CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2015; filed May 8, 2015. Comparisons are with the corresponding 2014 periods unless noted. CEL-SCI is a development-stage biotechnology company with no product-sale revenue to date. Its lead candidate, Multikine, was in a global Phase 3 head-and-neck cancer trial; LEAPS remained in development. Neither candidate was approved for sale.
Financial results and liquidity
- Income: Six-month grant and other income was $334,458. Operating expenses were $18.09 million and operating loss was $17.76 million. Net loss was $20.40 million, or $0.27 per share, versus a $17.70 million net loss (including a $1.12 million charge for reset-related shares) and $0.36 loss per share in 2014. For the quarter, income was $197,620, operating loss $7.76 million, and net loss $12.56 million ($0.17 per share), compared with a $13.37 million net loss ($0.24 per share) in 2014. Product revenue and gross margin were not reported.
- Costs and margins: Six-month R&D expense rose 21% to $9.89 million; G&A rose to $8.09 million from $4.06 million. Operating loss increased to $17.76 million from $12.16 million. G&A growth included approximately $3.04 million more employee stock-compensation expense and $872,000 more legal fees. Stock compensation for employees was $3.95 million versus $1.03 million.
- Cash flow: Operating activities used $12.24 million and investing activities used $58,474. Financing provided $6.40 million, primarily from stock and warrant offerings. Cash fell $5.90 million from $8.51 million at September 30, 2014 to $2.61 million at March 31, 2015.
- Balance sheet and obligations: Current assets were $5.70 million and current liabilities $3.68 million; total assets were $12.73 million, total liabilities $12.38 million, and stockholders’ equity only $343,056. Derivative liabilities totaled $8.59 million and are remeasured at fair value. The related-party loan was $1.10 million, bears 15% interest, is secured by substantially all assets, and may be demanded on at least 10 days’ notice; its stated maturity was extended to July 6, 2015. Common shares outstanding rose from 81.9 million at September 30 to 91.5 million at March 31; 91.6 million were reported outstanding May 1.
Changes, outlook and material risks
- The October 2014 stock-and-warrant offerings raised approximately $6.4 million net. No derivative warrants were exercised in the six months. The company said on May 6, 2015 that it had commenced an underwritten $35 million common-stock offering; completion and terms were not assured.
- Management stated there is substantial doubt about the company’s ability to continue as a going concern because of recurring losses and future liquidity needs. It expects to require additional capital; without it, clinical work could be delayed, reduced or curtailed. The filing does not provide a clear cash-runway estimate.
- The company estimated approximately $24.4 million of remaining Phase 3 trial costs after March 31, excluding partner-paid costs, in addition to approximately $20.2 million already spent. Costs could rise with enrollment pace, foreign exchange or other factors. As of April 30, 437 patients were enrolled; the company estimated completion of 880-patient enrollment by March 2016 and a possible final data readout in the second half of 2017, subject to enrollment and event timing. The primary endpoint is a 10% overall-survival improvement; 784 evaluable patients are required. Up to 117 patients enrolled under the former CRO may not be evaluable, and replacements could extend enrollment.
- A dispute with former CRO inVentiv was in arbitration. CEL-SCI sought at least $50 million in damages; inVentiv asserted counterclaims seeking at least $24 million in aggregate stated damages/disgorgement. CEL-SCI said it considered the counterclaims meritless, but an adverse outcome could materially affect its business and liquidity. The hearing was tentatively scheduled for October 27–November 17, 2015.
- Ergomed’s clinical-service discounts may total up to $16 million across development programs, in exchange for specified royalties and license-payment participation; this arrangement may create future economic obligations if products are commercialized. The company also reported no significant market-risk exposure apart from its 15% related-party loan and stated disclosure controls were effective.
Most important facts for investors to verify
- Whether the announced $35 million offering closed, its net proceeds, and resulting dilution and warrant terms.
- Cash needs and financing availability relative to the estimated $24.4 million remaining Phase 3 cost and the substantial-doubt going-concern disclosure.
- Trial enrollment, evaluability of the former CRO’s patients, projected completion/readout dates, and whether trial costs exceed estimates.
- Outcome and potential financial impact of the inVentiv arbitration and counterclaims.
- Valuation and potential dilution associated with the $8.59 million derivative liability, and repayment or extension status of the secured, demandable related-party loan.