CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Three months ended December 31, 2022 (the first quarter of fiscal 2023). Financial statements are unaudited. CEL-SCI is a development-stage biotechnology company; it reported no product revenue for the period.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2022 | Comparable 2021 period |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $5.39 million | $6.08 million |
| General and administrative expense | $2.26 million | $2.76 million |
| Operating loss | $7.65 million | $8.84 million |
| Net loss | $7.85 million | $8.78 million |
| Net loss available to common shareholders | $8.03 million | $8.78 million |
| Basic and diluted loss per share | $0.18 | $0.20 |
| Net cash used in operating activities | $4.67 million | $4.81 million |
Cash and cash equivalents were $18.02 million at December 31, down from $22.67 million at September 30, 2022. Current assets were $20.40 million versus current liabilities of $4.74 million. Total liabilities were $17.97 million, including approximately $12.91 million of finance lease obligations and $1.98 million of operating lease obligations. The filing reports no conventional borrowing balance in the presented balance sheet. No meaningful operating margin is available because the company had no reported revenue.
Stock-based compensation was a significant noncash expense: $1.69 million for employees and approximately $0.15 million for nonemployees. Cash used in operations was partly offset in the reconciliation by noncash expenses and working-capital movements.
Changes versus the prior comparable period
- Operating expenses declined $1.19 million, or about 13%, led by lower R&D expense (down $0.69 million) and G&A expense (down $0.50 million). Management attributed much of the decrease to lower stock-based compensation and lower Phase 3 study costs; these were partly offset by costs preparing for potential commercial production.
- Net loss available to common shareholders improved to $8.03 million from $8.78 million. The 2022 period included a $172,552 deemed dividend related to extending certain warrants held by officers and a trust associated with the CEO. The prior-year period included a $364,596 gain on derivative instruments, which did not recur.
- Operating cash use was slightly lower year over year, but cash on hand fell by $4.65 million during the quarter. In the prior-year period, cash-flow presentation included $6.15 million of proceeds from maturing U.S. Treasury bills.
- Warrant exercises generated $447,291 in proceeds, versus $117,200 in the prior-year quarter. Common shares outstanding increased to 43,725,636 from 43,448,317 at September 30, 2022.
Business, outlook, and significant risks
CEL-SCI’s lead candidate is investigational Multikine, being developed for advanced primary head and neck cancer. Management reported that the completed Phase 3 trial did not meet its primary endpoint when the two treatment arms were combined. It highlighted a prespecified analysis of the surgery-plus-radiation arm, reporting a 14.1 percentage-point five-year overall-survival advantage (62.7% versus 48.6%; p=0.0236; HR=0.68). Management is evaluating how to pursue commercialization and regulatory pathways. Multikine has not been approved or licensed by the FDA or any other regulatory agency, and its safety and efficacy for any use have not been established. CEL-SCI also has preclinical LEAPS technology, including CEL-4000 research for rheumatoid arthritis.
The company expects continued operating losses and states that it must obtain additional capital or long-term financing to continue development and pursue approval. Management described possible financing sources including warrant exercises, partnerships, debt, and equity, but gave no assurance that funding will be available on acceptable terms or in time. The filing explicitly states that recurring losses and future liquidity needs raise substantial doubt about the company’s ability to continue as a going concern. It does not provide a clear cash-runway estimate.
On January 11, 2023, after quarter-end, the company was required to deposit approximately $2.3 million with its landlord because it fell below a cash threshold under the San Tomas lease. The deposit is expected to be returned only when the minimum cash requirement is met. The company also disclosed that its disclosure controls and procedures were not effective at December 31, 2022 because of material weaknesses previously described in its 2022 Form 10-K; it reported no material changes in internal control during this quarter.
Other notable commitments include the San Tomas manufacturing facility lease, which expires in October 2028, and future minimum finance-lease payments of $16.36 million before imputed interest. Ergomed had contributed approximately $11.8 million of its commitment of up to $12 million in discounted clinical services by quarter-end, in exchange for a share of potential milestones and royalties. The company noted uncertainty about the full financial and operational effects of COVID-19 but did not quantify an impact.
Important facts for investors to verify
- Whether CEL-SCI can secure sufficient additional financing, and how the going-concern uncertainty and $2.3 million lease deposit affect near-term liquidity.
- The regulatory and statistical interpretation of the Phase 3 subgroup findings, given that the combined trial did not meet its primary endpoint and Multikine remains unapproved.
- The status and remediation of the material weaknesses underlying ineffective disclosure controls.
- The economic effect and governance implications of the related-party warrant extension and the resulting $172,552 deemed dividend.
- The filing presents different diluted weighted-average share counts in the statements and EPS note: 44,440,387 in the statements versus 43,440,387 in the note for 2022. The note says potentially dilutive securities were excluded as anti-dilutive; investors should verify the correct figure.