CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2018. The financial statements are unaudited. CEL-SCI is a development-stage biotechnology company; it reported no product sales and is developing Multikine and preclinical LEAPS technology.
Financial results and liquidity
| Metric | Three months ended March 31, 2018 | Six months ended March 31, 2018 | Prior-year comparable |
|---|---|---|---|
| Grant and other income | $132,000 | $246,000 | $17,000; $34,000 |
| Research and development expense | $2.96 million | $5.29 million | $6.58 million; $10.13 million |
| General and administrative expense | $1.38 million | $4.07 million | $1.35 million; $2.75 million |
| Operating loss | $4.21 million | $9.12 million | $7.91 million; $12.84 million |
| Net loss | $4.71 million | $10.90 million | $8.43 million; $4.91 million |
| Basic loss per share | $0.31 | $0.81 | $1.15; $0.74 |
| Net cash used in operating activities | Not separately stated | $6.37 million | $7.23 million |
Amounts in the prior-year column are shown in the same order: three months and six months, respectively, except cash flow, which is for six months.
- Cash and cash equivalents were $3.06 million at March 31, up from $2.37 million at September 30, 2017. Six-month financing provided $7.06 million, primarily from stock and warrant offerings; cash increased by $693,000 overall.
- Current assets were $4.71 million and current liabilities $10.86 million, implying a working capital deficit of approximately $6.15 million. Total liabilities were $26.15 million; stockholders’ deficit was $3.06 million.
- Notes payable were $1.18 million current, and the San Tomas lease financing liability was $13.30 million. The company also reported $1.86 million of warrant derivative liabilities.
- The company had no product-sales revenue. Six-month interest expense was $1.98 million. No operating margin is meaningful given the absence of product sales and continuing losses.
Changes versus the prior comparable period
- Six-month R&D expense fell $4.84 million, primarily because the Phase 3 trial was fully enrolled and enrollment-related costs declined. Quarterly R&D expense fell $3.62 million.
- Six-month G&A expense rose $1.32 million, mainly due to higher equity compensation and other administrative costs. Quarterly G&A was broadly unchanged.
- Six-month net loss increased from $4.91 million to $10.90 million. The comparison was affected by a much smaller derivative gain in 2018 ($197,000 versus $8.88 million in 2017) and higher interest expense. For the quarter, net loss improved to $4.71 million from $8.43 million, reflecting lower R&D expense and a $1.15 million derivative gain.
- Six-month operating cash use decreased to $6.37 million from $7.23 million, while financing proceeds increased cash. Common shares outstanding rose from 11.90 million at September 30 to 16.62 million at March 31; 16.90 million were reported outstanding on May 14, 2018.
Outlook, risks and unusual items
- Management stated that recurring operating losses, negative working capital, stockholders’ deficit and future funding needs create substantial doubt about the company’s ability to continue as a going concern. The company expects to need additional capital and said it is pursuing partnerships, debt and/or equity financing and cost-cutting measures; there is no assurance funding will be available on acceptable terms or in time.
- Multikine’s multinational Phase 3 head-and-neck cancer trial was fully enrolled, with 928 patients having completed treatment. The primary endpoint is assessed after 298 deaths in the two main comparator groups. The company estimated $10.5 million of remaining direct trial costs, based on available CRO contracts; this excludes other costs, including drug manufacturing, and actual costs may be higher.
- Multikine has not been approved by the FDA or another regulator, and its safety and efficacy have not been established. The company cannot predict when it will generate product revenue.
- In the arbitration with former CRO inVentiv, closing arguments concluded April 25, 2018, and a decision was pending. CEL-SCI seeks at least $50 million; inVentiv has asserted counterclaims seeking damages and other relief. The filing says an adverse result on counterclaims could materially affect the company. Litigation funding is repayable only if the company receives arbitration proceeds.
- Interest expense included approximately $1.0 million of amortized discounts on restructured convertible notes for the six months. A January 2018 share issuance to Ergomed in exchange for forbearance of payables resulted in an approximately $0.8 million net expense in the quarter after resale proceeds.
- Convertible notes were extended to September 21, 2018 and are secured by a first lien on company assets. The company raised approximately $7.1 million net from private offerings during the six months. Warrants and options may create substantial dilution; 12.38 million options and warrants and 1.08 million shares underlying convertible debt were excluded from diluted loss per share as anti-dilutive.
Important facts for investors to verify
- Available cash, operating cash use and the timing and terms of additional financing, given the disclosed going-concern uncertainty.
- Actual remaining Phase 3 trial costs, timing of the 298-death endpoint and any manufacturing or other costs excluded from the estimate.
- The arbitrator’s decision, potential exposure under inVentiv’s counterclaims and any effect on liquidity.
- Debt repayment or conversion terms, asset lien coverage, upcoming maturities and the potential dilution from outstanding warrants, options and convertible notes.
- Progress toward regulatory approval and the clinical evidence supporting Multikine, which remains investigational and generates no product-sales revenue.