CEL SCI CORP quarterly report, Q2 FY2014

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CEL-SCI Corporation — Form 10-Q Summary

Reporting period: Quarter and six months ended March 31, 2014; filed May 12, 2014. Financial statements are unaudited. CEL-SCI is a development-stage biotechnology company with no product-sales revenue.

Financial performance and position

  • Revenue and margins: No product-sales revenue was reported. Other income was $67,157 for the quarter and $180,301 for the six months; management says it varies with drug shipments to a Taiwan partner. Gross margins are not applicable based on the reported results.
  • Operating expenses: Quarterly R&D was $4.154 million and G&A was $2.088 million, bringing total operating expenses to $6.294 million. For six months, R&D was $8.174 million, G&A was $4.059 million, and total operating expenses were $12.341 million.
  • Losses: Quarterly net loss was $13.366 million, or $0.24 per share. Six-month net loss was $17.700 million; net loss available to common shareholders was $18.817 million, or $0.36 per share, including a $1.117 million deemed dividend related to warrant reset provisions.
  • Derivative remeasurement: The company recorded a $7.132 million derivative loss for the quarter and a $5.522 million loss for the six months, versus gains of $3.538 million and $6.284 million, respectively, in the comparable 2013 periods. These fair-value changes substantially affected reported losses and are not equivalent to operating cash outflows.
  • Cash flow: Six-month operating cash use was $11.174 million, compared with $6.673 million in 2013. Financing provided $21.790 million, including $19.286 million from stock and warrant issuances and $2.509 million from warrant exercises. Cash increased by $10.564 million to $10.606 million; investing cash use was $53,000.
  • Liquidity and liabilities: At March 31, cash was $10.606 million, current assets $13.850 million, and current liabilities $3.321 million, implying working capital of approximately $10.529 million. Total liabilities were $14.463 million, including $10.992 million of derivative liabilities. The balance sheet also included a $1.104 million related-party loan.
  • Equity and dilution: Common shares issued and outstanding rose from 31.025 million at September 30, 2013 to 58.277 million at March 31, 2014. The cover page reports 65.937 million shares outstanding as of May 6, 2014.

Changes versus the prior comparable period

  • Quarterly R&D rose approximately $1.638 million and G&A rose approximately $439,000 year over year. For the six months, R&D increased approximately $2.734 million and G&A approximately $409,000. Management attributed R&D changes to Phase III trial activity and higher G&A mainly to public-relations costs and legal fees.
  • Quarterly net loss increased from $713,000 to $13.366 million; six-month net loss increased from $3.024 million to $17.700 million. The reversal from derivative gains to losses was a major contributor.
  • Cash at March 31, 2014 was $10.606 million, versus $6.986 million at March 31, 2013. The company raised more financing during the 2014 six-month period, while operating cash use also increased.

Outlook, risks and unusual items

  • Clinical program: Multikine is in a multinational Phase III trial for advanced primary head and neck cancer. The company reported 161 patients enrolled by March 31, 2014, planned enrollment of 880, and expected full enrollment by the end of 2015. It anticipated adding 50–60 sites. Multikine is investigational and has not been approved by the FDA or established as safe or effective.
  • Funding and trial costs: Management said available capital was expected to support operations through spring 2015 and disclosed an April 2014 financing. Approximately $12.8 million had been spent on direct Phase III trial costs; estimated remaining cash cost was about $31.8 million, subject to enrollment, foreign-exchange and other uncertainties. The company expects to need additional capital; failure to obtain it could delay the trial or curtail operations.
  • Subsequent financing: In April 2014, the company reported approximately $9.23 million net proceeds from a public offering and approximately $610,000 from warrant exercises—about $9.84 million combined. The offering included 7.128 million common shares and warrants for 1.782 million shares, creating potential dilution.
  • Development and regulatory risk: All projects remain under development, and the company cannot predict when it will generate product revenue. Trial completion, regulatory approval, financing availability, and eventual commercial revenues are uncertain.
  • Litigation: The company initiated arbitration against former CRO inVentiv, alleging contract and fraud claims and seeking at least $50 million. inVentiv counterclaimed, alleging breach of contract and seeking at least $2 million. The company said the matter was preliminary and its outcome could not be assessed.
  • Debt and contingencies: The $1.104 million loan from the company’s president bears 15% interest, is secured by substantially all assets, and may be demanded on at least 10 days’ notice. The filing also describes substantial lease commitments, including a 20-year manufacturing-facility lease.
  • Warrant accounting: Derivative liabilities rose from $433,000 at September 30, 2013 to $10.992 million at March 31, 2014, primarily reflecting Series S warrants and fair-value accounting. The company’s share-price movements can cause material earnings volatility.
  • Controls: Management concluded disclosure controls were effective as of March 31, 2014 and reported no change in internal control over financial reporting during the quarter or six-month period.

Most important facts for investors to verify

  • Whether Phase III enrollment accelerated as expected, and whether the end-2015 enrollment target and estimated remaining trial cost remain achievable.
  • Cash runway after the April financing, actual ongoing cash burn, and the timing and terms of future financing needs.
  • The potential effects of outstanding warrants and future equity offerings on dilution and derivative-liability remeasurement.
  • Progress and possible financial exposure in the inVentiv arbitration and counterclaim.
  • Related-party loan repayment terms, including the 15% interest rate and demand provision, and the company’s ability to meet its obligations.