CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended June 30, 2014; filed August 8, 2014. Financial statements are unaudited. CEL-SCI is a development-stage biotechnology company with no product sales to date.
Business context
The company’s lead investigational therapy, Multikine, was in a multinational Phase III trial for advanced primary head and neck cancer. It also develops preclinical LEAPS technology. Multikine had not been approved by the FDA or any other regulator; its safety and efficacy had not been established.
Key financial metrics
| Metric | Three months ended June 30, 2014 | Nine months ended June 30, 2014 |
|---|---|---|
| Product revenue | None reported | None reported |
| Operating expenses | $6.92 million | $19.26 million |
| Operating loss | $6.90 million | $19.06 million |
| Net loss available to common shareholders | $2.44 million | $21.26 million |
| Loss per share, basic | $0.04 | $0.38 |
| Net cash used in operating activities | Not presented for the quarter | $17.20 million |
At June 30, cash and cash equivalents were $14.29 million, current assets $17.35 million, current liabilities $3.33 million, total liabilities $10.12 million, and stockholders’ equity $15.04 million. Cash increased $14.24 million over the nine months, primarily from $28.43 million in net stock proceeds and $3.12 million from warrant exercises, offset by operating cash use. The company reported $1.10 million owed under a related-party loan; it bears 15% interest, is secured by substantially all company assets, and may be demanded with at least 10 days’ notice despite its stated 2015 maturity. Lease obligations were approximately $20,000.
Material changes versus comparable periods
- For the nine months, operating expenses rose from $14.94 million to $19.26 million; R&D increased $3.42 million and G&A increased $1.03 million.
- Nine-month net loss available to common shareholders rose from $7.53 million to $21.26 million. The comparison was materially affected by derivative accounting: 2013 included a $7.36 million gain, while 2014 recorded a $1.05 million loss.
- For the June quarter, operating expenses increased from $5.63 million to $6.92 million. Net loss available to common shareholders improved from $4.51 million to $2.44 million, principally alongside a larger derivative gain ($4.47 million versus $1.08 million); this non-operating fair-value item does not reflect operating performance.
- Common shares outstanding increased from 31.03 million at September 30, 2013 to 66.04 million at June 30, 2014. The filing reports 79.68 million shares outstanding as of August 7, 2014. Potential dilution is substantial: approximately 39.88 million shares underlying options and warrants were excluded from nine-month diluted loss per share as anti-dilutive.
- Derivative liabilities increased from $0.43 million to $6.81 million, largely reflecting newly issued Series S warrants. Fair-value changes drove significant gains or losses in reported earnings.
Outlook, risks and unusual items
- Management estimated cash would support operations through spring 2015; elsewhere the filing says capital was expected to last more than the next 12 months. The filing therefore does not give a single consistent runway estimate. The company said additional financing would be needed and warned that failure to raise funds could delay or curtail the Phase III trial and operations.
- As of June 30, the trial had enrolled 218 of a planned 880 patients. Management expected full enrollment by the end of 2015, with enrollment expected to accelerate as additional sites opened. This is an expectation, not a guarantee.
- Estimated remaining cash cost of the Phase III trial was approximately $29.7 million, in addition to approximately $14.9 million already spent. The estimate excludes portions payable by licensees and may increase with enrollment pace, foreign exchange, or other factors.
- Ergomed agreed to contribute up to $10 million in clinical services for the Phase III study in exchange for a capped, single-digit share of specified milestone and royalty payments. Separate Ergomed agreements provide up to $3 million toward costs for each of two other studies.
- The company sought at least $50 million in arbitration damages from former CRO inVentiv; inVentiv counterclaimed for at least $2 million. The arbitrator denied inVentiv’s motion to dismiss certain claims, but the company said the matter was preliminary and its outcome could not be assessed.
- On July 15, 2014, after quarter-end, CEL-SCI announced a $225,000 NIH Phase I SBIR grant for further LEAPS research related to rheumatoid arthritis.
- The filing attributes higher G&A partly to public-relations costs and legal fees. It also reports a $1.12 million deemed dividend associated with additional shares issued under Series N warrant reset provisions.
Important facts for investors to verify
- Current cash burn, financing access, and the basis for the differing stated cash-runway estimates.
- Phase III enrollment progress, site activation, trial timing, and updated remaining-cost estimates.
- Potential dilution and the terms, exercise activity, and accounting treatment of outstanding warrants.
- Status and potential financial exposure of the inVentiv arbitration and counterclaim.
- Whether Multikine can demonstrate safety and efficacy and obtain required regulatory approvals; no approval or commercial revenue was reported.