CEL-SCI Corporation (NYSE American: CVM) — Form 10-Q
Reporting period: Three and six months ended March 31, 2020, the second quarter and first half of fiscal 2020. Filed May 8, 2020. CEL-SCI is a clinical-stage biotechnology company; its lead investigational therapy, Multikine, is in a Phase 3 head-and-neck cancer trial. The company also develops preclinical LEAPS technology. Neither product has regulatory approval, and the filing reports no product sales.
Financial performance and position
- Revenue: Grant income was $298,726 for the quarter and $334,232 for six months, versus $150,769 and $277,183, respectively, in 2019. Grant income is not product revenue.
- Quarterly results: R&D expense was $4.40 million, G&A was $2.56 million, operating loss was $6.66 million, and net loss was $9.01 million ($0.25 per basic and diluted share). The prior-year quarter’s net loss was $6.45 million ($0.22 per share).
- Six-month results: R&D expense was $8.60 million, G&A was $5.20 million, operating loss was $13.46 million, and net loss was $14.49 million. Net loss available to common shareholders, including a $21,734 warrant-modification charge, was $14.51 million, or $0.41 per share. The comparable 2019 net loss was $5.20 million, or $0.18 per share.
- Cash flow: Six-month operating cash use was $7.99 million, investing cash use was $0.77 million, and financing provided $14.64 million. Cash increased $5.89 million to $14.33 million from September 30, 2019. Financing included $12.92 million of common-stock proceeds and $2.07 million from warrant exercises.
- Liquidity: At March 31, cash was $14.33 million, current assets were $15.81 million, current liabilities were $5.27 million, and working capital was approximately $10.54 million. Management states additional capital is required and that recurring losses and future liquidity needs create substantial doubt about the company’s ability to continue as a going concern.
- Liabilities and equity: Total liabilities were $22.51 million. Finance lease obligations totaled approximately $13.10 million, operating lease obligations approximately $0.92 million, and derivative liabilities $6.22 million. Stockholders’ equity was $12.21 million. The filing does not provide a clear separate figure for conventional borrowings.
Material changes versus prior periods
- Six-month net loss rose from $5.20 million to $14.49 million; quarterly net loss increased from $6.45 million to $9.01 million.
- Six-month R&D expense increased 36% to $8.60 million. Management attributed the increase primarily to manufacturing-facility preparation for potential commercial production, higher employee stock compensation, and depreciation; lower Phase 3 trial expense partly offset the increases.
- Six-month G&A expense increased 57% to $5.20 million, primarily due to higher employee stock compensation.
- Derivative accounting shifted from a $4.59 million gain in the prior-year six-month period to a $2.28 million loss in 2020, reflecting changes in warrant fair values, mainly linked to the share price. These non-cash valuation changes materially affected reported results.
- Cash improved from $8.44 million at September 30, 2019, largely due to equity financing and warrant exercises. Shares outstanding rose from 35.23 million to 37.34 million by March 31; 37.63 million were outstanding May 5.
Outlook, risks, and unusual items
- Management said it was in the final stages of the Multikine Phase 3 trial, with 928 patients enrolled and treated. The study’s endpoint is a 10% improvement in overall survival between the two principal comparator groups, assessed at 298 deaths. The company announced on May 4, 2020 that the 298-death threshold had been reached; the filing does not report the outcome of the endpoint analysis.
- CEL-SCI estimated approximately $3.2 million of additional direct Phase 3 trial expenses, excluding related costs such as drug manufacturing. It cautioned actual trial costs could be higher.
- The company plans to seek additional funding through partnerships, warrant exercises, debt, and/or equity. Management said it was pursuing cost reductions and funding for the next 12 months, but warned that financing may not be available on acceptable terms or at all; operations could be curtailed if funds are insufficient.
- COVID-19 impacts were uncertain. Management could not estimate the effect on fiscal 2020 results, financial condition, or liquidity and warned a prolonged pandemic could adversely affect them. The company did not expect the CARES Act to have a material financial impact.
- March 2020 public offering proceeds were approximately $7.1 million net; the underwriter exercised its over-allotment option in May, adding approximately $1.1 million. December 2019 offering proceeds, including the January over-allotment, were approximately $5.8 million net in total.
- The company adopted lease accounting standard ASC 842 on October 1, 2019, recognizing finance and operating right-of-use assets and lease liabilities. The principal manufacturing-facility lease runs through October 2028 and requires significant future payments.
- Management identified a material weakness in internal control over financial reporting after the 2019 Form 10-K omitted the complete statements of cash flows from the filed document. Management concluded disclosure controls and internal control over financial reporting were ineffective as of March 31, 2020 and described planned review improvements.
Most important facts for investors to verify
- Whether the Phase 3 trial met its survival endpoint and the timing and content of the full results analysis.
- Cash runway, the timing and amount of additional financing required, and whether funding is secured on acceptable terms.
- Whether projected remaining trial costs include all relevant costs, especially manufacturing and other associated expenses.
- Potential operational, trial, supplier, or financing effects from COVID-19 and any subsequent developments.
- Progress in remediating the material weakness and restoring effective reporting controls.
- Potential dilution from future equity offerings, warrant exercises, and outstanding options and warrants.