CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2016 (fiscal 2016 third quarter); filed August 9, 2016. Unaudited financial statements.
Business context
CEL-SCI is a development-stage biotechnology company with no product sales to date. Its lead investigational therapy, Multikine, was in a multinational Phase 3 trial for advanced primary head and neck cancer; LEAPS remained preclinical. Multikine was not approved, and its safety and efficacy had not been established.
Financial results and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Grant and other income | 2016: $130,000; 2015: $389,000 | 2016: $184,000; 2015: $724,000 |
| Operating expenses | 2016: $6.51 million; 2015: $8.59 million | 2016: $18.62 million; 2015: $26.68 million |
| Operating loss | 2016: $6.38 million; 2015: $8.20 million | 2016: $18.44 million; 2015: $25.96 million |
| Net loss | 2016: $3.85 million; 2015: $4.43 million | 2016: $10.35 million; 2015: $24.83 million |
| Loss per share | 2016: $0.03; 2015: $0.03 basic (2015 diluted: $0.06) | 2016: $0.09; 2015: $0.32 |
| Operating cash used | Nine months 2016: $16.22 million; 2015: $18.49 million |
Net loss benefited from an $8.04 million gain on warrant derivative liabilities in the first nine months of 2016; this non-cash fair-value gain does not represent operating revenue. Research and development expense was $14.64 million for the nine months, primarily for Multikine.
At June 30, cash and equivalents were $5.22 million, current assets $8.58 million, and current liabilities $5.28 million (working capital about $3.30 million). Total liabilities were $18.25 million, including $12.82 million of derivative liabilities. The $1.10 million related-party loan was repaid in January 2016. Stockholders’ deficit was $3.77 million. Cash decreased $508,000 over the nine-month period, as $15.75 million of financing cash flow largely offset $16.22 million of operating cash use and $36,000 of investing cash use.
Material changes and financing
- Compared with the prior-year periods, operating expenses and losses declined. Management attributed lower general and administrative expense mainly to reduced legal fees and share-based employee compensation; nine-month expense also reflected a roughly $1.1 million gain from transferring certain legal-fee liability to litigation funder Lake Whillans.
- Grant and other income declined, which the company attributed primarily to timing of study-drug shipments to its Taiwan partner and SBIR grant income received in the prior-year quarter.
- Net proceeds from equity and warrant sales were about $16.8 million in the nine months. Offerings included an October 2015 public offering (about $10.5 million net), sales to the de Clara Trust and another investor, and a May 2016 registered direct offering (about $4.6 million net).
- Common shares outstanding increased from 112.36 million at September 30, 2015 to 145.15 million at June 30, 2016; 145.35 million were outstanding August 1. Warrants and other potentially dilutive securities add substantial further potential dilution.
Outlook, risks and contingencies
- Management said cash on hand and anticipated access to capital markets should support operations through year-end, but stated additional capital or long-term financing is needed to continue research. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Financing may not be available on acceptable terms or when needed; absent funding, the company may slow or curtail the Phase 3 trial or operations.
- As of June 30, 848 patients had been enrolled in the Phase 3 study. The company estimated approximately $14.7 million of remaining trial cash costs, excluding portions paid by Teva and Orient Europharma, in addition to about $31.9 million already spent. Costs and timing could increase, including if patients enrolled by former CRO inVentiv must be replaced or their data is unusable.
- The company was seeking at least $50 million in arbitration damages from former CRO inVentiv and estimated its damages at more than $150 million. inVentiv asserted multiple counterclaims, including claims seeking at least $24 million in stated damages or disgorgement. The company disputed the counterclaims; an adverse outcome could materially affect its business, financial condition, and liquidity. The arbitration hearing was scheduled to begin September 7, 2016. Litigation proceeds were not assured.
- No specific revenue or earnings guidance was provided. The company stated it could not predict when products might generate sales; clinical completion, regulatory approval, and sufficient financing remain uncertain.
- Management reported disclosure controls were effective as of June 30, 2016 and no change in internal control over financial reporting during the nine-month period.
Most important facts for investors to verify
- Current cash needs, financing availability, and the basis for management’s through-year-end liquidity expectation given the going-concern warning.
- Phase 3 enrollment, timeline, remaining-cost estimate, partner contributions, and whether any inVentiv-era patient data will require replacement.
- Potential dilution from outstanding warrants, options, and other securities, including terms and exercise timing.
- Progress and potential financial exposure in the inVentiv arbitration and counterclaims, and any proceeds or costs under the Lake Whillans arrangement.
- Whether reported loss improvements persist apart from non-cash derivative gains and one-time legal-fee effects.