Thank you for joining the Celcuity Releases Second Quarter 2019 Financial Results. [Operator Instructions] Please note, this call may be recorded [Operator Instructions] It is now my pleasure to turn today's conference over to Brian Sullivan, CEO. Please go ahead..

Thank you, and good afternoon, everyone. We announced the financial results for our second quarter ended June 30, 2019, a few minutes ago. Before I begin though, I'd like to remind listeners that our comments today will include some forward-looking statements.

These statements involve a number of risks and uncertainties which are outlined in today's press release and in our reports and filings with the SEC. Our actual results may differ materially from those in these forward-looking statements. On the call, we'll also refer to non-GAAP financial measures.

You can find a table reconciling the non-GAAP financial measures to GAAP financial measures in our earnings release for the three months and six months ended June 30, 2019, which was included in today's press release. Today's press release is available on our website, www.celcuity.com, under the Investors section.

I'm also pleased to have Vicki Han, our CFO, on the call with me today. What I'd like to do today is provide some comments on our second quarter results as well as give a general outlook for the remainder of 2019.

In particular, I will review the status of our clinical trials, our product development activities and finish-up with a quick update on our collaboration discussions. Vicky will follow-up with some more details on a few items, and then we'll open the line for questions.

On our last call, we disclosed that NSABP met its goal of getting 16 new clinical sites to begin the activities required to participate in the FACT 1 trial. If all these sites were added, the FACT 1 trial will have approximately 30 total sites approved to enroll patients.

Adding these sites is intended to offset the lower-than-expected enrollment rates from the initial clinical sites activated for FACT 1. And you may recall that the FACT 1 trial is evaluating safety and efficacy of Genentech's drugs, Herceptin and Perjeta, and chemotherapy in early-stage breast cancer patients selected with our CELx HSF Test.

Process to identify these additional sites began in late 2018. During the second quarter, we're pleased that six new clinical sites obtained approval from their institutional review board, or IRB, and completed other related activities required to participate in the FACT 1 trial. And this means we now have 20 sites that are enrollment-ready.

We also have another nine sites that are in various stages of obtaining IRB and other related approvals. We're hopeful that [indiscernible] will be in enrollment ready by year-end.

If the additional nine sites come onboard as we hope, we will have 29 activated sites; roughly double the number of sites enrolling patients for this trial compared to the end of 2018.

Since most of the new sites only began participating in the past month rather than earlier in the year, they've not [indiscernible] this trial in early to mid-2020 and final results approximately nine months later.

We're obviously interested in obtaining data from the FACT 1 trial as quickly as possible, as I know you are, and we recognize it's taking longer than initially expected. Projecting clinical trial enrollment rates is notoriously challenging and prone to error, and we've certainly proven we're not exempt from challenges of projecting enrollment.

We've taken action to address the delay by seeking to double the number of enrollment sites, and we continue to work closely with the team at NSABP to support them in any [indiscernible] company at all of the impact, we believe, our CELx technology can have on improving the outcomes of cancer patients.

We've made fantastic progress in the past year, made several important scientific discoveries and optimistic about our future as we've ever been. The FACT 2 clinical trial is enrollment ready in early April as planned, but the study drug, Puma Biotech's target therapy, Nerlynx wasn't made available until late June.

This had nothing to do with us, with Celcuity, but was a result of changes Puma was making to its clinical trials forward approach. Since patient enrollment activities couldn't begin until the study drug was available, the start of enrollment was consequently delayed.

So as a result, we now expect interim results from this trial in early to mid-20 and final results approximately 12 years later – 12 months later. No hard effects there.

So with two trials underway to evaluate the efficacy of two different HER2 treatment regimens, we have two independent opportunities for CELx Signaling Function test to become a companion diagnostic for new target therapy indication.

In other words, our first half gives us two swings at the bat to connect on what we think is a significant financial opportunity and, more importantly, an opportunity to improve outcomes with cancer patients. We also continued to advance development of our third test for breast cancer.

As with our HER2 Signaling Function test and our pan-HER and c-Met test, this new test is intended to diagnose a subtype of breast cancer not currently detected with a molecular test. We expect to incorporate this new pathway test into a CELx Multi-Pathway, or MP, Signaling Function test when available.

The background information and preclinical study results describing this test should be available for release by the end of the year.

As with our first two tests, there are approved targeted therapies and once in late-stage clinical development that can treat the cancer subtype with test diagnosis and each of these therapies represent a potential collaboration opportunity for Celcuity to provide a companion diagnostic that would expand treatable population for the partners' therapies.

So our approach in breast cancer and all subsequent tumor types we may work with is to analyze multiple pathways in each patient's tumor. This current development project is successful. We would increase proportion of breast cancer patients whose tumor cells have a hyper signaling pathway activity identified by a CELx test.

And this was consistent with our goal of identifying signaling function, driving 30% to 40% of the patient tumors we analyze. Achieving this goal would have, we believe, a profound impact on how cancer patients are diagnosed and treated.

By the end of this year then, we expect to have three signaling function tests for breast cancer, each of which will have several important opportunities to provide a companion diagnostic for a targeted therapeutic. In other words, we hope to have many swings at the bat. We continue to make progress developing our tests for tumor tissue types.

The approach we're taking for these two projects mirrors, in many ways, the approach we use for our breast cancer tests. However, with these new test types – tissue types, we can leverage the pathway studies we've conducted in breast cancer.

This experience and data, we hope will enable us to offer tests for multiple pathways in the initial version of the test when we announced it. Multi-pathways test is available at the outset. We could potentially broaden the scope of collaborations swings at the bat, we could pursue.

We also continued progressing towards a clinical collaboration with pharmaceutical companies to study breast cancer patients with hyperactive and co-activated HER family and c-Met signaling activity. That's what our CELx MP test identifies.

And this collaboration will first evaluate the efficacy of the targeted therapeutics in new patient subgroups our CELx MP test identifies. And if successful, we believe it would lead to helping these therapies gain FDA approval to treat this patient population.

We're excited about the advances the CELx MP test represents because it further demonstrates the capability of our platform to assess the cross-talk between different signaling pathways in a very powerful way.

This enables us not only to identify patients with c-Met and HER family pathways are hyperactive, but also determine the best drug combination approach to treat it. So overall, we're excited about the progress we made during the quarter. To review our financial results, I'd like to turn it over to Vicky..

Thank you, Brian. Our second quarter net loss was $1.72 million or $0.17 per share compared to a $1.82 million net loss or $0.18 per share for the second quarter of 2018. Net loss for the first six months of the year was $3.57 million or $0.35 per share compared to $3.78 million or $0.37 per share for the same period in 2018.

Because these quarterly net losses included significant non-cash items, stock-based compensation we also include in our press release non-GAAP adjusted net loss for the quarter.

Our non-GAAP adjusted net loss was $1.53 million or $0.15 per share for the second quarter of 2019 compared to a non-GAAP adjusted net loss of $1.54 million or $0.15 per share for the second quarter of 2018.

R&D expenses decreased approximately $0.3 million during the first six months of 2019 compared to the first six months of 2018 primarily due to $0.1 million in non-cash stock-based compensation offset by a $0.07 increase -- $0.7 million increase in operational and business development activities.

The approximately $0.16 million decrease in G&A during the first six months of 2019 compared to the first six months of 2018 primarily resulted from the non-cash stock-based compensation. We ended the quarter with approximately $22.1 million of cash, cash equivalents and investments.

The net cash used in operating activities for the second quarter of 2019 was $1.23 million. This was a result of the non-GAAP adjusted net loss of $1.53 million offset by depreciation expense and working capital changes in prepaid, accounts payable and accrued expenses of $0.3 million..

Okay.

Finish?.

Yes..

Yes. Thank you, Vicky. Operator, we're ready to take questions now..

[Operator Instructions] We'll take our first question from Per Ostlund with Craig Hallum Capital. Please go ahead..

Thanks. Good afternoon, Brian and Vicky..

Hi, Per..

Wanted to touch on the – I guess the timelines right out of the gate and I think we can all appreciate that, like you said there are estimates and there's a certain degree of uncertainty and guesswork that goes into establishing the timelines.

Curious if there's anything unique to the FACT 1 trial, in particular that just – that makes the IRB process harder or more complicated or – and if the enrollment process takes longer because of anything unique to FACT 1.

Is it easier – more easily lost in the shuffle than anything else? Or is it just one of those things where there's a lot of inputs that go into it and we just kind of have to figure out the timelines on the fly a little bit?.

Sure. Well, the work to get a site activated, enrollment-ready is very dependent on the site's internal processes, but there's much more that needs to be done than simply get IRB approval. And that's certainly one of the most important things. But the contract needs to be negotiated. The different forms that patients will see need to get developed.

Different internal activities are required by the site to be performed, and so there's a lot of moving pieces. And you're dependent on the site to schedule people to do the work that's required. There's nothing about what we're doing though or what this trial involves that stretches out that timeline for sites. It's just – really depends.

In some cases, the site has an IRB meeting every two months as opposed to every month or every two weeks. Depending on when you initiated the process with them, you could lose that time. And so it's not something that you know about on the front end when you initiate the work with them.

Only until you get into the details do you find out what's required. You're somewhat dependent on the PI, the doctor who will be the person overseeing the trial at the site. And they're just involved – not only involved, but more importantly, just their ability to turn around paperwork that's required.

So again, that's – it's still different for us than really for any other company. As far as the enrollment and I would say that we're a new technology dealing with an early-stage patient who doesn't necessarily have the same urgency than a later-stage patient might have.

And so the nature of the indication, i.e., early-stage treatment is one that I think people would say can sometimes be harder to accrue for. But that's not specific to us. That's just the nature of working with early-stage patients. And again, we're introducing a new technology.

And I think new, in general, can sometimes be a detriment because we don't have clinical data we can point to, to say, hey, the system studied in another trial and this is what happened with these patients and so they're very much relying on the doctor and the hospital staff to sell a concept. And it's hard for us to quantify the impact.

But I think people, in general, would say the first trials are typically the hardest trials because you're – you don't have a lot of other data to rely on. Subsequent trials are much easier. But – and so again, the variable we can drive or effect is the number of sites, which is why we initiated the process of getting sites onboard.

I think the team at NSABP; I mean they are very capable group, very well-respected group. I don't have any concerns about them or the shoulder they're putting to it, very professional and I think doing what they're supposed to do. I think we're somewhat just – it's the nature of the beast.

And as we talk to clinicians about this study or other studies they're involved in, I mean the lament around – with the challenges of getting patients enrolled is it's a fairly universal one. It's just – it's very hard to project and particularly, the earlier the stage you're in, the harder it can be. But – so..

I think that's all very fair. Maybe on that point just because we're talking about the number of sites involved in FACT 1.

Does that make FACT 2 potentially a little easier from the procedural standpoint from – I know you've talked about having somewhat limited reach into the sites other than educational support and that sort of thing to try to kind of keep the trial on top of mind, but just back to being West Cancer Center-specific makes that a little easier to kind of handicap..

Yes and no. I mean it's still – have to find patients show up that are willing to participate..

Okay. Okay. That's fair.

On the c-Met test, and it sounds like that's progressing toward a collaboration, is – at this point is it really just a matter of having a wide variety of counterparties within the organizations you're talking to that really is the gating factor at this point? Is anybody looking for additional data or anything like that around some of the preclinical work you've done? Or is it just the number of folks that you sort of have to get to within these organizations..

You faded out for a bit so I didn't hear the entire question. But I think it just is – are we at a stage where it's really a matter of working the process versus responding to requests for additional information. I think the package that we put together and presented to the different pharmaceutical companies has been considered to be very complete.

We haven't had anybody ask for additional data or suggest that a data was missing. So from that standpoint, we think we've positioned ourselves well. But working with the processes internal to these pharmaceutical companies is a black box. You don't get a lot of visibility on different groups.

I mean we obviously have visibility for people who are taking a lead but there are different committees and schedules. And these are, in some cases, very large companies. So you're somewhat subject to whatever internal timelines that they have.

And obviously, they don't have the same sense of urgency we have, and they have a lot of other projects that are competing. So you're just in a queue, and hopefully, you're getting the consideration you hope and as quick a timeline as possible. But again, we're passing through the gates that we would expect to pass through.

But – and again, it's a process and that's why we don't like to get into much detail because until it happens, it hasn't happened and you just have to get all the way through the end..

That makes sense..

But again we're working it..

Okay. That makes sense. Just thinking about the Herceptin franchise in general and I'm not a Roche analyst per se. But looking at that franchise and how it's trended here recently, obviously it's no risk of going away. But they have talked about biosimilars in the U.S. market.

Does that make what you're doing that much more important, potentially, to them where you're marrying the Herceptin and Perjeta together and finding that additional subtype? Is that another way for – will they look at it as an important way of extending that franchise further?.

Well, I can't – I don't want to put words into Genentech's mouth, so I stop. I think those are very savvy people. I think they were very clever about how to essentially protect their initial Herceptin franchise by launching Perjeta and getting approvals for Perjeta in combination with Herceptin.

The drugs are obviously very important to them, and pharmaceutical companies are very expert at finding ways of leveraging any advantage they can to protect the franchise or expand [indiscernible]..

Okay. Speaking off or putting words in your mouth, and I don't want to put words in your mouth, Brian, but I appreciate your commentary about leveraging the work you've done on breast cancer into the additional tissue types coming.

And is it reasonable to think that? If you're going potentially at a multi-pathway cadence right out of the gate maybe with an additional tissue type, that there could be a more rapid cadence of collaborations that would ensue from that?.

Yes. That would make sense because we have more collaborations than we could pursue simultaneously. We wouldn't be – as we did in the case of breast, pursue HER2 collaborations and then, after a period of time, initiate work to get collaborations for the HER and c-Met test..

Okay. All right. And I know I keep asking questions. I got two real quick ones, and then I will get out of the way. With respect to the next breast cancer test, you talked about that being completed by the end of the year.

Is San Antonio Breast – towards the end of the year, is that a reasonable expectation that, that would be a place that you could look to be unveiling preclinical data?.

That would be a typical place that we would want to be able to introduce something like that..

Okay, perfect. And then last one. You didn't mention anything around cash usage plans. I assume that your expectations are unchanged in terms of....

They're on track. I mean we think right now – so our assumptions and the projection about the cash availability takes us into 2021.

So our runway is, if anything probably a little longer than we had initially projected just because we've been, I think so far good with cash and making sure we're being diligent about maximizing the timeline we have to get that good step-down..

Perfect. All right. Thank you for all the answers. I appreciate it, Brian..

You’re welcome..

Our next question will come from Yi Chen with H.C. Wainwright. Please go ahead..

Thank you for taking my question..

Hi, Yi..

Hi. Previously you mentioned that the colorectal cancer trial could report data in 2021. Is there any update on that? And....

Sure..

I mean, do you have any visibility during the process?.

So we're one step removed on that trial because we're simply receiving tissue for analysis. The trial itself is being managed by Puma and NSABP, and so we're not in the direct loop. And we don't get any visibility, to be frank, about enrolment or general activities other than kind of how we're interacting in our own component.

We haven't been informed of any change in the timeline, but that's proceeding..

And just to confirm, that the operating expenses in the second half should be comparable to the first half, right? Correct?.

Yes..

Okay. Thank you..

You’re welcome..

[Operator Instructions].

Okay. Well, thank you, everyone. I appreciate your attendance on the call and look forward to catching up with you later. Take care..

This does conclude today's program. Thank you for your participation. You may now disconnect..