CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2019; comparisons are with the three months ended December 31, 2018. The balance sheet comparison is with September 30, 2019. Financial statements are unaudited.
Business context
CEL-SCI is a clinical-stage biotechnology company developing Multikine, an investigational therapy in a global Phase 3 head-and-neck cancer trial, and preclinical LEAPS technology. The company reports no product sales and says it cannot predict when development projects will generate revenue. Multikine is not approved, and its safety and efficacy have not been established.
Financial performance and liquidity
- Revenue: No product revenue was reported. Grant income was $35,506, down from $126,414.
- Expenses and results: R&D expense was $4.20 million, up 21%; general and administrative expense was $2.64 million, up 56%. Operating loss widened to $6.80 million from $5.03 million. Net loss was $5.48 million, or $0.16 per basic and diluted share, versus net income of $1.25 million, or $0.04 basic and $0.02 diluted per share.
- Drivers of net result: The company recorded a $0.77 million gain on derivative instruments, compared with $5.56 million a year earlier. Other non-operating gains were $0.79 million versus $1.15 million; net interest expense was $0.25 million versus $0.45 million. No meaningful operating margin is reported because the company has no product sales.
- Cash flow: Operating cash use was $4.10 million, compared with $4.16 million. Investing cash use was $0.11 million. Financing provided $5.15 million, principally from a $5.0 million public stock offering and $0.30 million of warrant exercises. Cash increased $0.94 million to $9.38 million.
- Balance sheet: Current assets were $10.75 million, including $9.38 million cash; current liabilities were $4.57 million. Total liabilities were $22.54 million and stockholders’ equity was $6.97 million. Finance lease obligations were $13.28 million and operating lease obligations were $0.97 million. Derivative liabilities totaled $5.72 million; they are fair-value liabilities, not conventional borrowings.
- Share count: 35.995 million common shares were issued and outstanding at December 31, 2019; 36.390 million were outstanding February 5, 2020. The December offering and warrant exercises contributed to dilution.
Material changes versus the prior period
- The company moved from prior-year quarterly net income to a quarterly net loss, with a smaller derivative gain substantially affecting the comparison.
- R&D spending rose partly because of about $0.7 million in manufacturing-facility preparation costs, increased employee stock compensation, and higher depreciation; these increases were partly offset by lower ongoing Phase 3 trial costs.
- G&A increased mainly because employee stock compensation rose by about $0.7 million. Total employee stock-compensation expense increased to $1.80 million from $0.57 million.
- Cash was higher than at September 30, 2019, primarily due to the equity offering, while operating cash use remained substantial.
- Adoption of lease accounting standard ASC 842 added lease right-of-use assets and liabilities; prior-period figures were not restated.
Outlook, risks and notable items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and future liquidity needs. It expects to pursue cost reductions and additional funding; financing may include partnerships, warrant exercises, debt or equity. There is no assurance funds will be available on acceptable terms or in time, and operations may need to be curtailed if funding is insufficient.
- The Phase 3 trial was fully enrolled at 928 patients, who had completed treatment. The primary endpoint is a 10% improvement in overall survival between the two main comparator groups; assessment is due at 298 deaths in those groups. The company estimated approximately $3.3 million of additional direct trial costs, excluding related costs such as drug manufacturing; actual costs could be higher.
- The company had incurred approximately $57.0 million in direct Phase 3 trial costs through December 31, 2019. Ergomed had contributed about $10.8 million of the up-to-$12 million in discounted clinical services under its agreement.
- In January 2020, underwriters exercised the offering’s over-allotment option, generating approximately $0.77 million in additional net proceeds.
- Disclosure controls and procedures were determined not effective. Management identified a material weakness after the prior Form 10-K filed with the SEC omitted the statements of cash flows from the EDGAR filing, although they were included in the XBRL files. Management proposed comparing final EDGAR proofs with the reports provided to the filing service.
- Management said it had no significant market-risk exposures. The company recorded a full valuation allowance against deferred tax assets.
Most important facts for investors to verify
- Cash runway, actual quarterly spending, and whether the company can secure financing sufficient to continue operations and complete the trial.
- Phase 3 death accumulation, timing of the 298-death analysis, endpoint results, and any changes to the remaining trial-cost estimate.
- Manufacturing readiness and additional costs required before a potential BLA submission; Multikine remains investigational and unapproved.
- Potential dilution from outstanding warrants, options, future financing, and the effect of lease and other obligations on liquidity.
- Whether management remediates the disclosed material weakness and whether subsequent filings demonstrate effective controls.