CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2015; filed August 7, 2015. The company is a clinical-stage biotechnology business and had not generated product-sale revenue.
Business context and operating results
CEL-SCI’s lead candidate, Multikine, was in a multinational Phase 3 trial for advanced primary head and neck cancer. The company also had an early-stage LEAPS program. Multikine had not been approved, and its safety and efficacy had not been established.
| Metric | Three months ended June 30, 2015 | Nine months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Grant and other income | $389,223 | $723,681 | $15,914 and $196,215, respectively |
| Operating expenses | $8.59 million | $26.68 million | $6.92 million and $19.26 million, respectively |
| Operating loss | $8.20 million | $25.96 million | $6.90 million and $19.06 million, respectively |
| Net loss | $4.43 million | $24.83 million | $2.44 million and $20.14 million, respectively |
| Basic loss per share | $0.05 | $0.32 | $0.04 and $0.38, respectively |
| Research and development expense | $5.69 million | $15.58 million | $4.45 million and $12.63 million, respectively |
| General and administrative expense | $2.85 million | $10.93 million | $2.40 million and $6.46 million, respectively |
Grant and other income reflected SBIR grant activity and timing of drug shipments to a Taiwanese partner; it was not product-sale revenue. Product margins are not applicable because the company had no product sales. The quarterly derivative gain of $4.43 million materially reduced the reported net loss; these fair-value changes are non-operating and tied to share-price movements.
Cash, liquidity, and capital structure
- Cash and cash equivalents were $11.23 million at June 30, 2015, versus $8.51 million at September 30, 2014.
- Operating cash use was $18.49 million for the nine months, compared with $17.20 million in the prior-year period. Financing provided $21.27 million, primarily from stock and warrant offerings; investing cash use was $66,000.
- Current assets were $14.67 million and current liabilities $5.27 million, giving working capital of approximately $9.40 million.
- Total liabilities were $17.57 million, including $12.16 million of derivative liabilities. The related-party loan was reported at $1.27 million, with a 9% interest rate effective July 7, 2015, maturity extended to July 2017, and conversion price changed to $0.59. The loan is secured by substantially all company assets.
- Common shares outstanding increased from 81.9 million at September 30, 2014 to 112.0 million at June 30, 2015. The May 2015 offering issued 20.25 million shares and an equal number of warrants, generating approximately $14.7 million net proceeds.
Material changes, outlook, and risks
- For the nine months, operating expenses rose by $7.42 million year over year. Management attributed much of the G&A increase to restricted-stock compensation and higher legal fees, including costs related to arbitration with the former clinical research organization (CRO).
- The Phase 3 trial had enrolled 488 patients at June 30. The company aimed to enroll 880 patients, with 784 evaluable patients required, and estimated enrollment completion in March 2016. Management projected final data readout in the second half of 2017, subject to enrollment and event timing.
- CEL-SCI reported approximately $22.5 million spent on the Phase 3 trial and estimated another $22.1 million in cash costs, excluding portions paid by licensees. The estimate could rise with enrollment pace, foreign exchange movements, or other factors.
- Management stated it expected available cash and access to capital to support operations through year-end; a note also said capital was expected to support operations for more than 12 months. However, the filing explicitly disclosed substantial doubt about the company’s ability to continue as a going concern because of recurring losses and future liquidity needs. Additional financing is required; unavailable or unfavorable financing could slow or curtail the trial and operations.
- The company sought at least $50 million in arbitration damages from its former CRO. The CRO asserted counterclaims seeking at least $24 million in aggregate stated damages or disgorgement. The hearing was tentatively rescheduled for fall 2015; management said it could not predict the outcome.
- The June quarter included a $641,276 debt-extinguishment loss related to modification of the related-party note and extension of associated warrants. The related-party nature of the financing and the warrant-linked derivative accounting merit attention.
- CEL-SCI stated that disclosure controls were effective as of June 30, 2015 and that there had been no change in internal control over financial reporting during the first nine months of fiscal 2015.
Important facts for investors to verify
- Updated cash runway, financing requirements, and the reconciliation of the filing’s through-year-end and more-than-12-month liquidity statements.
- Actual Phase 3 enrollment, completion timing, total remaining trial costs, and any changes in trial design or CRO arrangements.
- Results and timing of the CRO arbitration, including exposure to counterclaims.
- Potential dilution from outstanding warrants, options, restricted stock, and future equity financing.
- Terms, repayment status, and any further changes to the secured related-party loan.