CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2012; filed August 9, 2012. The company is developing investigational therapies and reported no product-sales revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2012 | Nine months ended June 30, 2012 |
|---|---|---|
| Grant income and other | $35,000 | $146,567 |
| Operating expenses | $4.25 million | $13.07 million |
| Operating loss | $4.21 million | $12.92 million |
| Net loss | $835,446 | $12.91 million |
| Net loss available to common shareholders | $835,446 | $15.08 million |
| Loss per share, basic and diluted | $0.00 (rounded) | $0.06 |
| Operating cash used | Not separately provided | $8.92 million |
At June 30, cash and cash equivalents were $7.22 million, versus $4.26 million at September 30, 2011. Current assets were $11.05 million and current liabilities $2.03 million. Total liabilities were $10.91 million, including $8.75 million of derivative liabilities. The $1.10 million related-party loan from the president remained outstanding and bears 15% interest. The senior convertible notes were fully paid by March 1, 2012.
Financing activities provided $12.00 million in the nine-month period, including $14.29 million of common-stock proceeds and $2.66 million from warrant and option exercises, offset in part by convertible-debt payments. The company reported 272.9 million common shares outstanding at June 30 and 273.0 million at August 3, 2012.
Changes versus comparable periods
- Nine-month grant income and other fell by $637,469 from 2011, when the company recognized most of a government research grant; no grant income was earned in the 2012 nine-month period.
- Nine-month R&D expense decreased $1.71 million to $7.52 million; quarterly R&D decreased $455,605 to $2.47 million. Management attributed fluctuations to activity in the ongoing clinical trial.
- Nine-month G&A decreased $222,937 to $5.15 million, primarily because of lower litigation-related legal fees.
- Nine-month net loss improved from $23.39 million to $12.91 million, in part because 2011 included $12 million of other expense related to litigation. The 2012 nine-month loss available to common shareholders also includes $250,000 for additional shares issued under reset provisions and $1.59 million of inducement warrants.
- Quarterly net loss narrowed from $3.11 million to $835,446. A $3.39 million derivative gain helped offset the $4.21 million operating loss; derivative fair-value changes are tied to the company’s share price and can make reported results volatile.
Business, outlook and risks
CEL-SCI’s lead candidate, Multikine, was in a multinational Phase III trial for advanced head-and-neck cancer. Its LEAPS program remained preclinical. Neither product was approved, and the filing states that safety and efficacy have not been established. Teva Pharmaceuticals and Orient Europharma had agreed to fund portions of the Phase III trial; the company estimated its remaining trial costs, excluding partner-funded portions, at approximately $26 million.
Management said it expected cash on hand and access to capital markets to support operations for more than 12 months. However, the filing also identifies substantial doubt about the company’s ability to continue as a going concern because of recurring operating losses and future liquidity needs. Management stated that additional capital or long-term financing would be needed; there is no assurance it could be raised on acceptable terms or at all. If funding is insufficient, the company may slow or delay the trial or significantly curtail operations. The filing provides no specific financial guidance.
The company’s funding history relies on equity sales, convertible notes, loans and grants. The quarter included a $5.60 million common-stock offering with warrants. Warrant reset and cash-settlement provisions resulted in substantial Level 3 derivative liabilities, and further equity financing may dilute existing holders. Other notable exposures include the 20-year manufacturing-facility lease, a $1.67 million landlord deposit subject to minimum-cash requirements, and the related-party loan. Management reported effective disclosure controls as of June 30, 2012 and no change in internal control over financial reporting during the first nine months.
Investor verification points
- Assess cash burn, the timing and terms of future financing, and whether the stated runway assumption remains achievable.
- Track Phase III enrollment, costs, partner contributions, trial milestones and regulatory progress; confirm the estimated $26 million company-funded cost.
- Review the potential dilution from outstanding warrants, option awards, reset provisions and additional share issuance.
- Examine the valuation assumptions and volatility of the $8.75 million derivative liability, whose fair value is Level 3 and share-price-sensitive.
- Monitor the 15% related-party loan, lease cash-balance requirements, and availability of the $1.67 million deposit.
- Distinguish operating performance from noncash derivative gains and prior-year litigation expenses; the company had no product-sales revenue.