CEL-SCI Corporation — Form 10-Q Summary
Business context and reporting period
Although the request labels this 2019 Q3, the filing covers the three and nine months ended June 30, 2019, for CEL-SCI’s fiscal year ending September 30. CEL-SCI is a clinical-stage biotechnology company developing Multikine, its lead investigational therapy, and preclinical LEAPS technology. It reported no product sales; reported income was grant income. Multikine had not been approved by the FDA or any other regulator.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Nine months ended June 30, 2019 |
|---|---|---|
| Grant income | $108,938 | $386,121 |
| Research and development expense | $2.30 million | $7.96 million |
| General and administrative expense | $3.02 million | $6.98 million |
| Operating loss | $5.21 million | $14.55 million |
| Net loss | $12.08 million | $17.29 million |
| Net loss per share | $0.37 | $0.58 |
At June 30, cash and equivalents were $9.49 million, down from $10.31 million at September 30, 2018. Current assets were $10.59 million and current liabilities $4.23 million. Total liabilities were $27.34 million, including $10.73 million of derivative liabilities and a $13.48 million lease financing obligation. Stockholders’ equity was $1.15 million.
For the nine months, operating cash use was $12.43 million, investing cash use $0.29 million, and financing cash provided $11.90 million. Financing was primarily $11.66 million from warrant exercises. Cash decreased by $0.82 million. The company reported no conventional debt balance in the presented balance sheet; prior-period notes had been converted by September 30, 2018.
Material changes versus comparable periods
- Nine-month operating expenses rose to $14.94 million from $13.54 million, and operating loss widened to $14.55 million from $13.24 million. Net loss increased to $17.29 million from $16.91 million, while reported loss per share improved to $0.58 from $1.17 as weighted-average shares more than doubled.
- For the quarter, net loss rose to $12.08 million from $6.01 million. A $7.91 million derivative-instrument loss, driven mainly by changes in CEL-SCI’s share price, was a major factor; it is a fair-value item rather than an operating expense.
- Nine-month G&A increased about $1.2 million, principally from higher public-relations costs and stock-based compensation. R&D increased about $0.2 million year over year, although it declined in the quarter.
- Common shares outstanding increased from 28.03 million at September 30, 2018 to 34.07 million at June 30, 2019, primarily reflecting warrant exercises and other share issuances. Warrant exercises generated $11.66 million of cash during the nine months.
Outlook, risks and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and future liquidity needs. It said it was pursuing cost reductions and additional financing, including partnerships, debt or equity, and expected warrant exercises—but warned that funding was not assured and operations could be curtailed if adequate capital was unavailable.
- The Phase 3 Multikine trial was fully enrolled, with 928 patients having completed treatment. The endpoint is a 10% overall-survival increase in the treatment group versus the comparator groups; the endpoint assessment is triggered at 298 deaths in the two main comparator groups. The filing describes the trial as in its final stages but gives no completion date.
- Direct Phase 3 costs were approximately $54.7 million through June 30, 2019. Management estimated another $5.6 million for the remainder, excluding manufacturing and other related costs; actual costs could be higher due to death accumulation, foreign exchange and other factors.
- After quarter-end, the company received approximately $2.6 million from option and warrant exercises between July 1 and August 13, 2019. Management stated that the company had relied on warrant-exercise proceeds and would seek other funding if those exercises stopped.
- CEL-SCI issued shares to Ergomed under arrangements that allowed Ergomed to sell shares and apply proceeds against amounts owed for clinical services. Ergomed contributed discounted services under a co-development agreement, in exchange for a share of future milestone and royalty payments subject to a cap.
Important facts for investors to verify
- Current cash, subsequent warrant-exercise proceeds and the timing and terms of any additional financing; assess the disclosed going-concern uncertainty.
- Phase 3 trial death accumulation, timing of the 298-death endpoint analysis, final results and any regulatory developments.
- Whether the estimated $5.6 million remaining direct trial cost is sufficient, given its exclusions and stated cost uncertainties.
- Potential dilution from outstanding warrants, options and future financing, as well as the effect of share-price-driven warrant revaluations on reported earnings.
- The company’s substantial lease obligations and the terms and remaining balances of its Ergomed arrangements.