment date, to
convert into Common Stock up to (1) 20% of the outstanding principal amount of term A loan, and (ii) an additional 7% of the amount by which the
aggregate principal amount of the funded term B, C, D, and E loans exceed $35 million, provided that the aggregate outstanding principal amount of all
term loans is at least $35 million, which such conversion based upon a price per share equal to $10.00. No additional warrants are required to be issued
under the funding of term B, C, D, and E.
The Company is entitled to make interest-only payments for forty-eight months, or up to sixty months from the original Loan Agreement date if certain
conditions are met. The Term Loans will mature on April 8, 2027, the sixth anniversary of the initial funding date, and will bear interest at a rate equal to
the sum of (a) the greater of (i) Prime Rate (as defined in the amended Loan Agreement) or (ii) 3.25%, plus 5.7%. Additionally, the Company elected to
make 4.95% of the interest rate as payable in-kind, which shall accrue as principal monthly. The Amended Loan Agreement includes certain other fees,
such as a final fee of 4.5% of the funded loan amounts not converted into equity by the lender, which apply if prepayment, an event of default, or change of
control occurs prior to August 9, 2025, the third anniversary of the Amendment date. Subject to certain other conditions, no final fee will be payable after
August 9, 2025. The Company has the option to prepay the loan at any time following the first anniversary of the amended loan agreement date, with tiered
prepayment fees ranging from 0 to 1% based on when the prepayment occurs. Upon a change in control or event of default, mandatory prepayment will be
required, and if such an event occurs prior to the first anniversary of the Amendment date, an additional prepayment fee of 3.0% applies.
84
The amended Loan Agreement remains secured by all assets of the Company. Proceeds will be used for working capital purposes and to fund the
Company’s general business requirements. The amended Loan Agreement contains customary representations and warranties and covenants, subject to
customary carve outs, and includes financial covenants related to or based upon liquidity, trailing twelve months revenue and the funded loan amounts.
Long-term debt consisted of the following at December 31, 2022 and 2021:
Note payable
Add: PIK interest (added to principal)
Add: final fee
Less: unamortized debt issuance costs
Less: unamortized debt discount
Total long-term debt
Future principal payments are as follows:
2025
2026
2027
Total
14. License Agreement
2022
2021
35,000,000 $
755,075
-
(707,001)
(65,000)
34,983,074 $
15,000,000
300,001
675,000
(386,578)
(962,500)
14,625,923
Years Ending
December 31,
13,408,153
17,877,538
4,469,384
35,755,075
$
$
$
$
On April 8, 2021 the Company entered into a license agreement with Pfizer to research, develop, manufacture and commercialize gedatolisib, a potent,
well-tolerated, reversible dual inhibitor that targets PI3K and mTOR, for the treatment, diagnosis and prevention of all diseases. The Company paid Pfizer
$5.0 million in upfront fees and issued to Pfizer $5.0 million of shares of the Company’s common stock pursuant to an Equity Grant Agreement. The
upfront payment and the issuance of shares were expensed to research & development in full for the three months ending June 30, 2021.
The Company is also required to make milestone payments to Pfizer upon achievement of certain development and commercial milestone events, up to an
aggregate of $335.0 million. Additionally, the Company will pay Pfizer tiered royalties on sales of gedatolisib at percentages ranging from the low to mid-
teens, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. Unless earlier
terminated, the license agreement will expire upon the expiration of all royalty obligations. The royalty period will expire on a country-by-country basis
upon the later of (a) 12 years following the date of first commercial sale of such product in such country, (b) the expiration of all regulatory or data
exclusivity in such country for such product or (c) the date upon which the manufacture, use, sale, offer for sale or importation of such product in such
country would no longer infringe, but for the license granted in the license agreement, a valid claim of a licensed patent right.
The Company has the right to terminate the license agreement for convenience upon 90 days’ prior written notice. Pfizer may not terminate the agreement
for convenience. Either the Company or Pfizer may terminate the license agreement if the other party is in material breach and such breach is not cured
within the specified cure period. In addition, either the Company or Pfizer may terminate the license agreement in the event of specified insolvency events
involving the other party.
85
15. Income Taxes
Following the conversion of Celcuity LLC to Celcuity Inc. on September 15, 2017, Celcuity Inc. began filing federal and state returns where required. No
income tax benefit was recorded for the years 2022 and 2021, due to net losses and recognition of a valuation allowance. The following table presents a
reconciliation of the tax expense computed at the statutory federal rate and the Company’s tax expense for the years ending December 31:
Tax benefit at statutory federal rate
State income tax benefit, net of federal tax effect
Change in valuation allowance on deferred tax assets
Research & Development Credits
Other permanent items
Income tax benefits
2022
2021
$
$
(8,478,000) $
(64,000)
9,543,000
(1,347,000)
346,000
- $
(6,217,000)
(49,000)
6,330,000
(222,000)
158,000
-
On December 22, 2017 H.R. 1, commonly referred to as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. As part of Tax Act, for tax years
beginning on or after January 1, 2022, Congress requires taxpayers to capitalize research and experimental expenditures that qualify as section 174 costs
and recover them over 5 years for domestic expenditures, and 15 years for expenditures attributed for foreign research.
The Inflation Reduction Act of 2022 (the “IRA”) was signed into law on August 16, 2022. Among other things, the IRA contained three key changes for
corporations—a corporate minimum tax, a one percent excise tax on certain stock buybacks and certain clean energy incentives and initiatives. The
enactment of the IRA did not result in any material impact to the Company’s income tax provision.
On August 9, 2022, President Biden signed the CHIPS and Science Act of 2022 into law, which provides certain financial incentives with the intention of
increasing American semi-conductor research, development and production and promoting domestic scientific and technological advances. The enactment
of the CHIPS did not result in any material impact to the Company’s income tax provision.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance
sheet basis differences. In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the net deferred tax
asset, because it is more likely than not that the Company will not realize future benefits associated with these deferred tax assets at December 31, 2022.
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows:
Deferred tax assets (liabilities):
Accrued expenses
Share-based compensation
Property and equipment
Right-of-use assets
Lease liability
IRC 174 Expenditures
Start-up expenditures
Net operating losses and tax credits
Valuation allowance
Net deferred tax assets
2022
2021
$
103,000 $
1,419,000
364,000
(52,000)
53,000
3,326,000
10,333,000
7,045,000
(22,591,000)
$
- $
50,000
796,000
319,000
(51,000)
53,000
-
6,966,000
4,915,000
(13,048,000)
-
At December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $19.3 million and $0.5 million, respectively.
The federal and state net operating loss carryforwards for 2017 will begin to expire in the year ending December 31, 2037. The federal net operating loss
carryforwards starting in 2018 have no expiration. These deferred tax assets were subject to a full valuation allowance as of December 31, 2022 and
December 31, 2021.
86
At December 31, 2022, the Company had federal and state research and development tax credit carryforwards resulting in deferred tax assets of
approximately $2.2 million and $1.0 million, respectively. The federal and state credit carryforwards will begin to expire in the years ending December 31,
2038 and December 31, 2033, respectively. These deferred tax assets were subject to a full valuation allowance as of December 31, 2022 and December 31,
2021.
Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company’s ownership, including a sale of the
Company, or significant changes in ownership due to sales of equity, may limit in the future the amount of net operating loss carryforwards available to
offset future taxable income.
The Company recognizes uncertain tax positions in accordance with ASC 740 on the basis of evaluating whether it is more-likely-than not that the tax
positions will be sustained upon examination by tax authorities. For those tax positions that meet the more-likely-than not recognition threshold, we
recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement. As of December 31, 2022, and 2021,
the Company has no significant uncertain tax positions. There are no unrecognized tax benefits included on the balance sheet that would, if recognized,
impact the effective tax rate. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.
Prior to the conversion, Celcuity was a limited liability company and therefore was taxed as a partnership for income tax purposes. Accordingly, no benefit
for income taxes was recorded prior to the conversion.
For years prior to 2018, the Company is no longer subject to U.S. federal or state income tax examinations. The Company’s policy is to recognize interest
and penalties related to uncertain tax positions as a component of general and administrative expenses.
16. Subsequent Event
On March 13, 2023, the Company signed an amendment to extend its operating lease for a period of two years. The commencement of the extended period
is May 1, 2024 and will terminate on April 30, 2026. This amendment provides for monthly rent, real estate taxes and operating expenses.
87
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship
of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, our disclosure controls and procedures were effective.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-
15(f) under the Securities Exchange Act of 1934. Management has assessed the effectiveness of our internal control over financial reporting as of
December 31, 2022 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO – 2013”) in Internal
Control-Integrated Framework. Based on this assessment, our Chief Executive Officer and Chief Financial Officer concluded that our system of internal
control over financial reporting was effective as of such date.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to our designation as a small reporting company or
SRC and Non-Accelerated filer.
Changes in Internal Control over Financial Reporting
There were no changes to our system of internal control over financial reporting during the three months ended December 31, 2022 and during the
subsequent time period through the filing of this Annual Report that have materially affected, or are reasonably likely to materially affect, our system of
controls over financial reporting.
ITEM 9B. Other Information
None.
88
ITEM 10. Directors, Executive Officers and Corporate Governance
Directors
PART III
Brian F. Sullivan, age 61, is our co-Founder and has served as Chairman of the Board and Chief Executive Officer since we commenced operations in
2012. Mr. Sullivan has over 30 years of experience founding and building successful, high growth technology companies. He was Chairman and CEO of
SterilMed, a medical device reprocessing company, from 2003, when he led an investment group to acquire a majority interest, until its sale to Ethicon
Endo-Surgery Inc., a Johnson & Johnson company, for $330 million in 2011. Previously, he was co-founder and Chief Executive Officer of Recovery
Engineering, a filtration company, which he took public and subsequently sold to Procter & Gamble for $265 million in 1999. Mr. Sullivan served on the
board of directors of Entegris, Inc., a publicly-held company from 2003-2021. Mr. Sullivan has received nine U.S. patents and has several pending. He
graduated magna cum laude with distinction from Harvard College with an A.B. in economics. Among other attributes, skills, and qualifications, the board
of directors believes Mr. Sullivan is uniquely qualified to serve as a director based on his extensive operational and business development experience, and
his knowledge in building stockholder value, growing a company from inception and navigating significant corporate transactions and the public company
process.
Lance G. Laing, Ph.D., age 61, is our co-Founder and has served as Chief Science Officer, Vice President, Secretary and Director since we commenced
operations in 2012. Dr. Laing’s career spans more than 20 years in drug discovery research and technology development. He received his doctorate in
biophysics and biochemistry from The Johns Hopkins University and completed a National Institutes of Health post-doctoral fellowship at Washington
University Medical School. He has received 24 U.S. patents and has several U.S. patents pending. His drug discovery research career began at
Scriptgen/Anadys Pharmaceuticals (purchased by Novartis), where he worked under Professor Peter Kim, who became President of Merck Research. He
also was Director of Chemistry and Bioapplications and Director of Detection Product Development for two companies that each developed instruments
similar to those Celcuity uses to perform the CELsignia tests. His work at these two instrument companies gave him unique expertise and experience in
developing a variety of patented applications for these instruments. Most recently, he served as an executive director for an international drug discovery and
development company. Among other attributes, skills, and qualifications, the board of directors believes Dr. Laing is uniquely qualified to serve as a
director based on his significant research, medical and scientific expertise.
Richard E. Buller, M.D., Ph.D., age 73, was appointed to Celcuity’s board of directors in December 2019. Dr. Buller has over 15 years of experience
leading oncology clinical development and translational medicine departments at major pharmaceutical companies. He has participated in the development
of 15 drugs and several companion diagnostics that received U.S. FDA approval. Dr. Buller most recently served as Head Oncology Clinical Development
and Vice President of Translational Oncology at Pfizer, Inc, one of the world’s largest pharmaceutical companies, until he retired in 2016. He had
previously served as Vice President of Translational Medicine at Exelixis, a leading biopharmaceutical company, where he led efforts to study patients
selected by molecular testing for inclusion in their phase 2 and phase 3 clinical trials. He began his pharmaceutical company career at GlaxoSmithKline as
Director of the Oncology Medicine Development Center. Prior to his leadership positions in drug development, he was Professor of Gynecologic Oncology
at the University of Iowa, where he led laboratory research focused on identifying genomic variants involved in ovarian cancer. He received his M.D. from
the Baylor College of Medicine, where he also received his Ph.D. in cell biology. Among other attributes, skills, and qualifications, the board of directors
believes Dr. Buller is uniquely qualified to serve as a director based on his oncology drug and diagnostic development expertise.
David F. Dalvey, age 64, has served as a member of Celcuity’s board of directors since February 2014. Mr. Dalvey has more than 30 years of
experience in the fields of corporate finance and venture capital, working primarily with growth-oriented technology and life-science businesses. He has
over 10 years of corporate finance advisory experience with two national investment banks, completing over 150 individual transactions. He has been the
General Partner of Brightstone Venture Capital, a venture capital management company, since September 2000. Brightstone is a 25-year old venture capital
management company that has raised and managed ten venture partnerships. Previously, he held management positions with R.J. Steichen and Company,
an investment bank, from 1995 to 2000, The Food Fund LP, a venture capital firm, from 1992 to 1995 and Wessels, Arnold & Henderson, an investment
bank, from 1987 to 1992. Mr. Dalvey served on the board of directors for Navarre Corporation (now Speed Commerce, Inc.) from 2009 until November
2012, on the board of managers for Blue Rock Market Neutral Fund, a mutual fund registered under the Investment Company Act of 1940 from 2000 to
2014 and on the board of directors for Digitiliti, Inc. from July 2011 until October 2012. Mr. Dalvey has significant operational exposure as a board director
or advisor to many other public and privately held growth businesses and has served on these companies’ audit, strategic or governance committees,
including companies such as HomeSpotter, Definity Health, AppTec Laboratories, CHF Solutions, BiteSquad, Agiliti, and Nature Vision. Mr. Dalvey
received a B.S. in Business/Management Economics from University of Minnesota. Among other attributes, skills, and qualifications, the board of directors
believes Mr. Dalvey is uniquely qualified to serve as a director based on his leadership experience in operating both public and private companies and his
experience working in the investment community and with investment firms enable him to bring valuable insight and knowledge to our board of directors.
89
Leo T. Furcht, M.D., age 76, was appointed to Celcuity’s board of directors in May 2019. Dr. Furcht is currently Allen-Pardee Professor of Cancer
Biology and Head of the Department of Laboratory Medicine and Pathology at the University of Minnesota and a member of the Division of Molecular
Pathology and Genomics. He served as Chairman of the Board of Directors for University of Minnesota Physicians, the Medical School practice plan with
approximately 700 physicians, from 2004-2014. He was also the founding Director of the Biomedical Engineering Center from 1990-2001, where he led
efforts to establish stem cell and molecular diagnostics expertise at the University of Minnesota. He has published more than 180 scientific papers and
holds more than 30 patents in the fields of polypeptides, biomaterials, and adult stem cells. His business experience includes co-founding two medical
technology companies, South Bay Medical, a medical device company that was acquired by Mentor Corporation, and Diascreen, a diagnostics company,
which was later acquired by Chronimed. Among other attributes, skills, and qualifications, the board of directors believes Dr. Furcht is uniquely qualified
to serve as a director based on his research in tumor cell behavior and extracellular matrix proteins, Head of the University of Minnesota’s Department of
Laboratory Medicine and Pathology, and his experience in several biotechnology start-ups.
Polly A. Murphy, D.V.M., Ph.D., age 58, was appointed to Celcuity’s board of directors in September 2022. Dr. Murphy has served as Chief Business
Officer at UroGen Pharma, Inc. since August 2020. Prior to that, Dr. Murphy served in various leadership roles at Pfizer, Inc. from September 2012 to
August 2020, including as Vice President and Head of Commercial Development Pfizer Oncology Business Unit from January 2019 to August 2020, Vice
President and Head of Global Marketing and Commercial Development, Pfizer Oncology Business Unit from June 2017 to December 2018, and as Vice
President and Head of Strategy and Business Development for Pfizer China from November 2013 to May 2018. Since August 2020, Dr. Murphy as served
on the board of directors of Atea Pharmaceuticals, Inc., a publicly held company. Dr. Murphy received her D.V.M. and Ph.D. from Iowa State University
and her M.B.A. from Nova Southeastern University. Among other attributes, skills, and qualifications, the board of directors believes Dr. Murphy is
uniquely qualified to serve as a director based on her significant medical and scientific expertise and experience in the pharmaceutical industry in business
development and commercialization.
Richard J. Nigon, age 75, is currently Senior Vice President of Cedar Point Capital, LLC., a private company that raises capital for early-stage
companies, where he has served since 2007. Mr. Nigon has also been a board member for Northern Technologies International Corp. since February 2010,
including its non-executive Chairman of the board of directors since November 2012. Mr. Nigon also serves as a director of several private companies. Mr.
Nigon previously served as a board member for Tactile Systems Technology from September 2012 to May 2022, Vascular Solutions, Inc. from November
2000 to February 2017, when it was acquired by Teleflex, Incorporated and as a board member for Virtual Radiologic Corporation from May 2007 until it
was acquired in July 2010. From February 2001 until December 2006, Mr. Nigon was a Director of Equity Corporate Finance for Miller Johnson Steichen
Kinnard, a privately held investment firm, which was acquired in December 2006 by Stifel Nicolaus, a brokerage and investment banking firm. After that
acquisition, Mr. Nigon became a Managing Director of Private Placements of Stifel Nicolaus until May 2007. From February 2000 to February 2001, Mr.
Nigon served as the Chief Financial Officer of Dantis, Inc., a web hosting company. Prior to joining Dantis, Mr. Nigon was employed by Ernst & Young
LLP from 1970 to 2000, where he served as a partner from 1981 to 2000. While at Ernst & Young, Mr. Nigon served as the Director of Ernst & Young’s
Twin Cities Entrepreneurial Services Group and was the coordinating partner on several publicly-traded companies in the consumer retailing and
manufacturing sectors. Among other attributes, skills, and qualifications, the board of directors believes Mr. Nigon is qualified to serve as a director
because of his extensive public accounting and auditing experience, including particular experience with emerging growth companies. The board of
directors also believes that Mr. Nigon will bring to the board of directors a strong background in financial controls and reporting, financial management,
financial analysis, SEC reporting requirements and mergers and acquisitions. His strategic planning expertise gained through his management and
leadership roles at private investment firms also makes him well-suited to serve as a member of the board of directors.
Executive Officers
Information regarding our Chief Executive Officer, Brian F. Sullivan, and our Chief Science Officer, Lance G. Laing, PhD., is included above under
the heading “Directors”.
90
Vicky Hahne, age 56, joined as our Chief Financial Officer in July 2017. She has more than 25 years of financial leadership experience, including the
most recent 15 years in the healthcare industry. Prior to joining Celcuity, Ms. Hahne served as Controller of Respiratory Technologies Inc., a medical
device manufacturer, from 2015 to 2017. While at Respiratory Technologies, she played a key role in the due diligence process to sell the company to
Koninklijke Philips. In 2014, she served as Controller for Ability Network Inc., a healthcare information technology company. From 2007 to 2012, Ms.
Hahne served as Controller of SterilMed Inc., a medical device reprocessing company, where she was significantly involved in the sale of the company to
Johnson & Johnson. Prior to these roles, Ms. Hahne held several senior financial positions at SimonDelivers Inc., including Chief Financial Officer. Ms.
Hahne has extensive experience in early stage, high growth companies with responsibilities including financial controls and stewardship, financial analysis,
mergers and acquisitions, building infrastructure and systems. She received a B.S. degree in Finance and Accounting from Northern State University and
received her CPA certificate in 1990.
Corporate Governance
Our board of directors has adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees. This code is available
on the corporate governance section of our website (which is a subsection of the investor relations section of our website) at the following address:
www.celcuity.com. We intend to disclose on our website any amendments or waivers to the Code of Business Conduct and Ethics that are required to be
disclosed by SEC rules.
Additional information required by this Item 10 will be contained in our definitive proxy statement for our 2023 Annual Meeting of Stockholders (the
“Definitive Proxy Statement”) and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this Item 11 will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
ITEM 14. Principal Accounting Fees and Services
The information required by this Item 14 will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
91
PART IV
ITEM 15. Exhibits, Financial Statement Schedules.
FINANCIAL STATEMENTS
Item
Report of Independent Registered Public Accounting Firm
Balance Sheets – December 31, 2022 and 2021
Statements of Operations – Years ended December 31, 2022 and 2021
Statements of Stockholders’ Equity – Years ended December 31, 2022 and 2021
Statements of Cash Flows – Years ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
None.
EXHIBITS
See Exhibit Index immediately following the signature page hereto, which is incorporated herein by reference.
ITEM 16. Form 10-K Summary
None.
92
Page
68
69
70
71
72
73
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 23, 2023
CELCUITY INC.
SIGNATURES
By /s/ Brian F. Sullivan
Brian F. Sullivan
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints Brian F. Sullivan and Vicky Hahne as the undersigned’s true and lawful attorneys-in
fact and agents, each acting alone, with full power of substitution and resubstitution, for the undersigned and in the undersigned’s name, place and stead, in
any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granted unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Signature
/s/ Brian F. Sullivan
Brian F. Sullivan
/s/ Vicky Hahne
Vicky Hahne
/s/ Lance G. Laing
Lance G. Laing
/s/ Richard E. Buller
Richard E. Buller
/s/ Dave F. Dalvey
Dave F. Dalvey
/s/ Leo T. Furcht
Leo T. Furcht
/s/ Polly A. Murphy
Polly A. Murphy
/s/ Richard J. Nigon
Richard J. Nigon
Title
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Chief Science Officer, Vice President and Secretary, and
Director
Director
Director
Director
Director
Director
93
Date
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
EXHIBIT INDEX
CELCUITY INC.
FORM 10-K
Exhibit
No.
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Description
Form of Plan of Conversion (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1/A filed with
the SEC on September 12, 2017).
Certificate of Incorporation of the Company, as amended, including the Certificate of Designations of Preferences, Rights and Limitations of
Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with
the SEC on August 12, 2022).
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on
November 13, 2017).
Specimen Certificate representing shares of common stock of Celcuity Inc. (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
Description of Registered Securities (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed with the
SEC on March 13, 2020).
Form of Warrant to Purchase Units of Membership Interest issued by Celcuity LLC to Cedar Point Capital, LLC, as placement agent of
membership units and unsecured convertible promissory notes of Celcuity LLC (incorporated by reference to Exhibit 10.9 to the Company’s
Registration Statement on Form S-1 filed with the SEC on August 23, 2017).
Form of Warrant to Purchase Shares of Common Stock issued by Celcuity Inc. in connection with the conversion of 1.25% Unsecured
Convertible Promissory Notes (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC
on September 25, 2017).
Representative’s Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed with the SEC on September 25, 2017).
First Amendment to Representative’s Warrant, dated September 13, 2022, between Celcuity Inc. and Craig-Hallum Capital Group LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 14, 2022).
Form of Warrant issued by Celcuity Inc. to Innovatus Life Sciences Lending Fund I, LP in connection with the Loan and Security
Agreement dated April 8, 2021 (incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the
SEC on April 8, 2021).
Equity Grant Agreement, dated April 8, 2021, between the Company and Pfizer, Inc. (incorporated by reference from Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed with the SEC on April 8, 2021).
Form of Warrant issued by Celcuity Inc. in connection with the Securities Purchase Agreement, dated May 15, 2022 (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022).
10.1+
Celcuity Inc. 2017 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on
Form S-1/A filed with the SEC on September 12, 2017).
10.2+
Celcuity Inc. Amended and Restated 2017 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the SEC on May 14, 2020).
10.3+
Form of Stock Option Agreement pursuant to Celcuity Inc. 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
94
10.4+
Form of Restricted Stock Agreement pursuant to Celcuity Inc. 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the
Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
10.5+
Form of Restricted Stock Unit Agreement pursuant to Celcuity Inc. 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to
the Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
10.6+
Form of Stock Appreciation Rights Agreement pursuant to Celcuity Inc. 2017 Stock Incentive Plan (incorporated by reference to Exhibit
10.6 to the Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
10.7+
Celcuity LLC 2012 Equity Incentive Plan, adopted August 10, 2012, as amended by First Amendment to the Celcuity LLC 2012 Equity
Incentive Plan, adopted November 12, 2015 (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-
1 filed with the SEC on August 23, 2017).
10.8+
Form of Incentive Plan Unit Option Agreement pursuant to the Celcuity LLC 2012 Equity Incentive Plan (incorporated by reference to
Exhibit 10.8 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 23, 2017).
10.9
Commercial Lease, dated September 28, 2017, between West Glen Development I, LLC and Celcuity, LLC (incorporated by reference to
Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 13, 2017).
10.10
Commercial Lease, First Amendment to Lease, dated July 28, 2020, between West Glen Development I, LLC and Celcuity Inc.
(incorporated by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
10.11
Commercial Lease, Second Amendment to Lease, dated July 19, 2021, between West Glen Development I, LLC and Celcuity Inc.,
incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2021.
10.12
Commercial Lease, Third Amendment to Lease, dated July 27, 2022, by and between Celcuity Inc. and West Glen Development I, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2022).
10.13
Commercial Lease, Fourth Amendment to Lease, dated March 13, 2023, by and between Celcuity Inc. and West Glen Development I, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 15, 2023).
10.14
Clinical Trial Agreement, dated May 8, 2017, between NSABP Foundation, Inc. and Celcuity LLC (incorporated by reference to Exhibit
10.13 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 23, 2017).
10.15
Clinical Trial Agreement, Amendment No. 1, between NSABP Foundation, Inc and Celcuity Inc., dated October 15, 2020 (incorporated by
reference Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed with the SEC on February 16, 2021).
10.16+
10.17+
Confidentiality, Assignment of Inventions and Non-Competition Agreement, dated November 15, 2011, between Celcuity LLC and Brian F.
Sullivan (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 filed with the SEC on August
23, 2017).
Confidentiality, Assignment of Inventions and Non-Competition Agreement, dated November 15, 2011, between Celcuity LLC and Lance
G. Laing (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1 filed with the SEC on August
23, 2017).
10.18+
Confidentiality, Non-Compete and Proprietary Rights Agreement, dated May 17, 2017, between Celcuity LLC and Vicky Hahne
(incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 23, 2017).
10.19
Form of Indemnification Agreement between Celcuity Inc. and each of its officers and directors (incorporated by reference to Exhibit 10.17
to the Company’s Registration Statement on Form S-1/A filed with the SEC on September 12, 2017).
95
10.20†
License Agreement, dated April 8, 2021, by and between the Company and Pfizer, Inc (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2021).
10.21†
Amendment to License Agreement, dated May 6, 2021, by and between the Company and Pfizer, Inc. (incorporated by reference to Exhibit
10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2021).
10.22
Open Market Sale AgreementSM, dated February 4, 2022, by and between Celcuity Inc., and Jefferies LLC (incorporated by reference to
Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 4, 2022).
10.23
Securities Purchase Agreement, dated May 15, 2022, by and among the Registrant and the Purchasers named therein (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022).
10.24
Registration Rights Agreement, dated May 15, 2022, by and among the Registrant and the Purchasers named therein (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2022).
10.25
10.26
23.1*
24.1*
31.1*
31.2*
Loan and Security Agreement, dated as of April 8, 2021, by and between the Company and Innovatus Life Sciences Lending Fund I, LP.
(incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2021).
The First Amendment to Loan and Security Agreement, dated August 9, 2022, by and among the Company and Innovatus Life Sciences
Lending Fund I, LP (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August
11, 2022).
Consent of Boulay PLLP.
Power of Attorney (included on the signature page).
Certification of principal executive officer required by Rule 13a-14(a).
Certification of principal financial officer required by Rule 13a-14(a).
32.1**
Section 1350 Certification of principal executive officer.
32.2**
Section 1350 Certification of principal financial officer.
101
Financial statements from the Annual Report on Form 10-K of the Company for the year ended December 31, 2022, formatted, in Inline
XBRL: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Changes in Stockholders’ Equity, (iv) the Statements
of Cash Flows, and (v) the Notes to Financial Statements.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
*
**
+
†
Filed herewith.
Furnished herewith.
Management contract or compensatory plan.
Certain portions have been omitted from this exhibit.
96
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 23, 2023, with respect to the financial statements included in the Annual Report of Celcuity Inc. on Form 10-K for
the year ended December 31, 2022. We hereby consent to the incorporation by reference in the Registration Statements of Celcuity Inc. on Form S-8 (Reg.
Nos. 333-221117, 333-238787, 333-253940, 333-256500, 333-265328 and 333-270238) and on Form S-3 (Reg. No. 333-227466, 333-254625, and 333-
261155 and 333-269090).
Exhibit 23.1
/s/ Boulay PLLP
Minneapolis, Minnesota
March 23, 2023
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Brian F. Sullivan, certify that:
1.
I have reviewed this annual report on Form 10-K of Celcuity Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the
statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 23, 2023
By /s/ Brian F. Sullivan
Brian F. Sullivan
Chairman and Chief Executive Officer
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Vicky Hahne, certify that:
1.
I have reviewed this annual report on Form 10-K of Celcuity Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the
statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 23, 2023
By /s/ Vicky Hahne
Vicky Hahne
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2022 (the “Report”) by Celcuity Inc. (“Registrant”), I,
Brian F. Sullivan, the Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: March 23, 2023
By /s/ Brian F. Sullivan
Brian F. Sullivan
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2022 (the “Report”) by Celcuity Inc. (“Registrant”), I,
Vicky Hahne, the Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that
to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: March 23, 2023
By /s/ Vicky Hahne
Vicky Hahne
Chief Financial Officer