CEL-SCI Corporation — FY2014 Form 10-K
Reporting period: Fiscal year ended September 30, 2014. CEL-SCI is a clinical-stage biotechnology company with no product sales; its lead candidate, Multikine, is in a global Phase III trial for advanced primary head and neck cancer.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Grant and other income | $264,033 | $159,583 |
| Research and development expense | $17.0 million | $12.7 million |
| General and administrative expense | $10.6 million | $7.0 million |
| Operating loss | $27.6 million | $19.9 million |
| Net loss | $27.4 million | $9.2 million |
| Net loss available to common shareholders | $28.5 million | $9.2 million |
| Basic loss per share | $0.48 | $0.30 |
| Net cash used in operating activities | $22.9 million | $13.5 million |
The company reported no product revenue. Grant and other income was immaterial relative to operating costs, so operating margins are not meaningful. A $249,000 derivative gain in FY2014 compared with $10.8 million in FY2013; the fair-value changes in warrant liabilities contributed substantially to the year-over-year difference in reported losses.
At September 30, 2014, cash and equivalents were $8.5 million, working capital was $8.5 million, total assets were $19.2 million, and total liabilities were $8.8 million. Liabilities included $5.5 million of derivative instruments and a $1.1 million related-party note. The note bears 15% interest, is secured by substantially all company assets, and was transferred to a trust of which the CEO is trustee and a beneficiary. CEL-SCI reported $28.4 million of future minimum operating lease payments and estimated another $28.2 million in remaining Phase III trial cash costs, excluding partner-funded portions.
Changes, outlook, and material developments
- R&D expense rose $4.3 million, primarily reflecting increased Phase III trial activity. G&A rose $3.6 million, including higher restricted-stock compensation, public relations, and legal costs.
- Cash increased by $8.5 million during the year, primarily through $31.5 million of net proceeds from stock sales and warrant exercises, offset by operating cash use of $22.9 million and other outflows.
- CEL-SCI said it believed available capital could support operations for more than 12 months, but also stated that additional financing would be needed to complete the trial and continue development. Failure to raise funds could delay or end the Phase III trial. Subsequent to year-end, October 2014 offerings generated approximately $6.4 million net.
- At November 30, 2014, the Phase III study had enrolled approximately 310 of a planned 880 patients. Management expected full enrollment around the end of 2015, dependent on adding sites and resolving enrollment logistics. The primary endpoint is a 10% improvement in overall survival versus standard care alone; success could support a regulatory application, subject to FDA consultation and review.
- CEL-SCI estimated $28.2 million in remaining Phase III cash costs after September 30, 2014; the estimate may rise with enrollment pace, currency movements, or other factors. Ergomed agreed to contribute up to $10 million in discounted trial services in exchange for contingent milestone and royalty payments. Other partners fund or support certain territory-specific studies.
- Multikine remains investigational and has not been approved for sale; safety and efficacy are not established. Prior small Phase II results are preliminary and do not establish efficacy. The IDMC reported no safety concerns in its 2013 review, but the company cautioned that definitive conclusions require Phase III results and regulatory review.
- Other candidates remain early stage: Multikine is being studied in a Phase I peri-anal-warts trial, while LEAPS programs include preclinical rheumatoid arthritis and influenza work. A $225,000 NIH SBIR grant was awarded for rheumatoid arthritis research.
Risks, contingencies, and unusual items
- CEL-SCI has incurred approximately $238 million in cumulative losses since inception, has limited non-product income, and expects substantial future losses and financing needs. Equity financing may materially dilute existing holders.
- As of November 30, 2014, the company reported approximately 35.9 million warrants, 6.8 million options, and a convertible note convertible into approximately 276,000 shares, in addition to 91.3 million common shares outstanding. These securities create substantial potential dilution.
- The company is pursuing arbitration against its former CRO, inVentiv, seeking at least $50 million; inVentiv counterclaimed for at least $2 million. The arbitrator denied inVentiv’s motion to dismiss certain claims, but CEL-SCI said the outcome could not be assessed.
- CEL-SCI disclosed that its October 2013 offering may have included securities not covered by the available amount under the relevant registration statement. It took steps to register the warrant shares but said regulators could still assert violations or impose penalties, and investors could bring claims.
- Clinical, regulatory, manufacturing, enrollment, competition, reimbursement, and intellectual-property risks could delay approval or prevent commercialization. The manufacturing facility lease extends to 2028, with significant continuing lease costs.
- FY2014 included $1.1 million of deemed dividend cost from shares issued under a warrant reset provision. The company also issued 15.7 million unvested incentive-plan shares, held in escrow and subject to milestones or market-price criteria; none were vested at year-end.
Important facts for investors to verify
- Subsequent Phase III enrollment, retention, trial timelines, endpoint integrity, and actual remaining study costs versus the $28.2 million estimate.
- Cash runway after the October 2014 offerings, ongoing cash burn, and the terms and availability of future financing.
- Fully diluted share count, warrant exercises or expirations, and the effect of unvested incentive shares and other equity awards.
- Updates and eventual resolution of the inVentiv arbitration and the disclosed registration-statement issue.
- Whether and when trial results support regulatory submissions; the filing provides no assurance of clinical success or approval.
BDO USA, LLP issued an unqualified audit opinion on the financial statements and internal control over financial reporting; management also reported disclosure controls and internal controls were effective as of September 30, 2014.