CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Three months ended December 31, 2018, the company’s fiscal first quarter. Comparative results are for the three months ended December 31, 2017. The interim financial statements are unaudited.
Business context
CEL-SCI is a development-stage biotechnology company. Its lead candidate, Multikine, is being evaluated in a multinational Phase 3 head-and-neck cancer trial; its LEAPS technology is preclinical. The company reported no product-sales revenue and said it cannot predict when it will generate product revenue. Multikine is investigational and is not approved by the FDA or another regulator.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2018 | Quarter ended Dec. 31, 2017 |
|---|---|---|
| Grant income | $126,414 | $96,315 |
| Research and development expense | $3.13 million | $2.33 million |
| General and administrative expense | $2.03 million | $2.70 million |
| Operating loss | $5.03 million | $4.93 million |
| Net income (loss) | $1.25 million | $(6.19) million |
| Basic / diluted earnings (loss) per share | $0.04 / $0.02 | $(0.53) / $(0.53) |
| Net cash used in operations | $4.16 million | $2.61 million |
Quarterly net income was not evidence of operating profitability: it included a $5.56 million gain from changes in the fair value of warrant derivative liabilities and approximately $1.15 million in other non-operating gains. The derivative gain was primarily driven by changes in CEL-SCI’s share price. Operating loss widened modestly year over year as R&D spending increased; lower G&A expense partly offset that increase. Multikine R&D was $2.94 million, versus $2.22 million, and LEAPS R&D was $189,000, versus $106,000. The filing does not present a meaningful product-sales margin.
Cash and cash equivalents fell from $10.31 million at September 30, 2018 to $6.68 million at December 31, 2018, a decrease of $3.63 million. Operating cash use was partly offset by $650,000 of warrant-exercise proceeds; investing cash use was $72,000. Current assets were $7.93 million and current liabilities were $5.89 million at quarter-end. Total liabilities were $23.23 million, including a $13.41 million financing lease liability and $3.76 million in derivative liabilities. The company also reported a $1.67 million lease deposit as a non-current asset.
Material changes and notable items
- R&D expense rose approximately $806,000 year over year, primarily reflecting the ongoing Phase 3 trial. G&A expense fell approximately $671,000, mainly because 2017 included about $1.1 million of compensation expense under the 2014 Incentive Stock Bonus Plan that was not incurred in 2018.
- The derivative-liability fair-value gain was $5.56 million, compared with a $958,000 loss in the prior-year quarter. Warrant liabilities declined to $3.76 million from $9.32 million at September 30, 2018; certain Series DD and EE warrants expired during the quarter.
- The company reported 928 patients enrolled and treated in the Phase 3 study. The stated endpoint is a 10% improvement in overall survival for the Multikine group versus the comparator group, assessed after 298 deaths in the two main groups.
- CEL-SCI had incurred approximately $52.6 million in direct Phase 3 trial costs through December 31, 2018 and estimated another $6.4 million for the remainder of the trial. That estimate excludes other related costs, including drug manufacturing, and could increase due to trial events, foreign exchange, or other factors.
- Warrants exercised during the quarter generated approximately $650,000. After quarter-end, CEL-SCI agreed to issue Ergomed 500,000 restricted shares to settle amounts owed and cover future bills. From January 1 through February 13, 2019, it received approximately $2.1 million from warrant exercises.
Outlook, risks and contingencies
Management said additional capital or long-term financing is required to continue research and fund the Phase 3 study. It planned to seek funding through corporate partnerships, debt and/or equity, while pursuing cost reductions and other funding sources. Management expressed its belief that it could obtain financing based on its past fundraising and Multikine’s Phase 3 status, but gave no assurance that funding would be timely, available on acceptable terms, or available at all. Failure to raise sufficient capital could require curtailing operations.
The filing states there is substantial doubt about CEL-SCI’s ability to continue as a going concern because of recurring operating losses and future liquidity needs. It depends on financing while its candidates remain under development and face clinical, regulatory and commercialization uncertainty. The company also has substantial lease commitments: future minimum payments on the San Tomas facility lease were approximately $20.93 million before imputed interest, with a reported net present financing obligation of approximately $13.41 million. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Phase 3 trial reaches its 298-death analysis point, meets its survival endpoint, and stays within the stated cost estimate.
- Cash runway, near-term payment obligations—including amounts due to clinical research providers—and the timing and terms of additional financing.
- How much of reported earnings reflects noncash warrant remeasurement and other non-operating gains rather than recurring operations.
- The impact of warrant exercises, potential dilution, and the 500,000-share Ergomed arrangement; the filing reports 27,843,327 shares outstanding at December 31, 2018 and 29,567,053 at February 13, 2019.
- Regulatory progress and any updates to Multikine’s investigational status, trial results, or estimated remaining trial costs.