Celcuity LLC (Form: S-1, Received: 08/23/2017 16:29:24)

As filed with the U.S. Securities and Exchange Commission on August 23, 2017.

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

Celcuity LLC
(to be converted into CELCUITY INC.)
(Exact name of registrant as specified in its charter)

	Delaware			8071			45-3811132
	(State or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification Number)

16305 36th Avenue N., Suite 450
Minneapolis, MN 55446
(763) 392-0123
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Brian F. Sullivan
Chief Executive Officer
16305 36th Avenue N., Suite 450
Minneapolis, MN 55446
(763) 392-0767
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Ryan C. Brauer
Eric O. Madson
Fredrikson & Byron, P.A.
200 South Sixth Street, Suite 4000
Minneapolis, Minnesota 55402
(612) 492-7000

W. Morgan Burns
Jonathan R. Zimmerman
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
(612) 766-7000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐

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 ☐			Accelerated filer ☐
	Non-accelerated filer ☐			Smaller reporting company ☒
	(Do not check if a 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 7(a)(2)(B) of the Securities Act. ☒

CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price (1)			Amount of Registration Fee (2)
Common stock, $0.001 par value per share		$	15,000,000		$	1,739

(1)

Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes the offering price of shares that the underwriter has the option to purchase to cover over-allotments, if any.

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended (the “Securities Act”) or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 23, 2017

PRELIMINARY PROSPECTUS

Common Stock

This is the initial public offering of our common stock. We are offering shares of common stock. Prior to this offering, there has been no public market for our common stock. We expect the initial public offering price will be between $ and $ per share. We have applied to list our shares of common stock on The Nasdaq Capital Market under the symbol “CELC.”

We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will be eligible for, and have decided to comply with, reduced public company disclosure requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Per
Share

Total

Initial public offering price

Underwriting discounts and commissions (1)

Proceeds, before expenses, to us

(1)

In addition, we have agreed to reimburse the underwriter for certain expenses. See “Underwriting” for additional disclosure regarding underwriting discounts, commissions and estimated offering expenses.

We have granted the underwriter an option for a period of 30 days from the date of this prospectus to purchase up to an additional shares of common stock to cover over-allotments, if any.

Delivery of the shares of our common stock will be made on or about , 2017, subject to customary closing conditions.

Craig-Hallum Capital Group

Prospectus dated , 2017

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ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriter has authorized anyone to provide you with information that is different. We are offering to sell shares of our common stock, and seeking offers to buy shares of our common stock, only in jurisdictions where offers and sales are permitted. The information in this prospectus is complete and accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

For investors outside the United States: neither we nor the underwriter have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of shares of our common stock and the distribution of this prospectus outside the United States.

Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to “Celcuity,” “the company,” “we,” “us,” “our” and similar references refer to (1) prior to the completion of our conversion described under “Certain Relationships and Related Party Transactions—LLC Conversion,” Celcuity LLC, a Minnesota limited liability company, and (2) after giving effect to such conversion, Celcuity Inc., a Delaware corporation. We own various unregistered trademarks and servicemarks, including our corporate logo. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that the owner of such trademarks and trade names 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 and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

INDUSTRY AND MARKET DATA

In addition to the industry, market and competitive position data referenced in this prospectus from our own internal estimates and research, some market data and other statistical information included in this prospectus are based in part upon information obtained from third-party industry publications, research, surveys and studies, none of which we commissioned. Third-party industry publications, research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

We are responsible for all of the disclosure in this prospectus and while we believe that each of the publications, research, surveys and studies included in this prospectus are prepared by reputable sources, neither we nor the underwriter have independently verified market and industry data from third-party sources. In addition, while we believe our internal company research and estimates are reliable, such research and estimates have not been verified by independent sources. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

•

being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;

•

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

•

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We may use these provisions until the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

iii

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Prospectus Summary

The following summary highlights information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. Before you decide to invest in our common stock, you should read and carefully consider the following summary together with the entire prospectus, including our financial statements and the related notes thereto appearing elsewhere in this prospectus and the matters discussed in the sections in this prospectus entitled “Risk Factors,” “Selected Financial Data and Pro Forma Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed in the “Risk Factors” and other sections of this prospectus.

O ur B usiness

We believe our CELx platform provides two important improvements over the traditional molecular diagnostic tests used to guide a physician’s selection of targeted therapies for their cancer patients. First, molecular diagnostics can only provide a snapshot of the genetic mutations present in a patient’s tumor because they analyze dead cells. Using dead cells prevents molecular diagnostics from analyzing in real-time the dynamic cellular activities, known as cell signaling, that regulate cell proliferation or survival and can cause cancer when signaling activity becomes abnormal. Since genetic mutations are often only weakly correlated to the cell signaling activity driving a patient’s cancer, a molecular diagnostic is prone to providing an incomplete diagnosis. CELx tests overcome this limitation by measuring real-time cell signaling activity in a patient’s living tumor cells. When a CELx test detects abnormal signaling activity, a more accurate diagnosis of the patient’s cancer driver is obtained. Second, molecular diagnostics can only estimate the probability of a patient’s potential drug response based on a statistical analysis of the drug’s clinical trial results. Instead of this indirect estimate of drug response, CELx tests directly measure the effectiveness of a targeted therapy in a patient’s living tumor cells. This enables physicians to confirm that the therapeutic matching the patient’s cancer driver is functional in his or her tumor cells before prescribing it, which significantly increases the likelihood of a positive clinical outcome.

Our first analytically validated and commercially ready test using our CELx platform is our CELx HER2 Signaling Function Test, or CELx HSF Test. Our CELx HSF Test diagnoses two new breast cancer sub-types that traditional molecular diagnostics cannot detect. Abnormal activity in the HER2 signaling network, a key cellular process that regulates cell proliferation, plays a role in many breast cancers. To diagnose patients with HER2 breast cancer, molecular diagnostics analyze HER2 protein, one component of the complex HER2 signaling network. If these molecular diagnostics find excess HER2 protein levels in a patient’s tumor cells, patients are diagnosed with HER2 breast cancer (HER2+) and then are treated with anti-HER2 targeted therapies. However, several clinical trials found that a sub-group of patients with normal HER2 protein levels (HER2-negative) respond to anti-HER2 therapies, revealing that measuring HER2 protein levels alone misses patients who have HER2-driven breast cancer. To provide a more complete diagnosis for HER2-negative breast cancer patients, our CELx HSF Test determines whether the HER2 signaling network in a patient’s tumor cells is functioning abnormally. Our studies show that

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approximately 20% of HER2-negative breast cancer patients have abnormal HER2 signaling activity similar to levels found in HER2+ breast cancer cells. As a result, these HER2-negative patients have undiagnosed HER2-driven breast cancer and would likely respond to the same anti-HER2 targeted therapies only HER2+ patients receive today.

Our CELx HSF Test is targeting HER2-negative breast cancer patients receiving treatment, which includes, according to the National Cancer Institute’s SEER Cancer Statistic Review, or NCI SEER Review, approximately 278,000 patients annually in the U.S. Based on this patient population, we estimate the annual U.S. market opportunity for our CELx HSF Test alone is approximately $1.1 billion, assuming a price of $4,000 per test, which is in line with prices for complex molecular diagnostic tests. In addition, as a companion diagnostic, or CDx, we estimate this test could potentially drive approximately $4 billion of new U.S. annual revenue for HER2 therapies. This assumes HER2-negative breast cancer patients diagnosed with abnormal HER2 signaling by our CELx HSF Test, roughly 20% of all HER2-negative breast cancer patients, or 55,000 patients annually, are treated with HER2 therapies costing approximately $73,000 per patient. The per patient therapy cost assumed is in line with the cost of Herceptin ® and Perjeta ® , the current standard of care HER2 drug treatment regimen that, according to Genetech Inc., or Genetech, at the time of launching Perjeta ® in 2012, had a wholesale price of $10,900 per month. In late-2017, we will be fielding a prospective clinical trial in collaboration with the National Surgical Adjuvant Breast and Bowel Project Foundation, or NSABP, and Genentech to evaluate the efficacy of two of Genentech’s HER2 targeted therapies in patients with these newly identified cancer sub-types. According to the Roche 2016 Annual Report, these two HER2 drugs generated more than $8.9 billion of revenue in 2016. We expect interim results from this trial 10 to 12 months after the first patient is enrolled and final results in 18 to 21 months.

In addition to the two new breast cancer sub-types our CELx HSF Test diagnoses, we discovered 14 new potential cancer sub-types in breast, lung, colon, ovarian, kidney, bladder and hematological cancers. According to the NCI SEER Review, approximately 880,000 patients are treated annually in the U.S. for one of these cancer types. Approved or investigational drugs are currently available to treat each of these new potential cancer sub-types. We expect to develop and launch additional CELx tests to diagnose these new cancer sub-types on a staggered basis over the next few years while continuing our research to identify additional new cancer sub-types. The resulting total annual addressable test market, defined as the 880,000 cancer patients we are developing CELx tests for, is approximately $3.5 billion, assuming a price of $4,000 per test.

O ur P latform

The use of molecular diagnostic tests to select targeted therapies has largely fallen short of public expectations. Patient response rates to therapies targeting a genetic mutation are typically less than 50% and in some cases only 10% to 20%, creating a significant need for an alternative approach. In addition, many cancers lack a genetic biomarker to guide treatment. For those patients, the cellular dysfunction responsible for their cancer goes undiagnosed, which means they are less likely to receive a potentially beneficial targeted therapy. The table below provides objective response rates for representative targeted therapies that rely on a CDx to select eligible patients, as well as an example of the objective response rate for a targeted therapy that does not use a CDx to select eligible patients. The objective response rates listed below were obtained from the clinical trial data included with each of the targeted therapies respective FDA labels.

Targeted Therapy Objective Response Rates

Targeted Therapy
(FDA Label Date)

Type of Cancer

Biomarker

Objective
Response Rate (1)

Herceptin ® (04/17)

Breast

HER2

16 %

Perjeta ® (03/16)

Breast

HER2

11 %

Gilotrif ® (07/13)

Lung

EGFR mutations

31 %

Votrient ® (05/17)

Kidney

None

27 %

Erbitux ® (10/16)

Colon

EGFR/K-Ras WT

18 %

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(1)

Objective response rate (ORR) is the difference between the ORR of the targeted therapy and the ORR of the control drug during the targeted therapy’s pivotal clinical trial as reported in the targeted therapy’s FDA drug label.

Our CELx platform addresses the need for more accurate cancer diagnoses by incorporating our internally developed cell microenvironment and cell signaling quantification technologies. Unlike molecular tests that use fixed or lysed (dead) cells and can only measure the static composition of a cell, our CELx platform measures real-time signaling activity in a patient’s live tumor cells. This enables us to: (1) identify the cellular signaling abnormalities driving a patient’s cancer; and (2) confirm whether the matching targeted therapy is effective in the patient’s cells.

•

Dynamic cell signaling quantification. We analyze the signaling pathway activity of live patient tumor cells using a biosensor that converts the dynamic cellular response to pathway activators or pathway inhibitors to a measurable electrical signal in real-time. 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. Thus, our tests allow us to identify both the signaling pathway abnormalities driving a patient’s cancer and to confirm whether a matching targeted therapy may prove beneficial.

Our CELx tests are performed in our laboratory in Minneapolis, Minnesota that is certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, and accredited by the College of American Pathologies, or CAP. We have one U.S. patent, four pending U.S. patent applications, one pending PCT patent application, as well as numerous corresponding non-U.S. patent applications covering our diagnostic approach using cell signaling analysis in living patient cells to guide treatment of patients with targeted therapies.

O ur S trategy and C ompetitive S trengths

We believe our CELx platform will fundamentally change the standard-of-care many cancer patients receive. Our platform enables us to discover new cancer sub-types and diagnose them in patients. Patients with these newly identified cancer sub-types have oncogenic pathways that are signaling abnormally, and, we believe, may respond positively to a matching targeted therapy. By identifying patients with a new cancer sub-type, each CELx test will create, in effect, a proprietary patient population that molecular diagnostics cannot identify.

Our CELx HSF test, analytically validated and conducted in our CLIA certified and CAP accredited laboratory, is currently ready for commercial use as a laboratory developed test. We intend to focus our commercial activity initially on partnering with pharmaceutical companies to provide companion diagnostics that diagnose the new cancer sub-types we discover. We will use our CELx companion diagnostics to match the newly identified patient populations to a pharmaceutical partners’ existing or investigational targeted therapies.

We believe our CELx CDx tests will expand the matching drug’s market size because they can facilitate approval of new drug indications that a pharmaceutical company would not otherwise be able to obtain.

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eligible patients, we will offer our tests directly to treating physicians and coordinate go-to-market strategies with our partner. This coordination of commercialization strategies will allow us to significantly leverage the sales, marketing and reimbursement resources of our pharmaceutical partner, unlike traditional molecular diagnostic companies.

We have a number of key strengths that enhance our ability to achieve our mission and build a successful company:

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First mover. We are the first company we are aware of to launch diagnostic tests that measure the signaling pathway activity in a patient’s live tumor cells, which we believe gives us a significant first mover advantage.

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High barriers to entry. Our issued and pending patents, as well as our proprietary information and trade secrets give, us a strong intellectual property position that we believe creates a significant barrier to entry for potential competitors.

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Broad range of applications for our platform. We can develop tests for a wide range of signaling pathways and a wide range of cancer types. This allows us to build a deep new product pipeline that creates multiple paths to build a large and profitable business.

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Multi-billion-dollar addressable market. The broad range of pathways and cancer tissues we can test with our CELx platform enables us to initially target up to approximately 880,000 cancer patients per year, creating a $3.5 billion addressable market for our CELx tests based on our expected selling price of at least $4,000 per test.

•

Diverse revenue streams including pharma partnerships. We anticipate generating significant revenue from CDx pharmaceutical partners, including revenue from the sale of tests to identify patients eligible for clinical trials, milestone payments, and potentially, royalties on the incremental drug revenues our tests enable. Our most significant revenue opportunity comes from ongoing sales of CELx tests to physicians during the commercialization stage of the CDx.

•

Strong senior leadership team. Our founders and senior leaders have a proven track record of success building, operating and selling several successful companies. We have deep and highly relevant and complementary diagnostic, scientific, product development, and commercialization experience that has enabled us to establish market leadership positions for the companies we previously led.

Our goal is to leverage our technology to build a durable competitive advantage that enables us to improve outcomes for a significant percentage of cancer patients. We believe our CELx platform offers a number of advantages over molecular profiling tests to accomplish this:

•

Powerful cancer sub-type discovery tool. We have already discovered 16 new potential cancer sub-types that cannot be diagnosed with molecular diagnostics.

•

Direct patient-specific assessment of disease status. Our platform provides the most complete assessment available today of the intracellular activity driving a patient’s cancer by analyzing a patient’s living tumor cells.

•

Direct measurement of matching drug effectiveness. The CELx platform evaluates whether there are inherent drug resistance mechanisms that would prevent the therapy from functioning in the patient’s tumor cells. Molecular tests cannot provide this evaluation.

•

Improved response rates. We believe a patient population will have a higher response rate to a matching targeted therapy when it is diagnosed with a CELx test than with a molecular biomarker.

•

Identify drug responsive proprietary patient cohorts. We believe our CELx tests will enable us to identify new proprietary patient populations not currently diagnosable with molecular tests and increase the number of patients likely to respond to a matching targeted therapy.

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•

Streamlined FDA approval of targeted therapeutics. CELx tests will enable our pharmaceutical partners to enroll patients in their clinical trials who exhibit the same cellular dysfunction their targeted therapy is designed to inhibit. We believe this will improve patient response rates, increasing the likelihood the trial meets its endpoint target and thus the likelihood the drug receives approval from the U.S. Food and Drug Administration, or FDA. Improved patient response rates would also help reduce the size, cost and length of our partner’s clinical trials.

R isks A ffecting U s

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. Some of these risks include:

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we have a limited operating history upon which you can evaluate us, and we may never generate revenue or profit;

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our initial success is heavily dependent on the success of our CELx HSF Test;

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we may not be successful in finding pharmaceutical company partners for continuing development of additional CELx tests;

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developing our CELx tests involves a lengthy and complex process that may not be successful;

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clinical trials are expensive and complex with uncertain outcomes, which may prevent or delay commercialization of our CELx tests;

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even if our CELx 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;

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our business, operational and financial goals may not be attainable if the market opportunities for our CELx tests or our pharmaceutical company partners are smaller than we expect;

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the actual price we are able to charge for our CELx tests may be substantially lower than our expected price range;

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the insurance coverage and reimbursement status of new diagnostic products is uncertain;

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we face significant competition from other diagnostic companies; and

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we may encounter difficulties in commercializing and marketing our products, or in managing growth.

I mplications of B eing an E merging G rowth C ompany

As a company with less than $1.0 billion of revenue during our last fiscal year, we qualify as an emerging growth company as defined in the JOBS Act, and we may remain an emerging growth company for up to five years from the date of the first sale in this offering. However, if certain events occur prior to the end of such five-year period, including if we become a large accelerated filer, our annual gross revenue exceeds $1.0 billion, or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity interests. However, we have irrevocably elected not to avail ourselves of the extended transition period for complying with new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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LLC C onversion

Immediately prior to the effective time of the registration statement of which this prospectus is a part, we intend to convert from a Minnesota limited liability company into a Delaware corporation and change our name from Celcuity LLC to Celcuity Inc., which we refer to herein as the “LLC Conversion.” In conjunction with the LLC Conversion:

•

all of the outstanding units of Celcuity LLC will automatically be converted into an aggregate of shares of our common stock, based on the relative ownership interests of the equity holders of Celcuity LLC prior to the closing of this offering, at a conversion ratio of one share of our common stock for every 40 units;

•

we will adopt and file a certificate of incorporation and certificate of conversion with the State of Delaware; and

•

we will adopt and file a plan of conversion and articles of conversion with the State of Minnesota.

For more information on the LLC Conversion, see the discussion under “Certain Relationships and Related Party Transactions—LLC Conversion.” See “Description of Capital Stock” for additional information regarding a description of our common stock following the LLC Conversion and the terms of our certificate of incorporation and bylaws that will be in effect upon the completion of this offering.

While operating as a limited liability company, our outstanding equity was referred to as “units.” In this prospectus for ease of comparison, we may refer to such units as our common stock for periods prior to the LLC Conversion, unless otherwise indicated in this prospectus. Similarly, unless otherwise indicated, we refer to members’ equity in this prospectus as stockholders’ equity.

O ur C orporate I nformation

We were originally formed as a Minnesota limited liability company. Immediately prior to the effective time of the registration statement of which this prospectus is a part, we intend to convert from a Minnesota limited liability company into a Delaware corporation and change our name from Celcuity LLC to Celcuity Inc. Our principal executive offices are located at 16305 36th Avenue N., Suite 450, Minneapolis, Minnesota 55446, and our telephone number is (763) 392-0123. Our website address is www.celcuity.com. We have included our website address in this prospectus as an inactive textual reference only. Information contained on, or that can be accessed through, our website is not part of this prospectus.

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The Offering

The following summary contains basic information about this offering. The summary is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus.

Issuer

Celcuity Inc.

Common stock offered by us

Over-allotment option

The underwriter has an option for a period of 30 days from the date of this prospectus to purchase up to additional shares of our common stock to cover over-allotments, if any.

Common stock to be outstanding after this offering (1)

shares (or shares if the underwriter exercises its option to purchase additional shares in full).

Use of proceeds

We estimate that the net proceeds from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million, or approximately $ million if the underwriter exercises its over-allotment option to purchase additional shares from us in full, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering as follows:

•

approximately $ to fund additional research and development for discovery of new cancer sub-types and development and validation of new CELx tests;

•

approximately $ for clinical trials to support clinical claims;

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approximately $ to fund development of operational processes and capital expenditures; and

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approximately $ for working capital and other general corporate purposes.

See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

Dividend policy

We do not expect to pay any dividends or other distributions of our common stock in the foreseeable future. We currently intend to retain future earnings. See “Dividend Policy.”

Risk factors

You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

Proposed listing

We have applied to have our common stock listed on The Nasdaq Capital Market in connection with this offering. No assurance can be given that such listing will be approved.

Proposed Nasdaq Capital Market symbol

“CELC”

(1)

The number of shares of our common stock to be outstanding after this offering is based on shares of our common stock outstanding as of June 30, 2017, after giving effect to: (1) the LLC Conversion; and (2) the conversion of our unsecured convertible promissory notes into shares of

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common stock as described in section entitled “Description of Capital Stock—Unsecured Convertible Promissory Notes,” using an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and a closing date of , 2017. The number of shares of our common stock to be outstanding after this offering excludes:

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442,686 shares of common stock issuable upon the exercise of options granted as of June 30, 2017, with a weighted-average exercise price of $6.75 per share (after giving effect to the LLC Conversion);

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103,863 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2017, with a weighted-average exercise price of $7.96 per share (after giving effect to the LLC Conversion);

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shares of common stock issuable upon the exercise of warrants that will be issued in connection with the automatic conversion of our unsecured convertible promissory notes, with an exercise price of $ per share, as described in section titled “Description of Capital Stock—Unsecured Convertible Promissory Notes;”

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shares of common stock issuable upon the exercise of the warrant that will be issued to the underwriter in connection with this offering, with an exercise price equal to 110% of the initial public offering price per share; and

•

shares of our common stock reserved for future issuance under our new Celcuity Inc. 2017 Stock Incentive Plan.

Except as otherwise indicated, all information in this prospectus assumes the following:

•

our conversion to a Delaware corporation prior to the closing of this offering;

•

the filing of our Delaware certificate of incorporation and adoption of our bylaws prior to the closing of this offering; and

•

no exercise by the underwriter of its option to purchase additional shares of our common stock to cover over-allotments.

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Summary Financial Data AND PRO FORMA FINANCIAL DATA

The following tables present, as of the dates and for the periods indicated, our selected historical financial data and certain pro forma financial data, as indicated therein. The statement of operations data for the years ended December 31, 2015 and 2016 and the balance sheet data as of December 31, 2015 and 2016 are derived from our audited financial statements that are included elsewhere in this prospectus. The summary statements of operations data for the six months ended June 30, 2016 and 2017 and the Balance Sheet data as of June 30, 2017 are derived from the unaudited condensed financial statements included in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of financial statements set forth in those statements. Our historical results are not indicative of the results to be expected in the future and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2017, or any other period. The unaudited pro forma adjustments are based upon available information and certain assumptions we believe are reasonable under the circumstances.

The following summary financial data should be read in conjunction with, and are qualified in their entirety by reference to, “Use of Proceeds,” “Capitalization,” “Selected Financial Data and Pro Forma Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

	Years Ended December 31,						Six Months Ended June 30,
	2015			2016			2016			2017
							(unaudited)
Statements of Operations Data:
Operating expenses:
Research and development		$	2,011,719		$	3,064,762		$	1,412,056		$	2,212,629
General and administrative			250,091			263,664			131,417			386,963
Total operating expenses			2,261,810			3,328,426			1,543,473			2,599,592
Loss from operations			(2,261,810 )			(3,328,426 )			(1,543,473 )			(2,599,592 )
Other income (expense):
Interest expense			—			—			—			(186,686 )
Interest income			268			18,018			4,019			22,712
Total other income (expense)			268			18,018			4,019			(163,974 )
Net loss		$	(2,261,542 )		$	(3,310,408 )		$	(1,539,454 )		$	(2,763,566 )
Net loss per unit share attributable to common members—basic and diluted		$	(0.01 )		$	(0.01 )		$	(0.01 )		$	(0.01 )
Weighted-average (WA) common units outstanding used to compute net loss per unit attributable to common members—basic and diluted			233,732,667			252,523,542			247,266,395			257,604,208
Pro forma WA common shares outstanding used to compute net loss per share attributable to common stockholders—basic and diluted (1)			5,843,317			6,313,089			6,181,660
Pro forma net loss per share attributable to common stockholders—basic and diluted (1)		$	(0.39 )		$	(0.52 )		$	(0.25 )		$

(1)

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Convertible Promissory Notes,” with an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. The weighted average common shares attributable to conversion of our convertible notes assumes the conversion of $8,337,500 principal amount, plus accrued interest of $16,305, into shares of common stock at the beginning of the period presented, or the original issuance date, if later.

				As of June 30, 2017
	As of December 31, 2016 Actual			Actual			Pro Forma (1)			Pro Forma As Adjusted (2)
				Unaudited			Unaudited			Unaudited
Balance Sheet Data:
Cash and cash equivalents		$	5,856,348		$	10,908,068		$	10,908,068		$
Total assets			6,056,977			11,686,950			11,686,950
Total current liabilities			445,359			776,954			776,954
Convertible notes			—			6,575,413			—
Total stockholders’ equity			5,611,618			4,334,583			10,909,996

(1)

Pro forma after giving effect to: (1) the LLC Conversion described in “Certain Relationships and Related Party Transactions—LLC Conversion”; and (2) the conversion of our unsecured convertible notes that were issued in 2017 and had a carrying value of $6,575,413 as of June 30, 2017, into common stock as described in the section entitled “Description of Capital Stock—Unsecured Convertible Promissory Notes,” with an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.

(2)

Pro forma as adjusted after giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks described below before deciding to invest in our common stock. If any of the following risks actually occur, our business, financial condition, results of operation or cash flows could be materially harmed. In any such case, the trading price of our common stock could decline and you could lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this prospectus, including our financial statements and the related notes.

R isks R elating to O ur B usiness

We have a limited operating history upon which you can evaluate us. We may never generate revenue or profit.

We are an early-stage biotechnology company that commenced activities in January 2012. We only have a limited operating history upon which you can evaluate us. 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 private placements of our pre-LLC Conversion common units and the issuance of convertible notes. To become and remain profitable, we must continue to develop and commercialize the CELx platform, including the CELx HSF Test and CELx tests for other cancer sub-types. This will require us to be successful in a range of challenging activities, including completing nonclinical testing, initiating and completing clinical trials, building operational and financial infrastructure to support commercial operations, training and managing employees, and marketing and selling our CELx tests.

We may never succeed in 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 the value of the company and could impair our ability to raise capital, maintain or expand our research and development efforts, expand our business, or continue our operations. A decline in the value of our company could also cause you to lose part or even all of your investment.

Our initial success is heavily dependent on the success of our CELx HSF Test.

Our business strategy includes generating revenue from the sale of our CELx tests and from CDx partnerships with pharmaceutical companies. Our ability to obtain such partnerships depends in part on the ability of our CELx HSF Test to demonstrate the incremental opportunity available for pharmaceutical companies. We will not begin fielding our first prospective clinical trial for the CELx HSF Test until late-2017 and expect final results of the trial will not be available for 18 to 21 months. Success of the HSF Test trial will depend on many factors, such as successful enrollment of patients, meeting trial endpoint goals, and completing the trial in a timely manner. If we are unable to demonstrate the efficacy of the HSF Test in identifying patients that respond to the targeted therapy, we will not be able to generate future revenue from our CELx HSF Test and may not be able to attract other pharmaceutical companies to partner with us for the development and commercialization of other CELx tests.

We may not be successful in finding pharmaceutical company partners for continuing development of additional CELx tests.

We intend to develop strategic partnerships with pharmaceutical companies for developing additional CELx 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 additional CELx tests because 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. 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

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development of additional CELx tests and our business, financial condition, results of operations and prospects may be materially and adversely affected.

Developing our CELx tests involves a lengthy and complex process that may not be successful.

Our CELx 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 CELx tests into commercially viable products, we need to successfully complete a variety of activities, including:

•

conducting substantial research and development;

•

conducting analytical and clinical studies; and

•

obtaining and maintaining partnerships with pharmaceutical companies.

These activities will require us to expend significant resources. Based on comparable companies in this industry, few research and development projects result in commercial 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 CELx tests.

For our CELx tests to become a CDx for a matching targeted therapy, we must conduct extensive clinical trials to demonstrate that patients who have an abnormal signaling pathway, as identified by our CELx tests, respond to treatment with a matching targeted therapy. Clinical testing is expensive, difficult to design and implement, and can take many years to complete, and its outcome is inherently uncertain. As a company, we have no experience in conducting or participating in clinical trials. 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 CELx tests, such as:

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delays in reaching, or failure to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with planned trial sites and/or strategic partners;

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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;

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delay or failure in recruiting and enrolling suitable subjects to participate in one or more clinical trials, or with 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;

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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.

Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our CELx tests or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our CELx tests and may materially and adversely affect our business, financial condition, results of operations and prospects.

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Even if our CELx 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 CELx tests, including the CELx HSF 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 CELx test. The degree of market acceptance of our CELx 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 administration 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 partner with pharmaceutical companies to develop CDx programs for the new cancer sub-types we discover.

If our CELx tests do not achieve an adequate level of acceptance, we may never generate significant product revenues and we may not become profitable.

Our business, operational and financial goals may not be attainable if the market opportunities for our CELx 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 neither we nor the underwriter have 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 CDx programs we will be able to successfully pursue, the amount of potential milestone payments that we could receive in CDx 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 neither we nor the underwriter have 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 CELx 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 CELx 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 CDx pharmaceutical partners may not attain our business, operational and financial goals.

The expected selling price range of our CELx test 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 CELx test 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 CELx tests and cannot be certain of the actual price we may be able to charge. The

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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 CELx tests in clinical trials, if physicians are reluctant to switch from other diagnostic tests to our CELx tests or if physicians switch to other new products or choose to reserve our CELx 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 obtain 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 CELx tests could limit our ability to market those CELx 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 CELx tests will depend substantially, both in the United States and internationally, on the extent to which the costs of our CELx 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 CELx tests are:

•

neither experimental nor investigational;

•

appropriate for the specific patient;

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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 CELx 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 the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services. 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 CELx 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 CELx 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 CELx 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 CELx tests. Accordingly, in markets outside the United States, the reimbursement for our potential CELx tests may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profit.

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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 CELx 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 CELx tests due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.

We may encounter difficulties in commercializing and marketing our products.

In order to commercialize any CELx 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 CELx 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 CELx test, we plan to target key opinion leaders (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. Furthermore, there is no guarantee that any new drug indications will require our CELx tests as a CDx or that any pharmaceutical company will effectively coordinate sales and marketing activities with us. Any failure or delay in these activities would adversely impact the commercialization our CELx platform, and our business, financial condition, results of operations and prospects may be materially and adversely affected.

We may encounter difficulties in managing growth, which could disrupt our operations.

To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We face significant competition from other diagnostic companies and our operating results will suffer if we fail to compete effectively.

The diagnostic testing related 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 CELx 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 CELx tests less competitive.

Our ability to compete successfully will depend largely on our ability to:

•

discover and develop CELx tests for cancer sub-types that are superior to other products in the market;

•

demonstrate compelling advantages in the efficacy and convenience of our CELx 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 CELx platform;

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•

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 CELx tests; and

•

successfully expand our operations and build a sales force to support commercialization.

We may not be able to compete effectively if we are unable accomplish one or more of the these objectives.

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 CELx 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 CELx tests and comply with the required procedures, or that this laboratory would be willing to perform the tests for us on commercially reasonable terms.

We must hire and retain a qualified sales force.

Our ability to grow revenue for our CELx tests is dependent upon our ability to build an effective sales team. We do not currently have a dedicated sales force, and building one will be an expensive and time-consuming process. We face 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. Even if we are able to increase our sales force, our new sales personnel may not provide sufficient high quality service and attention to effectively market and sell our CELx platform. If we are unable to develop our marketing and sales networks or if our sales personnel do not perform as expected, we may be unable to maintain or grow our existing business and our business, financial condition, results of operations and prospects may be materially and adversely affected.

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 successfully to implement our business plan.

Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize our CELx platform.

We may require additional capital to finance capital expenditures and operating expenses over the next several years as we launch our CELx platform and expand our infrastructure, commercial operations and research and development activities. We may seek to raise additional capital through equity offerings, debt

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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.

R isks R elated to O ur R eliance on T hird P arties

We will rely on collaboration with third parties to conduct our clinical trials, including the current trial involving the CELx HSF Test, and those third parties may not perform satisfactorily.

We will rely on third parties to conduct clinical trials for our CELx tests. For our CELx HSF Test, we are collaborating with the NSABP and Genentech to conduct a 55-patient single-arm interventional trial that is expected to begin enrolling patients in late-2017. We are funding the patient-related costs for this trial and Genentech is supplying the drugs. We will rely on NSABP to conduct our clinical trial of the CELx HSF Test, including setting up clinical sites, enrolling patients, and managing clinical data.

We expect to field additional clinical trials to evaluate new potential indications for drugs with patients identified by one of our new CELx tests. NSABP, other contract research organizations that we hire and/or pharmaceutical companies we partner with might not successfully carry out their contractual duties, meet expected deadlines, or conduct our planned clinical trials in accordance with regulatory requirements or our stated protocols. Any of them may also terminate their relationship with us for a variety of reasons. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If we need to enter into alternative arrangements, we may not be able to complete our clinical trials and may not be able to, or may be delayed in our efforts to, successfully commercialize our potential CELx tests.

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 CDx 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

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•

may terminate their relationship with us.

Any of these factors could adversely affect our commercialization strategy, business, results of operations and financial condition.

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 CELx tests.

We utilize highly specialized reagents and instruments to perform our CELx 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 CELx tests. This would interrupt sales and adversely affect our business, results of operations and financial condition.

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 CELx 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.

R isks R elated to G overnment R egulation

Our CELx 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 CELx 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 CELx 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 CELx 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 laboratory developed tests, or 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 CELx tests are LDT’s, which is a term that describes tests that are designed and performed within a single laboratory. As a result, we believe the CELx 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 no longer intended 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

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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 CELx tests, there can be no assurance that our CELx 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 CELx tests. If our CELx 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 CELx 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 CELx 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 certifications would adversely affect our ability to launch our CELx tests.

We generate medical waste and could face substantial liability if we violate laws with respect to the handling of medical waste.

We generate regulated medical waste in the normal course of performing our CELx 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 related to our business. We cannot predict how changes in laws or development of new regulations will affect our business operations or the cost of compliance.

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 the Health Insurance Portability and Accountability Act of 1996, or 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.

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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:

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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;

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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;

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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

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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.

New legislation and regulations could be passed that affect our operations and result in additional risks and/or costs to our business.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products that are or will be regulated by the FDA or CMS. In addition to new legislation, CMS and FDA regulations and policies are often revised or interpreted by the agencies in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted or FDA or CMS regulations, guidance, policies or interpretations will be changed, or what the impact of such changes, if any, may be. The 2016 presidential election and change in administration make it even more difficult to predict if and how federal regulations may change and/or federal agencies might alter their positions. Changes in laws and the development of new regulations could affect our business operations and/or the cost of compliance.

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R isks R elated to I ntellectual P roperty

If we are unable to obtain and maintain intellectual property protection for our 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 one U.S. patent, four pending U.S. patent applications, one pending international PCT patent application, and numerous corresponding non-U.S. patent applications. 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:

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our pending or future patent applications may not result in the issuance of patents;

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the scope of any existing or future patent protection may not exclude competitors or provide competitive advantages to us;

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our patents may not be held valid if subsequently challenged;

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other parties may claim that our products and designs infringe the proprietary rights of others—even if we are successful in defending our patents and proprietary rights, the cost of such litigation may adversely affect our business; and

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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 CELx 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 partes 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

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compete directly with us, without payment to us, or result in our inability to commercialize CELx 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 CELx tests.

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.

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.

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.

Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our CELx 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 CELx 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 CELx platform and CELx 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,

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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 CELx 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.

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.

If we are not able to prevent disclosure of our trade secrets and other proprietary information, the value of our CELx 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,

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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.

R isks R elating to O ur C ommon S tock and T his O ffering

You will suffer immediate and substantial dilution.

The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock after giving effect to this offering. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or other equity awards or equity securities, you will incur further dilution. Based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per share, representing the difference between our pro forma net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. See “Dilution.”

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control all matters submitted to stockholders for approval.

Upon the closing of this offering, our executive officers and directors, combined with our stockholders who each owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately % of our capital stock based on shares of common stock outstanding, on a post-LLC Conversion and pro forma basis, as of , 2017. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

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delay, defer or prevent a change in control;

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make changes to our management and the board of directors challenging for other stockholders; or

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impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire or may result in you obtaining a premium for your shares.

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

We previously have not been required to maintain internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Sections 404(a) or 404(b) of the Sarbanes-Oxley Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are not currently in compliance with, and we cannot be certain when we will be able to implement the requirements of Section 404(a). We may encounter problems or delays in

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implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information and the price of our common stock could decline.

Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements causing us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.

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 that will become effective upon the LLC Conversion 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:

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allow the authorized number of our directors to be changed only by resolution of our board of directors;

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limit the manner in which stockholders can remove directors from our board of directors;

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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

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limit who may call stockholder meetings;

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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

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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 that will become effective upon the closing of this offering.

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. See “Description of Capital Stock.”

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An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through arms-length negotiations with the underwriter. Although we anticipate that our common stock will be approved for listing on The Nasdaq Capital Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering at a favorable price or at all.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be 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, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

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the success of competitive products or technologies;

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results of planned clinical trials of our CELx HSF Test or other CELx tests may develop in the future;

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regulatory or legal developments in the United States and other countries;

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developments or disputes concerning patent applications, issued patents or other proprietary rights;

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the recruitment or departure of key personnel;

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the level of expenses related to any of our CELx tests or clinical development programs;

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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

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operating results that fail to meet expectations of securities analysts that cover our company;

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variations in our financial results or those of companies that are perceived to be similar to us;

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changes in the structure of healthcare payment systems;

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market conditions in the pharmaceutical, biotechnology and medical technology sectors;

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general economic and market conditions; and

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the other factors described in this “Risk Factors” section.

We may be subject to securities litigation, which is expensive and could divert management attention.

Our stock price is likely to be volatile, and in the past 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.

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 will depend 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

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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 have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Our management could spend the net proceeds from this offering in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our CELx platform. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting of Section 404(b) of the Sarbanes-Oxley Act;

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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

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reduced disclosure obligations regarding executive compensation; and

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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will 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, and particularly after we are no longer an emerging growth 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 listing requirements of The Nasdaq Capital Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure

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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 will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will first be required to furnish a report by our management on our internal control over financial reporting for the year ending December 31, 2018. As discussed above, if we cease to be an emerging growth company, we will 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). To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Since we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain.

We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain for the foreseeable future.

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Special Note Regarding Forward-Looking Statements

This prospectus and other reports filed by the company from time to time with the Securities and Exchange Commission, or the SEC, contain or may contain forward-looking statements and information that are based upon beliefs of and information currently available to management as well as estimates and assumptions made by management. When used in the filings, the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “plan,” “predict,” “may,” “should,” “will,” “would” or the negative variation of these terms and similar expressions as they relate to the company or management identify forward-looking statements.

The forward-looking statements in this prospectus include, among other things, statements about:

•

our plans to develop and commercialize our CELx platform and CELx tests for patients with cancer and our expectations regarding the various cancer sub-types our CELx tests will identify;

•

any perceived advantage of our CELx platform and CELx 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 expected first-mover advantage in providing products to culture living tumor cells on a commercial scale, or the sustainability of our competitive advantages;

•

the size and growth potential of the markets for our CELx platform, and our ability to serve those markets;

•

the rate and degree of market acceptance, both in the United States and internationally, and clinical utility of our diagnostic platform and tests;

•

our ability to partner with and generate revenue from pharmaceutical partners and physicians, and the market opportunity for HER2 therapies and other CELx programs for our pharmaceutical partners as a result of our CELx platform;

•

the success of competing tests that are or may become available;

•

the ability of our CELx platform and tests to impact clinical trials by our pharmaceutical partners, such as streamlining FDA approval of targeted therapeutics;

•

the success, cost and timing of our CELx platform development activities and planned clinical trials, as well as our reliance on collaboration with third parties to conduct our clinical trials;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

expectations regarding federal, state, and foreign regulatory requirements and developments, such as potential FDA regulation of our CELx platform and CELx tests, our operations, as well as our laboratory;

•

our plans with respect to pricing in the United States and internationally, and our ability to obtain reimbursement for CELx tests, 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 government insurance programs, such as Medicare and Medicaid;

•

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our CELx platform and CELx tests;

•

our expectations with respect to our facility needs;

•

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

future agreements with third parties in connection with the commercialization of our CELx diagnostic platform and tests;

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•

our expectations regarding our ability to obtain and maintain intellectual property protection for CELx platform and approach;

•

our expectations regarding conversion from a Minnesota limited liability company to a Delaware corporation and the operation, independence, and composition of our board of directors;

•

our ability to attract and retain key scientific or management personnel;

•

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

•

the requirements of being a public company;

•

our expectations regarding having our stock listed on The Nasdaq Capital Market; and

•

our anticipated use of the net proceeds from this offering.

Other risks, uncertainties and factors, including those discussed under “Risk Factors,” could cause our actual results to differ materially from those projected in any forward-looking statements we make. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the company does not intend to update any of the forward-looking statements to conform these statements to actual results.

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Use of Proceeds

We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $ million, or approximately $ million if the underwriter exercises its option in full to purchase additional shares from us, based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our research and development activities, clinical studies, and commercial activities. We currently intend to use the net proceeds of this offering as follows:

•

approximately $ to fund additional research and development for discovery of new cancer sub-types and development and validation of new CELx tests;

•

approximately $ for clinical trials to support clinical claims;

•

approximately $ to fund development of operational processes and capital expenditures; and

•

approximately $ for working capital and other general corporate purposes.

The net proceeds are intended to support our research and development and efforts, the development of our operational processes, and the launch of our business development activities to pharmaceutical companies. The expected use of the net proceeds from the offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with any certainty all of the particular uses for the net proceeds or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of product development and commercialization may vary significantly depending on numerous factors, including the status, results and timing of the clinical trial for the CELx HSF Test that we intend to commence in late-2017 and our current nonclinical studies for additional diagnostic tests, as well as any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Pending their use as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.

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Capitalization

The following table sets forth the cash and cash equivalents and our capitalization as of June 30, 2017, of:

•

our predecessor, Celcuity LLC, on an actual basis;

•

on a pro forma basis giving effect to: (1) the LLC Conversion described in “Certain Relationships and Related Party Transactions—LLC Conversion”; and (2) the conversion of our unsecured convertible promissory notes into common stock as described in “Description of Capital Stock—Unsecured Convertible Promissory Notes,” with an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and an assumed closing date of , 2017; and

•

on a pro forma as adjusted basis giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The information in this table is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Financial Data and Pro Forma Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the financial statements and the notes thereto included elsewhere in this prospectus.

	As of June 30, 2017
	Actual			Pro Forma (LLC Conversion & Note Conversion)			Pro Forma As Adjusted (1)
	(In thousands, except for share and per share data; unaudited)
Cash, cash equivalents and marketable securities (excluding restricted cash)		$	10,908		$	10,908		$
Convertible notes (2)			6,575			—			—
Stockholder’s Equity
Members’ equity contributions (3)			13,350			—
Common stock, $0.001 par value (4)			—			6
Additional paid-in capital (2)			2,080			21,999
Accumulated deficit			(11,095 )			(11,095 )
Total stockholders’ equity			4,335			10,910
Total Capitalization		$	10,910		$	10,910		$

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the assumed initial public offering price, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

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The number of shares of our common stock issued and outstanding as set forth in the table above excludes:

•

shares of our common stock reserved for future issuance under our new Celcuity Inc. 2017 Stock Incentive Plan.

(2)

In April and May 2017, we sold unsecured convertible promissory notes with an aggregate principal amount of $8,337,500, which upon the closing of this offering will convert into shares of common stock and warrants to purchase an additional shares of common stock, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We incurred $885,130 of third party offering costs related to the sale of the unsecured convertible promissory notes. In addition, we issued a warrant to the placement agent with a fair market value of $286,999. The net proceeds of $7,452,370 were allocated $6,388,655 and $1,063,715 to the unsecured convertible promissory notes and warrants (additional paid-in capital), respectively. A total debt discount of $1,948,846 will be amortized as interest expense over the life of the convertible notes. Upon conversion of the unsecured convertible promissory notes at the closing of this offering, the net carrying value of the unsecured convertible promissory notes at that time will be converted to common stock (par value) and additional paid-in capital. For pro forma statements of operations data, see the section entitled “Selected Financial Data and Pro Forma Financial Data” of this prospectus.

(3)

Following the LLC Conversion, members’ equity contributions will be allocated among the line items for common stock, $0.001 par value per share, and additional paid-in capital.

(4)

No shares authorized, issued, or outstanding (actual); shares issued and outstanding (Pro Forma (LLC Conversion and Note Conversion)); shares issued and outstanding (Pro Forma As Adjusted).

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Dilution

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the assumed initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share of our common stock is determined at any date by subtracting our total liabilities from the amount of our total tangible assets (total assets less intangible assets) and dividing the difference by the number of shares of our common stock deemed to be outstanding at that date.

Our historical net tangible book value as of June 30, 2017 was approximately $ million, or $ per share of common stock, based on 6,440,105 shares of common stock outstanding as of such date after giving effect to (1) the LLC Conversion; and (2) the sale of our unsecured convertible promissory notes with the original principal amount of $ described under “Description of Capital Stock—Unsecured Convertible Promissory Notes,” after deducting placement agent fees and other expenses incurred in connection with the offering of such notes. Investors participating in this offering will incur immediate and substantial dilution.

After giving effect to the conversion of our unsecured convertible promissory notes into common stock in connection with this offering as described in “Description of Capital Stock—Unsecured Convertible Promissory Notes,” with an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and an assumed closing date of , 2017, our pro forma as adjusted net tangible book value as of June 30, 2017 would have been approximately $ million, or $ per share.

After further giving effect to (1) the pro forma adjustment described above; and (2) our receipt of approximately $ million of estimated net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, from our sale of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of June 30, 2017, would have been approximately $ million, or $ per share. This amount represents an immediate increase in net tangible book value of $ per share of our common stock to existing equity holders and an immediate dilution in net tangible book value of $ per share of our common stock to new investors purchasing shares of common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors:

Assumed initial public offering price per share

Historical net tangible book value per share as of June 30, 2017 after
giving effect to the LLC Conversion

Pro forma increase in net tangible book value per share attributable to
conversion of unsecured convertible promissory notes

Pro forma net tangible book value per share as of June 30, 2017

Pro forma increase in net tangible book value per share attributable to
new investors

Pro forma as adjusted net tangible book value per share after this offering

Dilution per share to new investors purchasing common stock in this
offering

Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value as of June 30, 2017 by $ million, or by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $ million, or by $ per share, and the dilution to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We may also increase or decrease the number of shares we are offering. An increase of shares in the number of shares offered by us would increase our pro forma as adjusted net tangible book value after this offering by approximately $ million, or by $ per share, and the dilution per share to new investors purchasing common stock in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a decrease of shares in the number of shares offered by us would decrease our pro forma as adjusted net tangible book value after this offering by approximately $ million, or by $ per share, and the dilution per share to new investors purchasing common stock in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriter exercises its option to purchase additional shares in full in this offering, the pro forma as adjusted net tangible book value after this offering would be $ per share, the increase in pro forma net tangible book value to existing stockholders would be $ per share, and the dilution per share to new investors would be $ per share, in each case assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.

The following table summarizes, as of June 30, 2017, after giving effect to the pro forma adjustments noted above, the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders and by new investors purchasing shares in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent		Average Price Per Share
Existing stockholders			%		$		%		$
New investors
Total			100 %		$		100 %		$

The number of shares of our common stock outstanding immediately following this offering is based on shares of our common stock outstanding as of June 30, 2017 and giving effect to the pro forma transactions described above. This number excludes:

•

shares of common stock issuable upon the exercise of the warrant that will be issued to the underwriter in connection with this offering, with an exercise price of $ per share; and

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Selected Financial Data and Pro Forma Financial Data

The following tables present, as of the dates and for the periods indicated, our selected historical financial data and certain pro forma financial data, as indicated therein. The statements of operations data for the years ended December 31, 2015 and 2016 and the balance sheet data as of December 31, 2015 and 2016 are derived from our audited financial statements that are included elsewhere in this prospectus. The statements of operations data for the six months ended June 30, 2016 and 2017 and the balance sheet data as of June 30, 2017 are derived from our unaudited financial statements that are included elsewhere in this prospectus. Our historical results are not indicative of the results to be expected in the future and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2017, or any other period. The unaudited pro forma adjustments are based upon available information and certain assumptions we believe are reasonable under the circumstances.

You should read this information together with our financial statements and the related notes, as well as the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Years Ended December 31,						Six Months Ended June 30,
	2015			2016			2016			2017
							(unaudited)
Statements of Operations Data:
Operating expenses:
Research and development		$	2,011,719		$	3,064,762		$	1,412,056		$	2,212,629
General and administrative			250,091			263,664			131,417			386,963
Total operating expenses			2,261,810			3,328,426			1,543,473			2,599,592
Loss from operations			(2,261,810 )			(3,328,426 )			(1,543,473 )			(2,599,592 )
Other income (expense):
Interest expense			—			—			—			(186,686 )
Interest income			268			18,018			4,019			22,712
Total other income (expense)			268			18,018			4,019			(163,974 )
Net loss		$	(2,261,542 )		$	(3,310,408 )		$	(1,539,454 )		$	(2,763,566 )
Net loss per unit share attributable to common members—basic and diluted		$	(0.01 )		$	(0.01 )		$	(0.01 )		$	(0.01 )
Weighted-average (WA) common units outstanding used to compute net loss per unit attributable to common members—basic and diluted			233,732,667			252,523,542			247,266,395			257,604,208
Pro Forma Adjustments: (1)
Pro forma adjustment for interest on convertible notes (2)			—			—			—			186,686
Pro forma net loss (3)		$	(2,261,542 )		$	(3,310,408 )		$	(1,539,454 )		$	(2,576,880 )
WA common shares outstanding pro forma (unaudited):
WA common shares after the LLC Conversion (4)			5,843,317			6,313,089			6,181,660			6,440,105
WA common shares attributed to conversion of convertible notes (5)			—			—			—
Pro forma WA common shares outstanding used to compute net loss per share attributable to common stockholders—basic and diluted (2)(5)			5,843,317			6,313,089			6,181,660
Pro forma net loss per share attributable to common stockholders—basic and diluted		$	(0.39 )		$	(0.52 )		$	(0.25 )		$

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(1)

(2)

As the convertible notes were considered converted at the original issuance dates in 2017, recognized interest expense of $186,686 for the six-month period ended June 30, 2017 was removed for pro forma purposes.

(3)

Celcuity LLC is a limited liability company and is therefore a disregarded legal entity for income tax purposes. Accordingly, no provision for income taxes was included in the financial statements for the periods presented. On a pro forma basis, after giving effect to the LLC Conversion, (i) no income tax expense would be recorded as Celcuity had net losses for the applicable periods, and (ii) no income tax benefit would be recorded as any potential tax benefit would be fully offset by a valuation allowance.

(4)

The weighted average common shares outstanding after the LLC Conversion assumes the units of Celcuity LLC are converted into shares of common stock at a conversion ratio of one share of common stock for every 40 units. The weighted average 252,523,542 and 257,604,208 units for the year ended December 31, 2016 and for the six months ended June 30, 2017, respectively, are assumed to convert into 6,313,089 and 6,440,105 shares of common stock at the beginning of the periods presented, respectively.

(5)

The weighted average common shares attributable to conversion of our convertible notes assumes the conversion of $8,337,500 principal amount, plus accrued interest of $16,305, into shares of common stock at the beginning of the period presented, or the original issuance date, if later. The conversion of such notes is based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. The assumed pro forma conversion of the convertible notes at the original issue date during 2017 increased the weighted average common shares outstanding by for the six-month period ended June 30, 2017.

	As of December 31,						As of June 30, 2017
	2015			2016			As of June 30, 2017
	Actual			Actual			Actual			Pro Forma (1)
							(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	5,067,240		$	5,856,348		$	10,908,068		$	10,908,068
Total assets			5,300,025			6,056,977			11,686,950			11,686,950
Total current liabilities			283,604			445,359			776,954			776,954
Convertible notes			—			—			6,575,413			—
Total stockholders’ equity			5,016,421			5,611,618			4,334,583			10,909,996

(1)

Pro forma after giving effect to: (1) the LLC Conversion described in “Certain Relationships and Related Party Transactions—LLC Conversion”; and (2) the conversion of our unsecured convertible notes, which had a carrying value of $6,575,413 as of June 30, 2017, into common stock as described in the section entitled “Description of Capital Stock—Unsecured Convertible Promissory Notes,” with an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.

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Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with the historical financial statements and the related notes thereto filed with this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon our current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our objectives, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

O verview

We are a cellular analysis company that is discovering new cancer sub-types and commercializing diagnostic tests designed to significantly improve the clinical outcomes of cancer patients treated with targeted therapies. Our proprietary CELx 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. We believe our CELx platform provides two important improvements over traditional molecular diagnostics. First, molecular diagnostics can only provide a snapshot of the genetic mutations present in a patient’s tumor because they analyze dead cells. Using dead cells prevents molecular diagnostics from analyzing in real-time the dynamic cellular activities, known as cell signaling, that regulate cell proliferation or survival. Cancer can develop when certain cell signaling activity becomes abnormal. Since genetic mutations are often only weakly correlated to the cell signaling activity driving a patient’s cancer, a molecular diagnostic is prone to providing an incomplete diagnosis. CELx tests overcome this limitation by measuring real-time cell signaling activity in a patient’s living tumor cells. When a CELx test detects abnormal signaling activity, a more accurate diagnosis of the patient’s cancer driver is obtained. Second, molecular diagnostics can only estimate the probability of a patient’s potential drug response based on a statistical analysis of the drug’s clinical trial results. Instead of this indirect estimate of drug response, CELx tests directly measure the effectiveness of a targeted therapy in a patient’s living tumor cells. This enables physicians to confirm that the therapeutic matching the patient’s cancer driver is functional in the patient’s tumor cells before prescribing it, which significantly increases the likelihood of a positive clinical outcome.

In addition to our CELx tests for HER2-negative breast cancer, we are developing CELx tests to diagnose 14 new potential cancer sub-types we have discovered in breast, lung, colon, ovarian, kidney, bladder and hematological cancers. Approved or investigational drugs are currently available to treat these new potential cancer sub-types. We expect to launch these additional tests on a staggered basis over the next few years while continuing our research to identify additional new cancer sub-types.

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 our inception in 2012. For the years

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ended December 31, 2016 and 2015, we reported a net loss of $3.3 million and $2.3 million, respectively. As of June 30, 2017, we had an accumulated deficit of $11.1 million, which includes $0.9 million of non-cash charges, consisting of approximately $0.7 million for equity-based compensation and approximately $0.2 million for non-cash interest expense. As of June 30, 2017, we had cash and cash equivalents of $10.9 million.

F inancial O verview

Components of Operating Results

Revenue

To date, we have not generated any revenue. Initially, our ability to generate revenue will depend primarily upon our ability to obtain partnership agreements with pharmaceutical companies to provide companion diagnostics for such pharmaceutical partners’ existing or investigational targeted therapies. We expect these partnerships to generate significant revenue from the sale of tests to identify patients eligible for clinical trials, from milestone payments, and, potentially, from royalties on the incremental drug revenues our tests enable. Once 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 our CELx platform, development and validation of our CELx HSF Test, and research related to the discovery of new cancer sub-types. Research and development expenses primarily include:

•

employee-related expenses related to our research and development activities, including salaries, benefits, travel and stock-based compensation expenses;

•

laboratory supplies;

•

consulting fees paid to third parties;

•

clinical trial costs;

•

facilities expenses; and

•

legal costs associated with patent applications.

Internal and external research and development costs are expensed as they are incurred. As we initiate clinical trials to evaluate efficacy of targeted therapies in cancer patients selected with one of our CELx tests, the proportion of research and development expenses allocated to external spending will grow at a faster rate than expenses allocated to internal expenses. For the years ended December 31, 2016 and 2015, we incurred research and development expenses of $3.1 million and $2.0 million, respectively. For the six months ended June 30, 2017, we incurred research and development expenses of $2.2 million.

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 discover new cancer sub-types and to develop and validate additional CELx 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 CELx tests. Timelines and costs to develop and validate new CELx tests may differ materially from expectations.

General and Administrative

General and administrative expenses consist primarily of salaries and related benefits related to our executive, finance and support functions. Other general and administrative expenses include travel expenses for our general and administrative personnel and professional fees for auditing, tax, and legal services. 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 CELx tests, an expanding infrastructure, and increased professional fees associated with being a public reporting company.

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Sales and Marketing

Selling and marketing expenses consist primarily of professional and consulting fees related to these functions. Though we have incurred immaterial sales and marketing expenses to date as we continue to focus primarily on the development of our CELx platform and corresponding CELx tests, we expect to begin to incur increased selling and marketing expenses in anticipation of the commercialization of our CELx HSF Test. 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 primarily consists of the amortization of debt discount and debt financing costs related to the issuance of our unsecured convertible promissory notes.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents balances.

R esults of O perations

Comparison of the Years Ended December 31, 2015 and 2016:

	Years Ended December 31,						Increase (Decrease)
	2015			2016			$			%
Operating expenses:
Research and development		$	2,011,719		$	3,064,762		$	1,053,043		52 %
General and administrative			250,091			263,664			13,573		5 %
Total operating expenses			2,261,810			3,328,426			1,066,616		47 %
Loss from operations			(2,261,810 )			(3,328,426 )			(1,066,616 )		47 %
Interest income			268			18,018			17,750		6623 %
Net loss		$	(2,261,542 )		$	(3,310,408 )		$	(1,048,866 )		46 %

Research and Development

For the year ended December 31, 2016, our total research and development expenses increased $1.05 million, or 52%, to $3.06 million from $2.01 million for the prior year. The increase primarily resulted from a $0.8 million increase in employee-related expenses, including equity-based compensation, to support development of our CELx platform, validation studies of our CELx HSF Test, business development activities, and a $0.2 million increase in laboratory supplies to support research and development projects.

General and Administrative

For the year ended December 31, 2016, our total general and administrative expenses increased $0.01 million, or 5%, to $0.26 million, from $0.25 million for the prior year. The increase in general and administrative expenses primarily resulted from increases in non-personnel related costs, including increases in property and casualty insurance, of $0.01 million for the year ended December 31, 2016.

Interest Income

For the year ended December 31, 2016, interest income increased by approximately $0.02 million over the prior year. The increase resulted from interest earned on our cash and cash equivalents from the $7.5 million of proceeds of a financing that closed in December 2015 and May 2016.

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Comparison of Six Months Ended June 30, 2016 and 2017:

	Six Months Ended June 30,						Increase (Decrease)
	2016			2017			$			%
	(unaudited)
Operating expenses:
Research and development		$	1,412,056		$	2,212,629		$	800,573		57 %
General and administrative			131,417			386,963			255,546		194 %
Total operating expenses			1,543,473			2,599,592			1,056,119		68 %
Loss from operations			(1,543,473 )			(2,599,592 )			(1,056,119 )		68 %
Other income (expense):
Interest expense			—			(186,686 )			(186,686 )		n/a
Interest income			4,019			22,712			18,693		465 %
Total other income (expense)			4,019			(163,974 )			(167,993 )
Net loss		$	(1,539,454 )		$	(2,763,566 )		$	(1,224,112 )		80 %

Research and Development

For the six months ended June 30, 2017, our total research and development expenses increased $0.8 million, or 57%, to $2.2 million from $1.4 million for the prior year period. The increase primarily resulted from an increase in employee-related expenses, including equity-based compensation, to support development of our CELx platform, validation studies of our CELx HSF Test, start-up clinical trial costs, and business development activities.

General and Administrative

For the six months ended June 30, 2017, our total general and administrative expenses increased $0.26 million, or 194%, to $0.39 million, from $0.13 million for the prior year period. The increase in general and administrative expenses primarily resulted from increases of $0.13 million in equity-based compensation and $0.06 million in professional accounting and audit fees for the six months ended June 30, 2017.

Interest Expense

For the six months ended June 30, 2017, interest expense increased $0.2 million over the same period in the prior year. The increase consisted of $0.2 million of non-cash amortization of debt discount and debt financing costs and accrued interest related to the issuance of our unsecured convertible promissory notes.

Interest Income

For the six months ended June 30, 2017, interest income increased $0.02 million over the same period in the prior year. The increase resulted from interest earned on our cash and cash equivalents.

L iquidity and C apital R esources

Since our inception, we have incurred losses and cumulative negative cash flows from operations. Through June 30, 2017, we have raised an aggregate of $13.7 million from the sale of membership units of Celcuity LLC and $7.5 million from the issuance of unsecured convertible promissory notes, which have been the primary source of funds for our operations since inception. As of June 30, 2017, our cash and cash equivalents were $10.9 million and we had an accumulated deficit of $11.1 million.

We expect that our research and development and general and administrative expenses will increase as we continue to develop our CELx platform and additional CELx tests, conduct research related to the discovery of new cancer sub-types, conduct clinical trials, pursue other business development activities, and become a public reporting company. We will also start to incur sales and marketing expenses as we commercialize our CELx HSF Test. We expect to use a portion of the net proceeds from this offering, in

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combination with our existing cash and cash equivalents, to fund our research and development expenses, capital expenditures, working capital, sales and marketing expenses, and general corporate expenses, as well as for the increased costs associated with being a public company. The amount by which we increase our research and development and other expenses will be dependent upon the net proceeds from this offering and cannot currently be estimated.

Based on our current business plan, we believe the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least 24 months following this offering.

If our available cash balances and net proceeds from this offering are insufficient to satisfy our currently anticipated liquidity requirements, including potential costs associated with delays in obtaining partnership agreements with pharmaceutical companies or other risks described in this prospectus, we may need to raise additional capital. We may also seek to raise additional capital beyond the currently anticipated amount to expand our business, pursue strategic investments, and 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 at all. These risks are discussed more fully in the section of this prospected entitled “Risk Factors.”

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below.

	Years Ended December 31,						Six Months Ended June 30,
	2015			2016			2016			2017
							(unaudited)
Net cash provided by (used in):
Operating activities		$	(1,978,780 )		$	(2,888,288 )		$	(1,402,893 )		$	(2,209,733 )
Investing activities			(78,982 )			(40,903 )			(29,863 )			(165,851 )
Financing activities			4,802,394			3,718,299			3,718,300			7,427,304
Net increase in cash and cash equivalents		$	2,744,632		$	789,108		$	2,285,544		$	5,051,720

Operating Activities

Net cash used in operating activities in all periods resulted primarily from our net losses adjusted for non-cash charges.

The net cash used in operating activities was $2.0 million for the year ended December 31, 2015, and consisted primarily of a net loss of $2.3 million adjusted for non-cash items including depreciation of $0.06 million and stock-based compensation of $0.06 million and an increase in accounts payable of $0.16 million. The net cash used in operating activities was $2.9 million for the year ended December 31, 2016, and consisted primarily of a net loss of $3.3 million adjusted for non-cash items including depreciation of $0.07 million and stock-based compensation expense of $0.2 million.

The net cash used in operating activities was $1.4 million for the six months ended June 30, 2016, and consisted primarily of a net loss of $1.5 million adjusted for non-cash items including depreciation of $0.04 million and stock-based compensation expense of $0.04 million. The net cash used in operating activities was $2.2 million for the six months ended June 30, 2017 and consisted primarily of a net loss of $2.8 million and working capital changes of $0.1 million adjusted for $0.65 million of non-cash items, including depreciation of $0.05 million, stock-based compensation expense of $0.4 million and interest expense of $0.2 million.

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Investing Activities

Net cash used in investing activities for the years ended December 31, 2015 and 2016 was $0.08 million and $0.04 million, respectively, and consisted of purchases of property and equipment. Net cash used in investing activities for the six months ended June 30, 2016 and 2017 was $0.03 million and $0.17 million, respectively, and consisted of purchases of property and equipment.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2015 was $4.8 million and reflects the net proceeds from the sale of membership units of the Celcuity LLC to certain investors. Net cash provided by financing activities for the year ended December 31, 2016 was $3.7 million and reflects the net proceeds from the sale of membership units of Celcuity LLC to certain investors. Net cash provided by financing activities for the six months ended June 30, 2016 was $3.7 million and reflects the net proceeds from the sale of membership units of Celcuity LLC to certain investors. Net cash provided by financing activities for the six months ended June 30, 2017 was $7.4 million and reflects the net proceeds from the issuance of unsecured convertible promissory notes and member warrants to certain investors of $7.5 million, reduced by $0.03 million for deferred transaction costs related to this offering.

O ff -B alance S heet A rrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

R ecent A ccounting P ronouncements

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 1 to our audited financial statements included elsewhere in this prospectus, 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.

C ritical A ccounting P olicies and U se of E stimates

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 (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.

While our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Stock-Based Compensation

We issue stock-based awards to employees and non-employees, generally in the form of stock options. We account for our stock-based awards in accordance with FASB Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation , or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stock options and modifications to existing stock options, to be recognized in the statements of operations based on their fair values. We account for

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stock-based awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees , which requires the fair value of the award to be re-measured at fair value as the award vests. We recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award for employees and non-employees, which is generally four years. Compensation expense related to our stock-based awards is subject to a number of estimates, including the estimated volatility and underlying fair value of our common units as well as the estimated life of the awards. For a detailed description of how we estimate fair value for purposes of option grants and the methodology used in measuring stock-based compensation expense, see “Stock-Based Compensation and Common Unit Valuation” below. Following the completion of this offering, stock option values will partially be determined based on the market price of our common stock on The Nasdaq Capital Market.

S tock -B ased C ompensation and C ommon U nit V aluation

Stock-Based Compensation

We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including, among others, (a) the expected volatility of our units, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends, and (e) the fair value of our common units on the date of grant. Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we have based our estimates of expected volatility on the historical volatility of a group of publicly traded companies in the life sciences and biotechnology industries generally in a similar stage of development as ourselves. For these analyses, we have selected companies that we consider broadly comparable to our Company and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this methodology until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. For options granted to employees in 2015 and 2016, we determined the expected term based on the simplified method in accordance with Securities and Exchange (SEC) Staff Accounting Bulletins Nos. 107 and 110 as the Company’s units are not publicly traded. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury Yield Curve in effect during the period the options were granted.

We have computed the fair value of employee and non-employee stock options at date of grant using the following weighted-average assumptions:

	Years Ended December 31,				Six Months Ended June 30,
	2015		2016		2016		2017
Expected term (in years)		6.25 – 10.00		6.25 – 10.00		6.25 – 10.00		6.25 – 10.00
Volatility rate		72 %		75 %		72 %		75 %
Risk-free interest rate		1.98 %		2.00 %		2.00 %		2.00 %
Expected dividend yield		0 %		0 %		0 %		0 %

Stock-based compensation for employees and non-employees was allocated as outlined below:

	Years Ended December 31,						Six Months Ended June 30,
	2015			2016			2016			2017
Research and development		$	56,507		$	187,307		$	36,301		$	294,189
General and administrative			—			—			—			128,627
Total		$	56,507		$	187,307		$	36,301		$	422,816

As of June 30, 2017, total unrecognized compensation expense was $1.3 million and the weighted-average remaining requisite service period for such expense was 1.63 years. We expect the impact of our stock-based compensation expense for stock options granted to employees and non-employees to grow in future periods due to the potential increases in the value of our common units and in headcount.

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Membership Unit Valuations

As of the date of this prospectus, we are a private limited liability company with no public market for our membership units. Therefore, our board of governors determines the fair value of our membership units based on the most recent price of membership units sold to investors in arm’s length transactions.

For valuations after the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock on the date of grant, as reported on The Nasdaq Capital Market.

Unit Option Grants

The following table summarizes unit options granted from January 1, 2015 through June 30, 2017:

Period of Issuance	Number of Units Underlying Unit Options Granted		Exercise Price Per Unit			Fair Value Per Unit on Grant Date
Quarter 1, 2015		1,500,000		$	0.09		$	0.09
Quarter 2, 2015		181,000		$	0.09		$	0.09
Quarter 3, 2015		180,000		$	0.09		$	0.09
Quarter 4, 2015		210,000		$	0.09		$	0.09
Quarter 4, 2015		20,000		$	0.19		$	0.19
Quarter 2, 2016		6,790,000		$	0.19		$	0.19
Quarter 3, 2016		242,500		$	0.19		$	0.19
Quarter 4, 2016		570,000		$	0.19		$	0.19
Quarter 1, 2017		150,000		$	0.19		$	0.19
Quarter 2, 2017		5,776,000		$	0.21		$	0.19

The intrinsic value of all outstanding options as of June 30, 2017 was $0.5 million based on the estimated fair value of our membership units of $0.19 per unit, of which approximately $0.4 million related to vested options and approximately $0.1 million related to unvested options.

N et O perating L oss C arryforwards

We were originally organized as a Minnesota limited liability company and will convert to a Delaware corporation immediately prior to the effective time of the registration statement of which this prospectus is a part. As a result, none of the net operating losses incurred from inception through the date of the conversion will carry forward to the stockholders of Celcuity Inc.

JOBS A ct

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.

Q uantitative and Q ualitative D isclosures about M arket R isk

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

P resentation of F inancial I nformation

We prepare our financial statements in accordance with GAAP. In the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results would be affected.

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Business

O verview

Our first analytically validated and commercially ready test using our CELx platform, the CELx HSF Test, diagnoses two new sub-types of HER2-negative breast cancer that traditional molecular diagnostics cannot detect. Our internal studies show that approximately 20% of HER2-negative breast cancer patients have abnormal HER2 signaling activity similar to levels found in HER2+ 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+ patients receive today. Our CELx HSF Test is targeting HER2-negative breast cancer patients receiving treatment, which, according to the NCI SEER Review, includes approximately 278,000 patients annually in the U.S. We estimate the annual U.S. market opportunity for this first test alone is approximately $1.1 billion, assuming a test price of $4,000, which is in line with prices for complex molecular diagnostic tests and is the low end of our planned selling price range of $4,000 to $7,000 per test. In addition, as a CDx, we estimate this test could potentially drive approximately $4.0 billion of new annual U.S. revenue for HER2 therapies. This assumes HER2-negative breast cancer patients diagnosed with abnormal HER2 signaling by our CELx HSF test, roughly 20% of all HER2-negative breast cancer patients, or 55,000 patients annually, are treated with HER2 therapies costing approximately $73,000 per patient. The per patient therapy cost assumed is in line with the cost of Herceptin ® and Perjeta ® , the current standard of care HER2 drug treatment regimen that, according to Genetech at the time of launching Perjeta ® in 2012, had a wholesale price of $10,900 per month. We believe this creates significant motivation for pharmaceutical companies to partner with us. In late-2017, we will be fielding a prospective clinical trial in collaboration with the NSABP and Genentech to evaluate the efficacy of Genentech’s HER2 targeted therapies in patients with these newly identified cancer sub-types. We expect interim results 10 to 12 months from this trial after the first patient is enrolled and final results in 18 to 21 months.

In addition to our CELx tests for HER2-negative breast cancer, we are developing CELx tests to diagnose 14 new potential cancer sub-types we have discovered in breast, lung, colon, ovarian, kidney, bladder and hematological cancers. According to the NCI SEER Review, approximately 880,000 patients are treated annually in the U.S. for one of these cancer types. Approved or investigational drugs are currently available to treat these new potential cancer sub-types. We expect to develop and launch additional

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CELx tests to diagnose these new cancer sub-types on a staggered basis over the next few years while continuing our research to identify additional new cancer sub-types. The resulting total annual addressable U.S. test market, defined as the 880,000 cancer patients we are developing CELx tests for, is approximately $3.5 billion, assuming a price of $4,000 per test.

The need for more complete cancer diagnoses is significant. The complexity and dynamic nature of cancer makes it difficult to determine the underlying cellular activity driving the disease. Molecular tests are used to identify genetic mutations and select targeted therapies, but the overall impact of those tests on patient outcomes has fallen far short of expectations, primarily due to two factors. First, molecular tests provide a static and limited genetic profile of a patient’s tumor, and, therefore, cannot measure dynamic disease activity. These tests rely on statistical correlations to diagnose patients, and when a genetic mutation is only weakly correlated to oncogenic-related cellular dysfunction, a high number of false positive diagnoses will result. With patient response rates to therapies targeting a genetic mutation typically less than 50%, and in some cases, only 10% to 20%, there is significant need for an alternative approach. Second, many cancers lack a genetic biomarker to guide treatment. For those patients, the cellular dysfunction responsible for their cancer goes undiagnosed, which means they are less likely to receive a potentially beneficial targeted therapy. Thus, current molecular tests have demonstrated only a limited ability to diagnose the specific cellular dysfunction that is driving most patients’ cancer.

Our CELx platform addresses the need for better cancer diagnostic tests using two complementary technologies that represent a significant departure from molecular-based analyses. Unlike molecular tests that use fixed or lysed (dead) cells and can only measure the static composition of a cell, our CELx platform measures real-time signaling activity in a patient’s live tumor cells. This enables us to: (1) identify the cellular signaling dysfunction driving a patient’s cancer; and (2) confirm whether the matching targeted therapy is functional in the patient’s cells. We perform our CELx tests in our CLIA-certified and CAP-accredited laboratory in Minneapolis, Minnesota.

Our platform, comprised of our internally developed cell microenvironment and cell signaling quantification technologies, allows for more accurate diagnoses and the discovery of new cancer sub-types:

•

Cell microenvironment. Culturing living tumor cells poses three primary challenges. First, there is typically only a small amount of patient tumor tissue available. Second, the tumor cells often die once they are removed from the tumor tissue. Third, tumor cells that do survive are difficult to maintain. Moreover, when conventional cell culture approaches are used it can often take more than two months to prepare a test sample and the success rate is typically less than 50%. Due to these challenges, the pharmaceutical industry principally relies on widely available immortalized or genetically modified cancer cell lines, which are easily maintained and proliferate indefinitely at predictable rates. While these properties are useful for drug discovery purposes, that usefulness has minimized incentives to transfer patient tumor cell culturing technologies to the clinical setting. Our proprietary cell microenvironment technologies were designed to overcome these challenges and provide a testable cell sample from a patient tumor specimen as small as 20 milligrams in 10 to 14 days for more than 90% of the patient tumor specimens we receive.

•

We believe our CELx platform will fundamentally change the standard-of-care many cancer patients receive. Patients with the newly identified cancer sub-types we have discovered have oncogenic pathways that are signaling abnormally, and, we believe, may respond positively to a matching targeted therapy. By identifying patients with a new cancer sub-type, each CELx test will create, in effect, a proprietary patient population that molecular diagnostics cannot identify.

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commercial activity initially on partnering with pharmaceutical companies to provide companion diagnostics that diagnose the new cancer sub-types we discover. We will use our CELx companion diagnostics to match the newly identified patient populations to a pharmaceutical partners’ existing or investigational targeted therapies.

We expect these partnerships to generate significant revenue from the sale of tests to identify patients eligible for clinical trials, from milestone payments, and, potentially, from royalties on the incremental drug revenues our tests enable. Once a new drug indication is received that requires use of our CDx to identify eligible patients, we will offer our tests directly to treating physicians and coordinate go-to-market strategies with our partner. This coordination of commercialization strategies will allow us to significantly leverage the sales, marketing and reimbursement resources of our pharmaceutical partner, unlike traditional molecular diagnostic companies.

O ur V alue P roposition

We believe we offer a clear and compelling value proposition to the key healthcare stakeholders:

•

Patients & Providers—Improved patient outcomes. Our CELx tests provide a more accurate diagnosis of a patient’s cancer driver and an assessment of a matching targeted therapy’s effectiveness in blocking the cellular dysfunction. This will enable physicians to match more precisely the targeted therapy they use to treat their patients. We believe this will increase the percentage of patients responding to the drug, improving overall patient outcomes significantly.

•

Pharma—Increased revenue & optimized clinical trials. CELx tests can significantly increase the revenue potential for many existing targeted therapies by identifying entirely new pools of patients potentially responsive to their therapy. For some targeted therapies, we estimate a CELx test could double the number of patients approved to receive treatment, thus driving billions of dollars in incremental sales. Also, by providing more precise selection of patients, our CELx tests can increase the odds a clinical trial meets its trial endpoint, greatly enhancing the likelihood the drug will obtain FDA approval for a new indication. In addition, according to an ARK Invest publication dated August 2016, companion diagnostics that increase the response rates of a drug can reduce Phase 3 clinical trial size as much as ten-fold and costs as much as 60%.

•

Payors—Lower costs per responsive patient. By providing more precise cancer diagnoses and driving higher drug response rates, we will significantly reduce the money spent on drugs that do not benefit patients. Many targeted therapies cost more than $50,000 per treatment and only benefit a small fraction of patients receiving them. Calculating drug costs on a cost-per-responsive patient, and not just cost-per-treated patient, highlights the true cost of targeted therapies and the expense associated with low drug response rates. For instance, a $50,000 targeted therapy with a 30% response rate costs $167,000 per responsive patient; however, that same drug would only cost $83,000 per responsive patient if the response rate was 60%.

O ur C ompetitive S trengths

We have a number of key strengths that enhance our ability to achieve our mission and build a successful company:

•

First mover. We are the first company that we are aware of to launch diagnostic tests that measure the signaling pathway activity in a patient’s live tumor cells, which we believe gives us a significant first mover advantage.

•

High barriers to entry. Our issued and pending patents, as well as our proprietary information and trade secrets, give us a strong intellectual property position that we believe creates a significant barrier to entry for potential competitors.

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Multi-billion-dollar addressable market. The broad range of pathways and cancer tissues we can test with our CELx platform enables us to initially target up to approximately 880,000 cancer patients per year, creating a nearly $3.5 billion addressable market for our CELx tests based on our expected selling price of at least $4,000 per test.

•

Diverse revenue streams including pharma partnerships. We anticipate generating significant revenue from CDx pharmaceutical partners, including revenue from the sale of tests to identify patients eligible for clinical trials, milestone payments, and potentially, from royalties on the incremental drug revenues our tests enable. Our most significant revenue opportunity comes from ongoing sales of CELx tests to physicians during the commercialization stage of the CDx.

•

O ur P latform A dvantages

Our unique and proprietary CELx functional cellular analysis technology represents a major shift from the diagnostic industry’s reliance on molecular profiling to characterize a patient’s cancer sub-type. Our goal is to leverage our technology to build a durable competitive advantage that enables us to improve outcomes for a significant percentage of cancer patients.

Our CELx platform advantages include:

•

Powerful cancer sub-type discovery tool. We have already discovered 16 new potential cancer sub-types that are not currently diagnosed and treated with a matching targeted therapy. These sub-types are characterized by the dysfunctional signaling pathway activity our CELx tests identify. By identifying new cancer sub-types, we are creating new patient populations to which pharmaceutical companies can offer new and existing drug therapies.

•

Direct patient-specific assessment of disease status. Even though the response rates for many targeted therapeutics are low, for those patients who do respond, their outcomes can be improved significantly. The problem is matching the patient to the right drug. Our platform overcomes this problem by directly identifying whether an oncogenic signaling pathway is abnormally active in a patient’s cells. This provides the most complete assessment available today of the intracellular activity driving a patient’s cancer. Existing genomic tests typically can only provide a determination whether cancer is present and an assessment of molecular mutations that may or may not be associated with the patient’s cancer driver.

•

Direct measurement of matching drug effectiveness. An important advantage of the CELx platform is its ability to quantify the amount of signaling dysfunction that a matching targeted therapy can inhibit in an individual patient’s cancer cells. This allows us to evaluate whether there are inherent drug resistance mechanisms that would prevent the therapy from functioning in the patient’s tumor cells. Molecular tests cannot provide this evaluation.

•

Improved response rates. We believe a patient population will have a higher response rate to a matching targeted therapy when it is diagnosed with a CELx test than with a molecular biomarker. By first identifying whether dysfunctional signaling is present and then confirming that a matching targeted therapy can inhibit the dysfunction, a CELx test eliminates the two primary variables that confound patient response to targeted therapy signaling: the presence or absence of the disease and the drug not functioning as intended. A molecular test provides insight on neither of these variables in most cases.

•

Identify drug responsive proprietary patient cohorts. There are large numbers of cancer patients who lack a genetic biomarker to guide treatment. For these patients, the cellular dysfunction driving the cancer goes undiagnosed, thus excluding such patients from receiving a potentially beneficial targeted therapy. We believe our CELx tests will enable us to identify new proprietary patient populations not currently diagnosable with molecular tests and increase the number of

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patients likely to respond to a matching targeted therapy. Moreover, we will be the only partner a pharmaceutical company can work with to develop a CDx for a new indication of a targeted therapy addressing these new patient populations. By contrast, most molecular diagnostic tests are undifferentiated and have little proprietary value, which gives pharmaceutical companies a wide range of companies to select from when choosing a molecular-based CDx partner.

•

Streamlined FDA approval of targeted therapeutics. CELx tests will enable our pharmaceutical partners to enroll patients in their clinical trial with the same cellular dysfunction their targeted therapy is designed to inhibit. We believe this will improve patient response rates, increasing the likelihood the trial meets its endpoint target and thus the likelihood the drug receives FDA approval. Improved patient response rates would also help reduce the size, cost, and length of our partner’s clinical trials.

O ur I ndustry

According to the Centers for Disease Control and Prevention, or CDC, cancer was the second-leading cause of death in the United States in 2015, responsible for nearly one of every four deaths. Based on data collected from 2010 to 2012, the American Cancer Society indicates that approximately 42% of males and 38% of females in the United States will develop cancer at some point in their lives. CDC data shows that annual deaths from cancer nearly tripled between 1950 and 2014, and a 2016 report from the World Health Organization, or WHO, attributes 8.8 million worldwide deaths in 2015 to cancer. As life expectancies grow and cancer diagnoses increase, significant resources have been devoted to the search for effective cancer treatments. The 2016 report from the WHO shows that the total annual economic cost of cancer was greater than $1 trillion and growing.

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 80 approved targeted oncology therapies, some of which cost more than $100,000 per treatment course, and an IMS Institute article published in 2016 reports that annual global growth in the oncology drug market is expected to be 7.5 to 10.5% through 2020, reaching $150 billion, driven in part by the high costs associated with targeted therapies.

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. According to the October 2016 Global Companion Diagnostics Market report published by Market Data Forecast, the global companion diagnostics market totaled $3.3 billion in 2016, making it one of the fastest-growing segments of the in vitro diagnostic market, and is projected to continue strong growth into the future based on the number of drugs in clinical trials. The report notes that the global companion diagnostics market is expected to grow to $8.9 billion by 2021.

O ur M arket O pportunities

CDx Development Opportunities

We believe there at least 50 different potential opportunities for our company to collaborate on CDx programs with pharmaceutical companies. Our ability to develop partnering relationships with these

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pharmaceutical companies will be predicated on a number of factors, including the size of the patient population our CELx test identifies and the remaining patent life of the matching targeted therapy, and we are prepared to adjust our priorities accordingly.

We believe the total potential revenue opportunity for the various CDx development programs we will seek is approximately $1.6 billion. This assumes there are 50 potential CDx programs, milestone payments during the program average $20 million, and the number of patients we test to screen for enrollment in clinical trials averages 3,000. We estimate each program would generate $12 million in revenue from tests for the clinical trials, assuming a $4,000 price per test (the low end of our expected price range). The number of potential CDx programs is based on the number of new cancer sub-types we have discovered and the number of approved or investigational matching targeted therapies we have identified. The number of clinical trial tests we estimate each CDx program will require assumes our partner will enroll 300-450 CELx selected patients for their clinical trials. The estimated amount of milestone payments is consistent with several recently announced CDx programs. The table below summarizes the total potential available revenue from these CDx development programs.

CDx Program Total Revenue Potential

		Number of Potential CDx Programs			50
		Number of Clinical Trial Tests per CDx Program			3,000
		Price per test			$4,000
		Total Potential Clinical Trial Revenues (A)			$600,000,000
		Milestone Payments per program			$20,000,000
		Total Potential Milestone Payments (B)			$1,000,000,000
		Total Potential Revenue—All Programs (A+B)			$1,600,000,000
		Average CDx Program Revenue			$32,000,000

We believe the revenue opportunity per CDx program is consistent with other development programs pharmaceutical companies support. In addition, the revenue projection for an individual CDx program represents only a small fraction of the potential value the new drug indication our CDx could create for our pharmaceutical company partner. For some drugs, our tests could double the number of patients eligible for a targeted therapy. Our CELx HSF Test identified 20% of HER2-negative patients with abnormal HER2 signaling who may benefit from treatment with HER2 drugs. Fully deployed, this test could increase the annual number of eligible patients to receive HER2 targeted therapies by 55,000 in the U.S. alone, which more than doubles the current number of patients eligible to receive them. This assumes that our CELx HSF Test identifies abnormal HER2 signaling in approximately 20% of the 278,000 HER2-negative breast cancer patients that, according to the NCI SEER Review, are currently receiving treatment each year.

CELx Testing Opportunities

We expect to generate recurring CDx testing revenues once a CELx CDx-linked drug therapy is approved for patient use. On average, we believe that the lifetime value of providing the CDx test will significantly exceed the revenue generated from the CDx development program. We expect to offer each CELx test to patients at prices ranging from $4,000–$7,000, depending on the number of pathways evaluated. No tests directly comparable to the CELx 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.

We estimate an approximately $3.5 billion annual U.S. market opportunity for CELx CDx programs and physician ordered tests. For purposes of estimating the size of the market, as presented in the table below, we assume a CELx test price of $4,000. The number of test eligible patients listed in the table below was derived from the NCI SEER Review.

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Target Market Potential—U.S. Only

Disease Type	Test-Eligible Patients		Annual Revenue
Breast (HER2-)		278,230		$	1,112,918,400
NSCLC		263,612		$	1,054,446,000
Ovarian		29,051		$	116,204,800
Colon		146,000		$	580,983,800
Bladder		68,072		$	272,247,800
Kidney		57,084		$	225,280,800
Leukemia		40,294		$	161,175,200
		880,814		$	3,523,256,800

CEL x T echnology B ackground

The Role of Cellular Signaling Pathways in Cancer

Cancer is a class of exceedingly complex and diverse diseases characterized by the development of abnormal cells that divide uncontrollably and can infiltrate and destroy normal body tissue and disrupt normal organ function. In normal cells, a series of biochemical activities, known as signal transduction, transmit biochemical signals through an interconnected network of signaling pathways to control cell proliferation and survival. Cancer arises when alterations occur in one or more of these signaling pathways and normal cell processes are disrupted, resulting in uncontrolled cell proliferation. These alterations are driven by a variety of cellular aberrations, including genetic mutations and dysfunctional signaling pathway mechanisms. Identifying the alteration driving an individual’s cancer is complicated by the immense complexity of these signal transduction processes and the practically unquantifiable number of pathway variables.

As recently as 20 years ago, most cancers were classified and subsequently treated solely on the basis of the anatomical location of the tumor in the body. Chemotherapies that kill rapidly dividing cells were widely used, but they had only limited efficacy for many patients and caused a wide range of dangerous side effects due to lack of discrimination for tumor tissue. As tools to identify molecular mutations became available, scientists began to uncover correlations between certain molecular mutations, cancer tissue type, and a patient’s prognosis. This fostered the development of molecularly targeted therapeutics that were designed to disrupt the specific cellular function of the drug target, typically abnormal signaling pathway activity, associated the molecular mutation. These targeted therapies greatly improved outcomes for some cancer patients and are a testament to the efficacy of targeted therapies when effectively prescribed. According to information published by the Journal of Clinical Oncology in July 2015, targeted therapies are oftentimes 10 to 20 times more expensive than chemotherapies.

In conjunction with the advent of targeted therapies, new molecular diagnostics were developed to help physicians refine the classification of a patient’s cancer into sub-types based on the presence of a specific molecular anomalies, such as genetic mutations or over-expressed proteins. Such mutations or over-expressed proteins are commonly referred to as “biomarkers” when they are used to diagnose a disease and evaluate treatment options. For instance, breast cancer diagnostic tests are performed to determine whether two protein biomarkers, human epidermal growth factor receptor 2 (HER2) or estrogen receptors (ER), are overexpressed in the cancer cells. The results of these tests are used to classify the patient’s cancer molecular sub-type and to guide selection of a corresponding targeted drug therapy.

The launch and on-going development of many new targeted therapies and the increasing use of companion molecular diagnostics to guide selection of the most appropriate therapy for each patient ushered in the era of so-called “precision medicine” in oncology. Advances in genomic and proteomic techniques and drug discovery enabled researchers to identify new drug targets, new molecular diagnostics, and drugs that would specifically bind to the target.

While the increased usage of targeted therapies has improved patient outcomes, there is increasing recognition that the promise of molecularly guided diagnoses and targeted treatment has fallen far short of

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expectations. This is generally due to the heterogeneous nature of these diseases from patient to patient and the challenge of identifying the specific cellular dysfunction driving a cancer patient’s tumor growth. No matter how sophisticated or detailed, a point-in-time molecular profile can only provide a snapshot of a tumor. As a result, the genetic mutations many current tests identify are often only weakly correlated to the abnormal signaling driving a patient’s cancer. This is because protein and gene profiling provide an incomplete assessment of the biochemical activity promoting cancer tumor growth. In fact, when dysfunctional, the activity of signaling pathway networks are, we believe, not possible to assess using current genetic analyses, despite the impressive investments in mapping the human genome and advancements in techniques to identify molecular mutations.

The combination of the heterogeneous nature of cancer and the weak correlation of abnormal signaling to many genetic mutations helps explain why the response rates for patients treated with many targeted therapies are often less than 50%, and in some cases as low as 10% to 20%. The table below provides representative examples of response rates to targeted therapies that rely on a CDx to select eligible patients, as well as an example of the objective response rate for a targeted therapy that does not use a CDx to select eligible patients. The objective response rates listed below were obtained from the clinical trial data included with each of the targeted therapies’ respective FDA labels.

Targeted Therapy Objective Response Rates

Targeted Therapy

Type of
Cancer

Biomarker

Objective
Response Rate (1)

Herceptin ® (04/17)

Breast

HER2

16 %

Perjeta ® (03/16)

Breast

HER2

11 %

Gilotrif ® (07/13)

Lung

EGFR mutations

31 %

Votrient ® (05/17)

Kidney

None

27 %

Erbitux ® (10/16)

Colon

EGFR/K-Ras WT

18 %

(1)

Objective response rate (ORR) is the difference between the ORR of the targeted therapy and the ORR of the control drug during the targeted therapy’s pivotal clinical trial, as reported in the targeted therapy’s FDA drug label.

For a patient to respond to a targeted therapy designed to disrupt disease-related signaling activity, two factors must be present: (1) the patient’s diseased cells must have the same signaling pathway dysfunction the drug is designed to inhibit, and (2) the drug affects its targeted pathway as intended. Current state-of-the-art genomic tests use fixed (dead) cells, which limits them to evaluating the presence or concentration of a genetic mutation or protein. These tests cannot evaluate either dynamic signaling activity or whether a drug can affect that activity. When a patient’s genomic biomarker status does not represent underlying signaling pathway dysfunction, this can lead to selection of the wrong targeted therapy to treat the patient. Of particular interest to us are those patients with dysfunctional signaling who lack a corresponding biomarker; they are not currently eligible to receive any targeted therapy that treats their dysfunctional signaling.

To measure dynamic cellular activity, living patient tumor cells are required. Until our advancements, efforts to use living patient tumor cells have been limited by the lack of reliable methods to extract and culture cancer cells from patient tumors. These previously limited efforts reflect the emphasis amongst cancer researchers on creating stable cell lines for use to model cell function or to studies screen millions of test compounds in drug discovery programs. Pharmaceutical companies driving the commercial development of cell technologies work primarily with immortalized cells or cell lines genetically modified to express a target or mutation of interest. These cell lines consist of established cell cultures that proliferate indefinitely and very uniformly. They are used primarily because they provide a highly uniform response when tested with millions of small molecules in the search for potential new drugs, and because techniques to culture these cells are well known, their properties well understood, and other experimental results using them are available for comparison purposes. Conversely, live patient tumor cells are difficult to obtain, are only available in small quantities, and according to a 2014 article published by Science , the percentage of tumors that yield proliferative cells with conventional culturing methods has until now been well below

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50%, which required months of culturing to obtain sufficient testable quantities of cells. For these reasons, researchers prefer paraffin-fixed tissue or cell lines over living tumor cells when studying disease processes or screening drug candidates. This lack of compelling rationale for pharmaceutical companies and academic institutions to work with live tumor cells for research purposes left the field of live tumor cell research in a relatively immature state.

Our CELx Platform

We have made significant investments in research and development to build the first commercially-ready cancer diagnostic platform that we are aware of that measures the signaling pathway activity in a patient’s living tumor cells. To measure dynamic cellular activity, we internally developed two distinct but complementary technologies, which now comprise our CELx platform:

•

our proprietary cell microenvironment; and

•

our method to quantify dynamic patient cell signaling dysfunction.

We utilize our CELx platform to create CELx 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, no competing diagnostic tests use live patient tumor cells to measure dynamic cell signaling activity and 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. Competing techniques largely rely upon use of irradiated non-tumor cells to foster cell proliferation, transformative “engineering” techniques or other un-natural manipulations of the cells to keep them alive. Because these competing approaches significantly increase the risk that the resulting patient cell test sample may not mirror the patient’s original tumor, we developed processes that only utilize tumor cells derived directly from the patient’s tumor specimen.

•

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. Competing techniques require two to six months to culture sufficient tumor cells for a test sample, making them unsuitable for use with a clinical diagnostic. To meet this time requirement we developed processes that allow tumor cell proliferation outside the patient.

•

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. The challenges of increasing the cell sample yield from tumor tissue are well known and competing techniques are only able to obtain testable quantities of cells from less than 50% of patient tumor specimens. To meet this requirement, we developed processes that enhance cell survival when tumor cells are removed from live tissue.

We believe our pioneering efforts have substantially advanced the technology of primary tumor cell culture technology. We have one issued U.S. patent, four pending U.S. patent applications, nine pending non-U.S. patent applications and one pending international PCT patent application, as well as significant proprietary know-how and trade secrets for the various cell sample preparation methods we have developed.

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The table below compares the critical advantages of our approach to the requirements for a clinical test with the prior state-of-the-art.

Critical Advantage of CELx Platform

Parameter

Clinical Test
Requirements

Prior State-of-Art

Celcuity

Celcuity’s
Advancement

Sample
Composition

Cell population
tested must reflect
starting tumor
composition

Multi-passage
culture process
requires use of
irradiated
non-tumor
cells

Only patient tumor
cells are used to
derive the sample

Cells tested mirror
heterogeneity of
patient tumor
tissue

Culturing
Period

<21 Days

2−6 months (1)

<14 days

Results available in
clinically relevant
window

Yield

>90%

<50% (1)

95%

Reliability exceeds
clinical test
requirements

(1)

Crystal, A.S, et. al., Patient-derived models of acquired resistance can identify effective drug combinations for cancer, Science , 13 November 2014.

Dynamic patient cell signaling quantification. The second component of our CELx 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 dead (fixed or lysed) cells. 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. We use the instrument to monitor dynamic changes in cell adhesion and morphology initiated by signal pathway activation or inhibition in live patient tumor cells. The instrument is comprised of a 96-well microplate with thin gold electrodes covering the bottom of each well. Wells employed with a selective extracellular matrix attach viable cells in a specific manner to the electrodes. The presence of viable cells on top of the electrodes affects the local ionic environment at the electrode/cell interface, leading to an increase in electrode impedance. To obtain a measurement, a small alternating current is applied across the electrode. When cells are added to the microplate wells and attach to the electrodes, they act as insulators increasing the impedance in each well.

As cells cover the electrodes, the current is impeded in a manner related to the number of cells and their adhesion properties. In addition, since cell signaling changes modulate a cell’s adhesion properties, the impedance biosensor detects and quantifies these changes. When cells are stimulated and change their function, the accompanying changes in cell adhesion thus alter the impedance that is measured.

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The following schematic provides an example of impedance measurement in a single-well of the microplate:

[MISSING IMAGE: T1701672_SINGLEWELL.JPG]

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, adhesion molecules are effected and cause a change in the impedance measured in a well. 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.

Data is recorded in real-time when a patient’s tumor cells are responding to activating or inhibitory agents and analyzed with the impedance biosensor. The output value is reported as the change in the electrical impedance measured. The change in impedance values is quantified over time and used to determine a Signaling Function Score. An example of the data output recorded during a CELx test using an impedance biosensor instrument is provided below.

In this example, a HER family signaling pathway (HER3) in a sample of breast cancer cells is stimulated with an activating agent (NRG1b) alone and in combination with various concentrations of a dual-HER family pathway inhibitor (lapatinib). The uppermost curve labeled “No Drug — Max Stimulation” represents the amount of HER3 signaling pathway activity that occurs over a 10-hour period when the breast cancer cells are stimulated with the NRG1b alone. The remaining curves represent the amount of pathway activity that occurs after the pathway inhibitor is added to cells at different doses. The curves with the pathway inhibitor added have decreasing peak and decreasing aggregate values and demonstrate that the test has an expected dose dependent response to the addition of the pathway inhibitor. The curve labeled “Max Stimulation—Max Drug” indicates that, in this example, nearly all the pathway activity stimulated with the activating agent is inhibited or blocked by the pathway inhibitor.

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Typical Impedance vs. Time Data Set (1)

[MISSING IMAGE: T1702136_CHRT-INHIBIT.JPG]

(1)

Data output recorded during a CELx test conducted by Celcuity.

N ew P roduct D evelopment

We are leveraging our CELx technology to discover new cancer sub-types that a genomic test cannot detect. These new sub-types are characterized by the hyperactive signaling pathway our test identifies. These sub-types cannot be detected by genomic tests because they lack a corresponding molecular biomarker to identify it. We will translate our discoveries into diagnostic tests that incorporate the following primary steps:

(1)

Extraction of proliferative tumor cells from patient biopsy. This step provides the patient tumor cells that we use to perform the test.

(2)

Activation of signaling pathway activity. This step determines whether the signaling pathway we are assessing is dysfunctional or not.

(3)

Inhibition of signaling pathway activity. This step determines whether the matching targeted therapy is functional in the patient’s tumor cells. If the drug can block a significant amount of the signaling dysfunction, this demonstrates lack of an inherent resistance mechanism in the patient’s tumor cells that would prevent the drug from functioning when prescribed to the patient.

We confirmed that we can discover new cancer sub-types in 2015 with the discovery of two new breast cancer sub-types—HER2-/ER+ and HER2-/ER- breast cancer with abnormal HER2 signaling. We are now leveraging the expertise we gained while validating the resulting CELx HSF Test for breast cancer to guide our discovery of additional cancer sub-types.

We are currently conducting research to identify additional cancer sub-types in five solid tumor types that, according to information from the NCI SEER Review and the American Cancer Association, account for nearly 560,000 new diagnoses annually. Our research studies to date have identified 14 potentially new breast, lung, ovarian, kidney, and bladder cancer sub-types that involve dysfunctional oncogenic signaling pathways. Multiple dysfunctional pathways were active in each of these tumor types. These studies confirm that the CELx platform can be a cancer sub-type discovery engine and that we can create a multi-pathway

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test to identify the specific driver in a patient’s tumor. We expect to eventually expand the tumor types we evaluate to include colon, head and neck, leukemia, esophageal, and gastric cancers that account for nearly 279,000 new diagnoses annually according to the NCI SEER Review.

We have now begun development of CELx tests for a number of these new potential cancer sub-types. Our goal is to characterize the prevalence of these new sub-types and to confirm that they can be inhibited with a matching therapy in mouse xenografts in 2017.

		Pathway				Cancer Site
		HER2				Current R&D Breast Lung Bladder Kidney Ovarian Future R&D Colorectal Bone Marrow Head and Neck Esophageal Gastric
		Pathway 1
		Pathway 2
		Pathway 3
		Pathway 4
		Pathway 5
		Pathway 6
		Pathway 7
		Pathway 8

We will seek to identify individual signaling pathways that may be driving at least 5% to 10% of the total cancers in each tissue area. Once we have characterized the prevalence of the different sub-types of signaling dysfunction in each tumor type and validated the tests for the different pathways, our plan will be to launch a corresponding CELx test. Eventually, each CELx test will analyze multiple pathways in a patient’s tumor to identify the specific pathway dysfunction driving a patient’s cancer. Testing multiple pathways will thus provide a systems view of the patient’s cancer using dynamic functional analysis. We believe this will result in more accurate diagnosis of a patient compared to molecular diagnostics that are using next generation sequencing to assess the status of multiple static biomarkers.

Clinical Trial Approach

A major component of our development and commercial activities is providing clinical data from interventional clinical trials using our CELx tests. Our clinical trial strategy is predicated on proving the correlation between our CELx Signaling Function Score and a patient’s clinical results. Once our first trial demonstrates that our CELx HER2 Test identifies patients responsive to HER2 targeted therapies, we expect pharmaceutical companies to partner with us to fund trials to evaluate new potential indications for their drugs with patients identified by one of our CELx tests. The trials will be designed to confirm that patients with abnormal pathway signaling obtain a superior clinical response to a therapy targeting that pathway than to the standard-of-care therapy they currently receive.

Each clinical trial would be structured as a prospective interventional study. The objective would be to confirm the relationship between the CELx Signaling Function Score generated by the CELx test and the study endpoint. Different primary endpoints will be used depending on the stage and type of cancer. For late-stage solid tumor trials, Time-to-Progression, or TTP, or Progression-Free Survival, or PFS, would likely be used, mirroring the endpoints used in the tested drug’s pivotal trial. For early stage solid tumor trials, pathological complete response, or pCR, would likely be used. The trials will either be single-arm or randomized two-arm.

We also expect to evaluate multiple CELx tests in the same trial when we have identified two or more cancer sub-types in the same tumor type (e.g., breast, ovarian, lung). Screened subjects would be assigned to a therapy arm that corresponds to the pathway found to be abnormal.

To obtain statistically significant results, a randomized two-arm trial is projected to require enrollment of approximately 120 to 150 patients for each drug evaluated, or between 60 to 75 patients in each arm.

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A single-arm trial would require 25 to 50 patients. We estimate each trial will require 18 to 27 months from the initiation of enrollment to completion of the follow-up period and that interim analysis will be performed in most trials with interim data available after 10 to 15 months.

For trials involving patients not currently eligible for a cancer drug that targets a certain pathway, we would first obtain a tissue specimen from each subject and perform the CELx test to identify subjects who have abnormal signaling. These patients would then be randomly assigned to either an arm that receives the current standard-of-care therapy or one that includes the current standard-of-care therapy plus the targeted therapy. All patients would be monitored until their disease progresses.

First Test—CELx HER2 Signaling Function Test

HER2+ breast cancer. Roughly 15% to 20% of breast cancer patients are diagnosed with HER2+ breast cancer when their tumor cells are found to have overexpressed or amplified levels of HER2. These patients are treated with anti-HER2 targeted therapies in combination with chemotherapies. Results from a number of clinical trial results for HER2 drugs reveal that only about 40% of HER2-positive patients respond to them. In addition, findings from several clinical trials have shown that a sub-set of HER2-negative patients benefit from therapies that target HER2. These results highlight the relatively weak correlation between HER2 receptor or gene amplification status and drug response.

Signaling activity status vs. HER2 receptor status. Based on this analysis, we concluded that measurement of HER2 signaling activity, rather than absolute HER2 levels, may more accurately diagnose HER2-driven breast cancer. This led to our successful studies in 2014 when we discovered abnormal HER2 signaling in HER2-negative breast cancer patient tissue. We concluded that this patient population provided an excellent opportunity to validate our hypothesis that signaling activity is more correlative to disease activity than receptor status.

HER2-negative breast cancer. Based on data published in the NCI SEER Review, approximately 342,000 women receive treatment for breast cancer in the United States each year. This includes 246,000 newly diagnosed patients and 150,000 women whose cancer has recurred. Approximately 84% of these women, 278,000, have HER2-negative breast cancer; these women represent the target patient population for this test.

HER2-Negative Breast Cancer Population

	Diagnosis								CELx HER2 Test
	Primary				Recurrent				Target Population
BC Type	%		#		%		#		%		#
HER2-, ER+		67 %		165,312		67 %		100,800		80 %		212,890
HER2-, ER-		17 %		40,590		17 %		24,750		100 %		65,340
		84 %		205,902		84 %		125,550		84 %		278,230

Measuring HER2-status not sufficient to diagnose all HER2 cancers. Despite the widely recognized role that a dysfunctional HER2-related signaling network plays in promoting breast cancer, only tests measuring a single reactant, HER2 protein, are performed in the clinic to diagnose it; we believe no diagnostic tests are available today that measure HER2 signaling activity within a patient’s breast tumor epithelial cells. This focus on measuring HER2 expression-levels reflects the widely-held view that measuring a patient’s HER2 status is sufficient to diagnose HER2-driven breast cancers. When only HER2 expression is measured, though, patients classified as HER2-negative but whose tumor cells have abnormal HER2 signaling are diagnosed as not having HER2-driven breast cancer, when, in fact, they do.

Diagnosing HER2 disease in HER2-negative patients with CELx HER2 Signaling Function Test. Since current genomic methods cannot identify the HER2-negative breast cancer patients who have the HER2-driven cancer, a new method was required. Such a method would need to analyze the HER2-signaling pathways (MAPK and PI3K) associated with HER2 cancers in a patient’s tumor cells. This is what our CELx HER2 Test is designed to do. Our test identifies patients whose HER2 status as determined by conventional techniques does not represent the correct diagnosis of their breast cancer at a functional level.

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The CELx HSF Test incorporates the following steps:

Measures signaling driven by HER2 hetero-dimerization of HER1 and HER3:

Activates PI3K & MAPK with HER3 ligand (NRG1) and HER1 ligand (EGF); and

Confirms signaling is HER2-driven using HER2 dimer blocker;

Quantifies amount of HER2 signaling anti-HER2 drugs inhibit; and

Reports HER2 signaling as either Normal or Abnormal in 14 days.

Improving outcomes, HER2 drug response rates, and lower cost per responding patient. Identifying these HER2-negative/HER2-signaling abnormal patients, and treating them with HER2 therapies, offers the potential to improve their clinical outcomes significantly. It is also likely that patients with abnormal HER2 signaling will respond at higher rates than HER2-positive patients. We believe that patients with abnormal HER signaling (e.g., those the CELx HSF Test diagnoses) are very likely to respond because they have the specific disease mechanism the HER2 therapies are designed to treat. This would result in a reduction in the cost of HER2 drugs per responsive patient for those the CELx HSF Test identifies compared to those identified with HER2 protein or gene status tests.

C linical S tudies

Prevalence Studies: 20% of HER2-Negative Patients Have Abnormal HER2-Signaling

To derive an initial estimate of the prevalence of abnormal HER2 signaling within the HER2-negative breast cancer population, we conducted a cell line survey, a training set study and a validation study using primary tumor cells. Live cell response to specific HER2 agonists (NRG1b and EGF) and antagonist (pertuzumab) was measured.

Key findings include:

•

Cell Line Survey Study (N=19)

•

4 of 9 HER2+ cell lines had HER2 signaling activity above 250 signaling units—these results helped establish an initial cut-off value;

•

Confirmed that normal HER2 signaling can occur in cells with overexpressed amounts of HER2; and

•

Confirmed that abnormal HER2 signaling can occur in cells with normal HER2 receptor levels.

•

Training Set Study (N=50).

•

7 of 34 HER2-negative breast cancer patients (20.5%; 95% CI = 10%–37%) had tumor cells with HER2 signaling activity that was characterized as abnormally high and consistent with the HER2 signaling found in the upper 50% of the HER2+ cell lines; and

•

The 16 healthy breast specimens had a significantly lower average and standard deviation HER2 Signaling Scores than the HER2- and HER2+ breast cancer specimens.

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•

Validation Study (N=114)

•

27 of 114 patients (23.7%; 95% CI = 17%–32%) had tumor cells with HER2 signaling activity that was characterized as abnormally high and consistent with the HER2 signaling found in the upper 50% of the HER2+ cell lines.

•

The graph below presents the data from the Cell Line, Training Set and Validation Prevalence Studies in a Box-Whiskers plot format.

•

The dotted line at 250 represents the cut-off value for the CELx HSF Test. The cut-off value of 250 is equivalent to the median CELx Signaling Score recorded from the sample of HER2+ cell lines.

•

HER2-negative breast cancer patients with CELx Signaling Scores at or above 250 have abnormal HER2 signaling.

•

The circled portions of the plots for the HER2- Training Set and HER2 Validation Set results represent the specimens with Abnormal HER2-driven signaling.

Xenograft Study: Abnormal HER2 Signaling Correlates to Drug Response Better than HER2 Status

We conducted a study in collaboration with the University of Minnesota using xenograft mouse models of human breast tumors to evaluate the relationship of HER2-driven signaling and response to lapatinib, a reversible dual-HER2 kinase inhibitor. Key findings:

•

The HER2 signal inhibitor shrank a HER2-negative tumor with abnormal HER2 signaling;

•

The HER2 signal inhibitor did not affect the HER2+ tumor with normal HER2 signaling; and

•

Findings contradict HER2 receptor-based conclusions:

•

Lapatinib inhibition more correlative to HER2 signaling than HER2 receptor expression; and

•

HER2 signaling status independent of HER2 receptor expression.

These findings support the hypothesis that HER2-negative breast cancer patients with abnormal HER2-driven signaling may benefit from treatment with anti-HER2 drugs.

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A summary of results:

Xenograft Study Results

	Cell Line
Parameter	HCC1954	BT483
HER2 Receptor Expression (IHC)	HER2+ (3+)	HER2- (0)
HER2 Signaling Status (CELx)	Normal	Abnormal
Lapatinib Inhibition (Xenograft)	13% (p = 0.34)	49% (p = 0.01)

Study of Two HER2 Antibody Therapies, Trastuzumab and Pertuzumab, in HER2- and HER2+ Cells

We conducted this study to compare the effectiveness of two anti-HER2 antibodies in blocking HER2-driven signaling in HER2+ and HER2- cells. Tumor cells from 5 HER2- primary tumors and 4 HER2+ cell lines were obtained. Real-time live cell response to NRG1, a specific HER2/HER3 agonist, with or without pertuzumab, trastuzumab, or the combination of the two, was measured and quantified. All cell samples tested had comparable, and abnormal, levels of NRG1 activated HER2-driven signaling. Key findings:

•

In each sample, the two mAb’s inhibited a higher percentage of signaling in combination than either mAb alone; no interference effects between the two mAb’s were detected;

•

Pertuzumab and trastuzumab alone were each more effective in the HER2- cell samples than in the HER2+ ones; and

•

Two HER2 mAb’s used to treat HER2+ breast cancer patients are as effective in blocking abnormal HER2-driven function ex vivo in HER2- primary cells as they are in HER2+ cell lines.

Average % NRG1 Inhibition

HER2 mAb	HER2+ Cell Lines	HER2-(HER2 S +) Primaries
Pertuzumab	62%	73%
Trastuzumab	19%	44%
T + P	87%	81%

Study of Four HER2 Signal Inhibitors in HER2- and HER2+ Cells with Abnormal HER2 Signaling

Tumor cells from seven HER2-negative tumor specimens with abnormal HER2-driven signaling (HER2 S +) and the nine HER2-positive cell lines were obtained. Real time live cell response to NRG1, a specific HER2/HER3 agonist, with or without a HER2 targeted drug (pertuzumab, lapatinib, neratinib, afatinib) was measured and quantified. From these responses, the percentage inhibition of the HER2-driven signaling initiated by NRG1 by the HER2 drugs was determined. Key findings:

•

Each of the HER2 drugs inhibited an average of at least 69% of the HER2-driven signaling activated by NRG1 stimulation in the HER2-negative primary cell samples;

•

The highest level of inhibition was found with the two irreversible covalent dual RTKi’s, afatinib and neratinib; and

•

All of the HER2 drugs inhibited a greater percentage of HER2-driven signaling in the HER2-negative primary tumor cells than in the HER2-positive cell lines.

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Average % NRG1 Inhibition

HER2 Drugs	Mechanism of Action	Cell Lines (HER2+)	Primaries (HER2-/ HER2 S +)
Pertuzumab	HER2 dimerization inhibitor	46%	78%
Lapatinib	Reversible Dual RTKi	15%	69%
Afatinib	Irreversible Covalent Dual RTKi	47%	93%
Neratinib	Irreversible Covalent Dual RTKi	95%	100%

Analytical Validation Study

We conducted analytical validation studies in accordance with applicable FDA guidance and Clinical and Laboratory Standards Institute, or CLSI, standards to characterize the performance of the CELx HSF Test. CLSI standards define the test protocols that the FDA and CLIA require laboratories to use to characterize the performance of their diagnostic tests. The study results confirm that the CELx HSF Test has high analytical sensitivity and specificity. A summary of the results is provided below:

CELx HSF Test Analytical Study Results

		Performance Characteristics			Results
		Analytical Precision (Qualitative)
		Analytical Sensitivity (95% CI)			95.8%–100% (88/88)
		Analytical Specificity (95% CI)			95.8%–100% (88/88)
		Detection Limits
		Limit of Blank			0.0020 cell attachment units
		Limit of Detection			0.0099 cell attachment units
		Cut-Off Characterization			250 signaling units
		Carry Over			0%

Clinical Trial (in process): CELx test FDA Approved for Use in Clinical Trials

On May 8, 2017, we entered into a non-exclusive Clinical Trial Agreement with NSABP to conduct a 55-patient single-arm interventional trial, which will commence in the second half of 2017. Pursuant to the agreement, NSABP serves as the Sponsor and Principle Investigator of the trial and is responsible for, among other things, setting up clinical sites, enrolling patients, and managing clinical data. NSABP has contracted separately with Genentech to provide drugs for the study at no cost. We are performing the CELx HSF Test to select patients for the trial and are providing the funding for the trial’s patient-related costs. Based on our estimates of patient enrollment rates, we expect to obtain interim results in 10 to 12 months after the first patient is enrolled and final results within 18 to 21 months.

NSABP is one of the country’s premier clinical research cooperatives. Its members include many of the country’s leading medical centers and their investigators are amongst the most-respected in the breast cancer field. Genentech is one of the largest biopharmaceutical companies in the world and was the first company to launch a HER2 targeted therapy; their anti-HER2 targeted therapies have roughly 95% market share.

We submitted an Investigational Device Exemption, or IDE, application to the FDA to obtain approval to use our CELx HSF Test in a clinical trial setting. The IDE submission included validation test protocols and study reports, manufacturing process summaries, and relevant publications. The FDA approved our IDE in early 2017.

The goal is to demonstrate that patients who have an abnormal signaling pathway, as identified by our CELx test, respond to treatment with a matching targeted therapy. A synopsis of the trial protocol is provided below.

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Clinical Trial Synopsis

		Objective				To evaluate the efficacy of neoadjuvant HER2 drug treatment in early stage HER2-/HER2 S + breast cancer patients
		Sites/Sponsor				Multi-center in collaboration with NSABP and Genentech
		Subjects				55 HER2- early stage breast cancer (26 ER+/29ER-)
		End Point				Pathological complete response (ypT0/Tis ypN0)
		Investigational (Single) Arm				N=55 (HER2 S +) AC-T + Trastuzumab + Pertuzumab

The results of our pre-clinical studies confirm that the CELx HSF Test can identify HER2-negative breast cancer patients whose tumor tissue has abnormal HER2-signaling activity. The proportion of the total HER2-negative breast cancer population that has abnormal HER2-signaling, an estimated 20%, is significant. There would be roughly 55,000 U.S. patients who would become eligible to receive HER2 therapies as a result of our test. For drug companies, we estimate our test could drive $4 billion of new annual revenue for HER2 therapies, creating significant motivation to partner with us to promote it. This assumes the 55,000 HER2-negative breast cancer patients diagnosed with abnormal HER2 signaling by our CELx HSF test are treated with HER2 therapies costing approximately $73,000 per patient. The per patient therapy cost assumed is in line with the cost of Herceptin ® and Perjeta ® , the current standard of care HER2 drug treatment regimen that, according to Genetech at the time of launching Perjeta ® in 2012, had a wholesale price of $10,900 per month.

Pursuant to our agreement with NSABP, the cost of the study is $2.65 million, subject to adjustment based on reimbursement for travel and similar expenses. Of this amount, we paid $300,000 upon entry into the agreement and we will pay: (i) an aggregate of approximately $1.8 million as certain patient milestones are met, (ii) six quarterly payments of $50,000 commencing in 2017 and ending in 2019, and (iii) a final payment of $250,000 upon completion of the study.

Our agreement with NSABP may be terminated by one or either party upon certain events, such as: (i) the FDA withdrawing its authorization and approval to perform the study, (ii) NSABP determining that the human and/or toxicology test results support termination of the study, (iii) either us or NSABP determining that an adverse reaction or side-effect of drugs administered in the study or a modification of the study’s protocol raises safety issues to support termination of the study, (iv) either party remaining in material breach of the agreement for a period of 30 days following notice of such breach, (v) us not performing the CELx HSF Tests or providing study kits, (vi) us failing to pay amounts owed to NSABP, and/or (vii) Genetech terminating its agreement with NSABP to supply drugs for the study or the drugs for the study no longer being manufactured or being available.

C ommercialization S trategy

Our commercial activities will target three complementary groups at various phases of the development of our CELx tests.

•

Pharmaceutical companies. For each CELx test we develop to diagnose a new cancer sub-type, we will identify the matching targeted therapies, either currently approved or in the investigational phase, and the manufacturer of those therapies. We will 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 will initially target key opinion leaders, or KOLs, in each cancer type once we have completed the analytical validation of a CELx test. This will allow us to build awareness and credibility for the CELx test as we are generating clinical validation data. When a new drug indication is received that requires use of a CELx CDx 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, unlike traditional molecular diagnostic companies.

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Payors. We will initiate pilot activities with payors for late stage patients during the clinical validation phase of a CELx test’s development. We will expand our payor efforts to include health economics analysis once we have clinical trial data available. When a new drug indication is received that requires use of a CELx CDx to identify eligible patients, we expect to coordinate the pharmaceutical company’s reimbursement activities with our own.

Our CELx tests are laboratory developed tests and subject to regulation under the Clinical Laboratory Improvements Act (CLIA). We completed the analytical validation of our first CELx test and received CLIA certification in 2016, at which time our CELx HSF Test was ready to sell commercially on a stand-alone basis to treating physicians. We expect to generate revenues from CELx tests performed in conjunction with the clinical trials a pharmaceutical company will field during the clinical 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 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 CELx tests ordered by physicians either as stand-alone diagnostics or, upon the approval of our pharmaceutical company’s matching drug, as a CDx.

We intend to position our unique and highly differentiated tests as practice changing advancements in patient care. To inform key stakeholders of the value of our solution in order to drive adoption and reimbursement, we expect to employ the following diverse commercialization strategies over time:

•

leverage our pharmaceutical partnership and their go-to-market initiatives for the drug our CDx is partnered with;

•

collaborate with oncology thought and KOLs and leading institutions on clinical research, publications, and product development;

•

build an experienced, oncology-focused sales force in the United States and international distribution channels that are supported by dedicated company personnel;

•

integrate into the everyday practice of clinicians through our medical affairs and client services efforts;

•

publish important medical and scientific data in peer-reviewed journals and present at major industry conferences, conduct clinical trials; and

•

work with patient advocacy groups, leading cancer philanthropic organizations, and medical societies to drive awareness of CELx tests and the importance of incorporating functional cellular analysis into cancer treatment.

Through these efforts, we will seek to promote our CELx test’s unique capabilities throughout the oncology community—from patients, to the physicians treating them, to the third-party payors for these treatments and to biopharmaceutical companies developing new treatments—all with the goal of facilitating better-informed treatment decisions for the greatest number of patients.

Once results from our current clinical trial are available, we expect to launch our first test, the CELx HSF Test in two phases. During the first phase, we intend to target KOLs in the oncology field to build awareness of our CELx platform. These KOLs are primarily comprised of oncologists and surgeons practicing at major academic health systems who participate in clinical research and cancer research scientists. They often are early adopters of new technologies, particularly those involving new insights into disease mechanisms.

We expect to gradually ramp up our efforts to the remainder of the medical oncologists once we have established our reputation within the KOL community. In addition, we will increase our investment in a direct sales force once our first clinical trial for our CELx HSF Test is completed, which we believe will occur in late 2018.

Once a CELx test is launched to the broader market, we expect physicians, typically a medical or surgical oncologist, will order our tests either as stand-alone diagnostics or, upon the approval of a pharmaceutical company’s matching drug, as a CDx. The physician will prescribe a CELx test and coordinate provision of a patient specimen from a biopsy or surgical procedure. The fresh tissue would then

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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 CELx 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 function, clinicians would use the results of the CELx test as a guide to select a targeted drug that inhibits the abnormal signaling activity identified.

United States

For our first tests, we will target the estimated 4,300 medical oncologists working in hospitals and cancer centers in the United States. We expect to hire domestic sales professionals with typically over 10 years of experience in clinical oncology sales working at leading biopharmaceutical or specialty reference laboratory companies.

In general, we intend to focus our initial sales efforts on building relationships with KOLs and researchers at leading academic research institutions to demonstrate the scientific credibility of our CELx tests. We also plan to build relationships in community oncology practice settings through leading physician networks and community hospitals and community based cancer centers. We will also attend national and regional clinical meetings focused on cancer treatment for our anti-cancer tests.

We believe the unique and important nature of the results our CELx tests provide, and their positioning as a CDx, will drive many medical oncologists to independently seek out our tests once they become aware of them. We believe this may allow us to achieve our market penetration goals with a sales force and marketing expenses significantly less costly than has been experienced by molecular diagnostic companies.

International

We believe we can serve the international market from our laboratory in Minnesota. We expect to establish an international presence using local distributors that sell to physicians and coordinate shipment of specimens to the United States. To serve international markets, we would expect to add dedicated regional managers located outside the United States to oversee our relationships at the local level.

Pricing and Reimbursement

The principal groups that we expect to pay us in the future for our CELx 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 CELx 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 CELx tests to payors by employing a multi-pronged strategy:

•

Set a high bar for analytical validation. We expect to present data on the reproducibility and precision of CELx 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.

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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 payers to navigate the claims process and obtain maximum reimbursement.

•

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 CELx 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 CELx 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.

•

Commercial third-party payors and government payors are increasingly making significant efforts 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 CELx tests is consistent with payors goals of delivering health care more cost effectively.

O ur C ompetition

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 includes 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. The table below provides a summary of the points of differentiation between our signaling function analysis approach and the molecular approaches used by our potential competitors.

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Current Molecular Methods vs. Celcuity’s Functional Cellular Analysis Platform

Type of Cell Sample Used:

Dead tumor cells
(fixed, lysed)

Live tumor cells

Type of Analysis Performed

Single point-in-time mutation(s)
status or protein amount, or
activation status

Quantify signaling pathway
activity over 24-hour period

Relationship to disease driver

Correlative

Direct Cause

Disease driver evaluated

No. Only a single or small set of
components of the cell are
evaluated

Yes. The activity of the entire
signaling pathway is assessed

Drug function evaluated

No. Cannot assess drug function
with dead cells

Yes. Drug’s effect on signaling
pathway activity in patient’s cells
quantified

Companies

Foundation Medicine, Caris Life
Sciences, NeoGenomics,
LabCorp, Quest, Nanostring,
Paradigm, Biocept, Exosome
Diagnostics, Guardant Health,
Roche Diagnostics, Qiagen,
Myriad, Genomic Health

Celcuity

We are not aware of any available tests directly comparable to the CELx tests. However, list prices for several proprietary complex genomic tests are listed below and provide guidance as to the pricing of highly informative tests that guide cancer patient care. We expect to offer each CELx test to patients at list prices ranging from $4,000 to $7,000, depending on the number of pathways evaluated.

Company	Product	List Price
Genomic Health	Oncotype breast cancer recurrence test	$4,620 (1)
Foundation Medicine	FoundationOne solid tumor genetic profile test	$5,800 (2)
Veracyte	Afirma thyroid cancer diagnostic test	$3,200 (3)

(1)

Reported in Genomic Health, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

(2)

Reported in Foundation Medicine, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

(3)

Reported in Veracyte, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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I ntellectual P roperty

We believe one of our core competitive advantages is the strength of our intellectual property portfolio. We developed our CELx technology internally. We are seeking both U.S. and non-U.S. patents to protect our inventions. Our patent portfolio currently includes the following:

Subject Matter

Patent/Application #

Status

Priority
Date

Expiration

Methods of treating a cancer patient using cell signaling analysis

US 9,404,915

U.S. granted; Europe and Japan pending

6/12/2012

2033

Methods of treating a cancer patient using cell signaling analysis

US 15/192,280

U.S. pending

6/12/2012

2033

Methods of determining the functional status of a cellular pathway

US 15/179,119

U.S. pending

12/12/2013

2034

Methods of diagnosing a cancer patient using cell signaling analysis

US 15/533,897

U.S., Australia, Canada, China, Europe, Japan, South Korea and New Zealand pending

12/12/2014

2035

Methods of creating a patient cell microenvironment

PCT/US2016/057923

PCT pending

10/20/2015

2036

Methods of treating a cancer patient using cell signaling analysis

US 62/473,936

U.S. pending

3/20/2017

2038

We understand we must develop and maintain protection on the proprietary aspects of our technologies in order to remain competitive. We rely on a combination of patents, copyrights, trademarks, trade secret and other intellectual property laws and confidentiality, material transfer agreements, invention assignment agreements and other contracts to protect our intellectual property rights.

We plan to develop names for new products and apply for trademarks and as appropriate secure trademark protection for them, including domain name registration, in relevant jurisdictions. We also have developed a number of proprietary methods, materials, processes, and techniques related to the preparation of patient samples and performance of the CELx test that we believe are most effectively protected as trade secrets rather than as patented subject matter.

R esearch and D evelopment

We have made significant investments in research and development for our CELx platform. Our annual research and development expenses were approximately $3.1 million and $2.0 million for the years ended December 31, 2015 and 2016, respectively.

P rincipal S uppliers

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 Acea Biosciences, 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.

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G overnment R egulation

CLIA and CMS

The CMS regulates all clinical laboratory testing (except research) performed on humans in the U.S. 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.

FDA

FDA approval or clearance is not currently required for CELx tests offered as a stand-alone laboratory developed test. If we are partnered with a drug company to launch a CELx test as a CDx for a new drug indication, we would be required to obtain a Pre-Market 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 CELx tests, often referred to as Laboratory Developed 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, pre-market clearance or pre-market approval, and post-market controls).

Although the FDA proposed regulations that would apply to LDTs, FDA recently 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) clearance or a Pre-Market Approval. If implemented, this regulatory framework would require most hospital clinical labs to abandon a number of tests it performs 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 2014 Draft Guidance Document at this time. However, FDA continues to discuss potential regulatory approaches to LDTs.

HIPAA and HITECH

Under the administrative simplification provisions of HIPAA, as amended by the HITECH Act, the U.S. Department of Health and Human Services, or HHS, issued regulations that establish uniform standards governing the conduct of certain electronic healthcare transactions and protecting the privacy and security of protected health information used or disclosed by healthcare providers and other covered entities. HIPAA includes the following primary sets of regulations: privacy regulations, security regulations, and standards for electronic transactions, which establish standards for certain healthcare transactions. The privacy and security regulations were extensively amended in 2013 to incorporate new requirements from the HITECH Act.

The privacy regulations cover the use and disclosure of protected health information by healthcare providers and other covered entities. They also set forth certain rights that an individual has with respect to

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his or her protected health information, including, but not limited to, the right to access or amend certain records containing protected health information, or to request restrictions on the use or disclosure of protected health information. The security regulations establish requirements for safeguarding the confidentiality, integrity, and availability of protected health information that is electronically transmitted or electronically stored. The HITECH Act, among other things, makes many of HIPAA’s privacy and security standards applicable to business associates of covered entities, and established certain protected health information security breach notification requirements. A covered entity must notify affected individual(s) and the HHS when there is a breach of unsecured protected health information. HIPAA also governs patient access to laboratory test reports. Effective October 6, 2014, individuals (or their personal representatives, as applicable), have the right to access test reports directly from clinical laboratories and to direct that copies of those test reports be transmitted to persons or entities designated by the individual.

These laws impose significant fines and other penalties for improper use or disclosure of protected health information. Additionally, to the extent that we submit electronic healthcare claims and payment transactions that do not comply with the electronic data transmission standards established under HIPAA and the HITECH Act, payments to us may be delayed or denied.

In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to our operations. The HIPAA privacy and security regulations establish a uniform federal “floor” that covered entities and business associates must meet and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing protected health information. The compliance requirements of these various state laws, including additional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in this area are evolving. We believe that we have taken the steps required for us to comply with health information privacy and security statutes and regulations in all jurisdictions, both state and federal. However, we may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintain compliance, or changes in state or federal laws regarding privacy or security, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

Federal, State and Foreign Fraud and Abuse Laws

In the United States, there are various fraud and abuse laws with which we must comply and we are potentially subject to regulation by various federal, state and local authorities, including CMS, other divisions of the HHS (e.g., the Office of Inspector General), the U.S. Department of Justice, and individual U.S. Attorney offices within the Department of Justice, and state and local governments. We also may be subject to foreign fraud and abuse laws in connection with our international business activities.

In the United States, the federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for patient referrals for, or purchasing, leasing, ordering, recommending or arranging for the purchase, lease or order of, any healthcare item or service reimbursable under a governmental payor program. Courts have stated that a financial arrangement may violate the Anti-Kickback Statute if any one purpose of the arrangement is to encourage patient referrals or other federal healthcare program business, regardless of whether there are other legitimate purposes for the arrangement. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, credit arrangements, payments of cash, consulting fees, waivers of co-payments, ownership interests, and providing anything at less than its fair market value. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, the HHS issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain provisions, which, if met, will assure healthcare providers and other parties that they will not be prosecuted under the federal Anti-Kickback Statute. Although full compliance with these provisions protects against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued. Many states also have anti-kickback statutes, some of which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

In addition, federal false claims laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for

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payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for 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 the product for unapproved, and thus generally non-reimbursable, uses. The civil monetary penalties statute imposes penalties against any person or entity who, among other things, 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.

HIPAA created additional federal criminal statutes that prohibit 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 and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, 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.

In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely a governmental payor program. If our operations are found to be in violation of any of the federal or state healthcare laws described above or any other governmental regulations that apply to us, we may be subject to significant penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties and/or significant fines, for individuals and/or companies committing a bribery offence. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery Act 2010, which went into effect in July 2011, a bribery occurs when a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also falls within the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act 2010 faces imprisonment of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.

Federal and State Physician Self-Referral Prohibitions

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.

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Prospectus Summary		1
Summary Financial Data		9
Risk Factors		11
Special Note Regarding Forward-Looking Statements		29
Use of Proceeds		31
Dividend Policy		32
Capitalization		33
Dilution		35
Selected Financial Data and Pro Forma Financial Data		38
Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Business		49
Management		78
Executive and Director Compensation		85
Certain Relationships and Related Party Transactions		91
Principal Stockholders		93
Description of Capital Stock		95
Shares Eligible for Future Sale		100
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders		102
Underwriting		107
Legal Matters		112
Experts		112
Where You Can Find More Information		112
Index to Financial Statements		F-1