CEL-SCI Corporation — Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2017; filed August 9, 2017. The company is a clinical-stage biotechnology business developing Multikine and LEAPS and reported no product sales revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2017 | Nine months ended June 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Grant and other income | $17,389 | $51,822 | $129,975 and $183,726, respectively |
| Research and development expense | $3.66 million | $14.74 million | $4.84 million and $14.64 million |
| General and administrative expense | $1.60 million | $4.35 million | $1.67 million and $3.99 million |
| Operating loss | $5.24 million | $19.03 million | $6.38 million and $18.44 million |
| Gain on derivative instruments | $0.79 million | $9.67 million | $2.51 million and $8.04 million |
| Net loss available to common shareholders | $4.45 million | $9.32 million | $3.85 million and $10.35 million |
| Loss per share | $0.53 | Basic $1.29; diluted $1.33 | $0.78 and basic $2.20, respectively |
| Net cash used in operations | Not separately provided | $10.35 million | $16.22 million |
The derivative gains reflect changes in the fair value of warrant liabilities and are noncash; they materially affect reported net loss. No meaningful sales margin was reported because CEL-SCI had not generated product revenue.
At June 30, cash and cash equivalents were $1.23 million, down from $2.92 million at September 30, 2016. Current assets were $3.37 million versus current liabilities of $10.24 million, a working-capital deficit of approximately $6.87 million. Total liabilities were $13.75 million, and stockholders’ deficit was $5.31 million. Accounts payable rose to $8.35 million from $3.09 million.
During the nine months, financing provided $8.68 million net cash, including $7.17 million from common stock and warrant issuances and $1.51 million from notes. June 22 convertible notes total $1.51 million, bear 4% interest, mature December 22, 2017, are convertible at $1.69 per share, and are secured by a first lien on company assets. The notes were issued with warrants; the reported share count and potential dilution should be considered alongside these instruments.
Material changes and developments
- Nine-month operating expenses increased approximately $462,000 year over year; R&D increased about $101,000 and G&A increased about $361,000. In the June quarter, total operating expenses fell about $1.26 million, mainly reflecting lower R&D costs.
- Nine-month net loss narrowed by about $1.03 million, while quarterly net loss increased about $596,000. Changes in noncash derivative gains were significant to both comparisons.
- Common shares outstanding increased from 6.24 million at September 30, 2016 to 9.22 million at June 30, 2017. A 1-for-25 reverse split became effective June 15, 2017; historical share and per-share figures were retrospectively adjusted.
- On July 24, 2017, the company issued an additional $1.235 million of convertible notes, due December 22, 2017, at 4% interest and convertible at $2.29, with warrants. On July 26, it sold 100,000 shares for gross proceeds of $229,000 and issued additional warrants.
Outlook, risks and contingencies
- FDA clinical hold: The Phase 3 Multikine head-and-neck cancer study remained on FDA clinical hold. The FDA’s June 28 letter requested three further Investigator Brochure revisions; CEL-SCI reported that it made and resubmitted them. The hold barred enrolling new patients and resuming dosing. The company said 928 patients had enrolled and completed treatment and continued follow-up toward the endpoint of 298 deaths in the two principal comparison groups.
- Trial funding and going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It reported approximately $37.4 million spent on direct Phase 3 trial costs through June 30 and estimated approximately $21.2 million of remaining trial cash costs, excluding manufacturing and other related costs. Estimates may change, and a replacement or additional Phase 3 trial could substantially increase costs. The company expected to seek further partnership, debt, or equity funding and cautioned that financing might not be available on acceptable terms or at all; operations or the study could be curtailed or delayed.
- Regulatory and commercial risk: Multikine was investigational and not approved; its safety and efficacy had not been established. The company had no product revenue and could not predict when products might generate revenue. The filing notes that the FDA could determine the study was compromised or should be terminated.
- Litigation: CEL-SCI was pursuing arbitration against former clinical research organization inVentiv, seeking at least $50 million. inVentiv asserted counterclaims seeking at least $24 million in damages and disgorgement. The company considered the counterclaims meritless but acknowledged an adverse outcome could materially affect its business, financial condition, and liquidity. The arbitration hearing was expected to conclude in the second half of 2017.
- Other commitments: Contractual operating lease payments totaled approximately $24.59 million, including $484,769 for the three months ending September 30, 2017. The company also disclosed research collaborations and clinical-service arrangements, including Ergomed’s contribution commitment of up to $12 million under its agreement.
Management reported that disclosure controls and procedures were effective as of June 30, 2017, with no change in internal control over financial reporting during the nine-month period. The filing provides no numerical operating guidance.
Most important facts for investors to verify
- Whether and when the FDA lifts the clinical hold, and whether any further study or protocol changes are required.
- Trial progress toward the 298-death endpoint, the interpretation of study data, and any need for another Phase 3 trial.
- Cash runway, near-term note maturities, ability to secure additional financing, and the assumptions behind the remaining trial-cost estimate.
- Potential dilution from common-stock offerings, warrants, and convertible notes, including subsequent-event financings and warrant terms.
- Outcome and timing of the inVentiv arbitration and exposure from its counterclaims.