CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Three months ended December 31, 2016, the company’s fiscal first quarter of 2017. Comparative period: three months ended December 31, 2015. Filed February 9, 2017.
Business context
CEL-SCI is a development-stage biotechnology company with no product-sale revenue. Its lead investigational therapy, Multikine, was being studied in a multinational Phase 3 trial for head and neck cancer; the company also reports preclinical LEAPS research. Multikine had not been approved, and its safety and efficacy had not been established.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2016 | Prior-year quarter |
|---|---|---|
| Grant income and other | $17,258 | $20,976 |
| Research and development expense | $4.025 million | $5.170 million |
| General and administrative expense | $1.407 million | $635,000 |
| Operating loss | $5.415 million | $5.783 million |
| Gain on derivative instruments | $8.928 million | $8.123 million |
| Net income | $3.537 million | $2.342 million |
| Basic / diluted EPS | $0.02 / $0.01 | $0.02 / $0.02 |
| Net cash used in operating activities | $4.239 million | $5.838 million |
| Cash at period end | $2.387 million | $10.422 million |
The reported profit depended on a non-cash fair-value gain on warrants; operating activities remained loss-making. The company reported no product sales. No conventional interest-bearing debt balance is clearly presented in the supplied filing text. At December 31, current assets were $4.522 million and current liabilities $3.794 million, implying working capital of approximately $729,000. Total liabilities were $5.495 million, including $1.783 million in derivative liabilities.
Changes versus the prior comparable period
- R&D expense declined about $1.145 million, primarily reflecting lower clinical-trial activity; Multikine accounted for $3.940 million of current-quarter R&D expense.
- G&A expense increased about $772,000 year over year. The prior-year quarter included an approximately $1.1 million reduction in G&A from transferring certain legal-fee liabilities to litigation funder Lake Whillans; lower stock compensation partly offset this comparison.
- Net income rose approximately $1.195 million, but the company continued to report a substantial operating loss. The derivative gain reflected lower CEL-SCI share value and is not operating revenue.
- Cash fell $531,000 during the quarter, compared with a $4.696 million increase in the prior-year quarter. Quarter-end cash declined from $2.918 million at September 30, 2016.
- Common shares issued and outstanding rose from 155.962 million at September 30 to 190.931 million at December 31. The December public offering generated approximately $3.7 million net proceeds.
Outlook, risks and unusual items
- FDA partial clinical hold: FDA placed the Phase 3 trial on partial hold in 2016. Its December 16, 2016 letter deemed CEL-SCI’s response incomplete and cited unresolved concerns involving patient risk, possible futility, the investigator brochure, and study design. The company planned to seek an in-person FDA meeting and submit further information. No additional patient enrollment could occur unless the hold was lifted.
- Trial and financing needs: The company estimated approximately $13.5 million in remaining cash costs for the existing Phase 3 trial, excluding certain costs such as drug manufacturing and costs borne by partners. It had spent approximately $36 million on the trial by December 31. A larger enrollment under the proposed amended protocol, or a new pivotal trial, could materially increase costs.
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern because of recurring operating losses and future liquidity needs. It expected to seek additional capital through partnerships, debt and/or equity, while pursuing cost reductions; it cautioned that financing might not be available on acceptable terms or at all.
- Trial outcome risk: The filing warns that the hold could delay or prevent completion of the study, compromise its data, or require a new Phase 3 trial. The IDMC had previously recommended stopping new enrollment; in December it stated it had no formal recommendation while the FDA hold remained in effect.
- Litigation contingency: CEL-SCI was pursuing arbitration against former CRO inVentiv and seeking at least $50 million. inVentiv asserted counterclaims seeking at least $24 million in aggregate stated damages/disgorgement. The company called the counterclaims meritless but acknowledged an adverse ruling could materially affect its business and liquidity. Litigation funding of up to $5 million was available, repayable only from arbitration proceeds.
- Other commitments: The company reported a long-term lease for its manufacturing facility and approximately $1.7 million in related deposits that are not freely available cash. The filing provided no earnings or revenue guidance.
Important facts for investors to verify
- Subsequent FDA correspondence, the status and terms of any clinical hold, and whether enrollment or trial design changed.
- Available cash, operating cash burn, and the timing and terms of any additional financing; monitor share and warrant dilution.
- Whether the Phase 3 trial remains usable as a pivotal study and whether the estimated remaining trial cost changes.
- The progress and potential outcomes of the inVentiv arbitration, including counterclaims and litigation-funding obligations.
- The composition and valuation sensitivity of derivative liabilities and the extent to which reported earnings reflect non-cash warrant remeasurement rather than operations.