CEL-SCI Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended September 30, 2017. The company is a clinical-stage biotechnology developer with no product sales; its lead candidate, Multikine, is in a pivotal Phase 3 trial for advanced primary head and neck cancer. The statements are audited by BDO USA, LLP, whose report expresses substantial doubt about CEL-SCI’s ability to continue as a going concern without additional capital.
Financial results and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Grant and other income | $69,020 | $285,055 |
| Research and development | $15.61 million | $17.45 million |
| General and administrative | $5.80 million | $6.49 million |
| Operating loss | $(21.34) million | $(23.65) million |
| Net loss | $(14.36) million | $(11.51) million |
| Net loss available to common shareholders | $(14.43) million | $(11.51) million |
| Basic / diluted loss per share | $(1.83) / $(1.91) | $(2.37) / $(2.37) |
| Net cash used in operating activities | $(13.79) million | $(23.08) million |
- Revenue was immaterial and came from grants and other sources; CEL-SCI reported no product-sales revenue. Profitability and operating margins are not meaningful for this development-stage business.
- A $11.01 million gain from revaluing derivative liabilities reduced the reported loss; it was not operating revenue. Net interest expense increased to $4.03 million from $1.88 million, including costs associated with 2017 financing.
- Cash and cash equivalents were $2.37 million at year-end, down $0.55 million. Financing provided $13.26 million, including $10.52 million from stock and warrants and $2.75 million from notes; operating activities used $13.79 million.
- Current assets were $4.24 million against current liabilities of $10.84 million, implying negative working capital of approximately $6.61 million. Accounts payable were $8.20 million; total liabilities were $26.26 million and stockholders’ deficit was $3.34 million.
- The balance sheet included a $13.21 million manufacturing-facility lease liability and $2.05 million in derivative liabilities. Contractual obligations totaled $26.51 million, including $23.13 million of future manufacturing-lease payments and $2.41 million of convertible-note payments and interest scheduled for 2018.
Changes, outlook and material developments
- Compared with FY2016, operating expenses declined by $2.52 million, including a $1.84 million reduction in R&D. Net loss nevertheless increased by $2.85 million, mainly reflecting higher interest expense and a smaller derivative gain. Grant and other income fell by $216,000, primarily due to timing of shipments to a Taiwan partner.
- The Phase 3 trial enrolled 928 patients; the last patient was enrolled in September 2016. The primary endpoint is a 10% improvement in overall survival for the Multikine regimen versus standard care, assessed after 298 deaths in the comparator groups. Patients were being followed for survival outcomes.
- The FDA removed a partial clinical hold on the trial on August 10, 2017. Subsequent to year-end, the IDMC reported no significant safety concerns and recommended continuing the study; CEL-SCI announced full enrollment in December 2017. These are not efficacy results, and FDA acceptance of the trial as a pivotal basis for marketing is not assured.
- CEL-SCI estimated another approximately $13.0 million in direct Phase 3 trial expenses, based on CRO contracts; the estimate excludes other costs, including drug manufacturing, and could increase. The company said existing cash and investments, absent new financing or partnerships, were expected to fund the operating plan only into March 2018.
- Subsequent to year-end, holders agreed to extend approximately $2.29 million of June and July 2017 notes to September 2018 in exchange for 716,400 warrants. The company also reported $2.45 million in stock subscriptions in December 2017. Financing availability and terms remain uncertain.
- CEL-SCI reported approximately $45.9 million of direct Phase 3 trial costs incurred through September 30, 2017. LEAPS candidate CEL-4000 received a $1.5 million NIH Phase 2 SBIR grant to support manufacturing and IND-enabling work; it remains preclinical.
- CEL-SCI is seeking at least $50 million in arbitration damages from former CRO inVentiv. InVentiv has asserted counterclaims seeking at least $24 million in aggregate stated damages and disgorgement. The testimony phase ended in November 2017; closing submissions remained. No outcome is assured.
- Management identified continuing material weaknesses in financial reporting controls related to lease accounting, impairment assessment and the financial close process. Disclosure controls and internal control over financial reporting were judged ineffective at September 30, 2017. The lease-accounting error led to an amended FY2016 filing.
Key investor verification points
- Track trial follow-up, the accumulation of the 298 required deaths, the eventual overall-survival analysis and whether regulators accept the study design and data.
- Verify current cash, monthly cash use, financing proceeds and dilution, and whether new capital is sufficient to fund the trial and operations beyond the stated March 2018 runway.
- Review the terms, maturity and security of convertible notes, outstanding warrants and potential share issuances; the June and July notes are secured by a first lien on company assets.
- Assess the full cost to complete the Phase 3 program against the $13.0 million estimate, including manufacturing, trial follow-up and other vendor obligations.
- Monitor remediation and independent assessment of the material weaknesses, as well as any further financial-statement corrections.
- Follow the inVentiv arbitration and counterclaims, including possible financial, liquidity and operational consequences; do not treat claimed damages as a certain recovery or liability.