CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Third quarter and nine months ended June 30, 2011; filed August 9, 2011. The company is a clinical-stage biotechnology business developing Multikine and L.E.A.P.S. It had not generated revenue from product sales.
Financial performance and position
| Metric | Three months ended June 30, 2011 | Nine months ended June 30, 2011 |
|---|---|---|
| Revenue | $77,403 | $784,036 |
| Operating expenses | $4.92 million | $15.04 million |
| Operating loss | $4.85 million | $14.26 million |
| Net loss | $3.11 million | $23.39 million |
| Net loss per common share, basic | $0.01 | $0.12 |
| Cash used in operating activities | Not separately reported for the quarter | $17.72 million |
Revenue was grant and other income; the nine-month total included $717,298 earned under a federal therapeutic-discovery grant. No product-sale revenue was reported. Margins are not meaningful given the company’s pre-commercial status and minimal revenue.
Research and development expense was $2.92 million for the quarter and $9.23 million for nine months, mainly related to Multikine. General and administrative expense was $1.86 million and $5.41 million, respectively. The nine-month net loss included $12.0 million of other expense associated with the legal settlement and was partly offset by a $2.88 million non-cash gain on derivative instruments.
At June 30, 2011, cash and cash equivalents were $10.58 million, down from $26.57 million at September 30, 2010. Current assets were $15.57 million and current liabilities $11.02 million. Total liabilities were $14.56 million; stockholders’ equity was $9.18 million. Derivative liabilities totaled $11.85 million, including settlement securities carried at fair value. The company also owed its president $1.10 million under a secured loan bearing 15% annual interest.
Net cash used in operating activities was $17.72 million, compared with $9.06 million in the prior-year nine-month period. Investing activities used $0.20 million; financing activities provided $1.93 million, including $2.34 million from stock sales, partly offset by a $1.02 million preferred-stock repurchase. The filing reports no separate quarterly cash-flow figures.
Material changes versus comparable periods
- Nine-month revenue increased from $91,500 to $784,036, reflecting grant income; the prior period included rent income from a facility sublease.
- Nine-month R&D expense rose $1.50 million, and quarterly R&D expense rose $1.34 million, as the Multikine Phase III trial proceeded.
- Nine-month operating loss increased from $12.97 million to $14.26 million. Quarterly operating loss widened from $3.39 million to $4.85 million.
- Nine-month results moved from $17.81 million net income to a $23.39 million net loss. The prior-year result benefited from a $30.61 million derivative gain; the current period included $12.0 million of other expense related to the settlement and a smaller derivative gain.
- Cash fell by $15.99 million during the nine months, compared with a $3.09 million decline in the prior-year period. Common shares outstanding were 210.58 million at June 30, versus 204.87 million at September 30, 2010; 212.75 million were reported outstanding on August 3, 2011.
Outlook, risks, contingencies, and unusual items
- Management estimated the company’s net cost for the Multikine Phase III trial at $25–$26 million. The trial began in December 2010; two partners agreed to fund part of it.
- Management said cash on hand and access to the MLV at-the-market sales agreement, which permits up to $30 million in common-stock sales, were expected to support operations for more than 12 months. This depends on access to capital and continued funding; the filing gives no assurance that additional funds can be raised.
- The May 2011 settlement ended litigation brought by 13 hedge funds. CEL-SCI paid $3 million in cash and issued $9 million of securities: senior secured convertible notes and redeemable Series A preferred stock. The securities carry 8% interest/dividends and are scheduled for monthly redemptions through March 2012, subject to conversion or repayment. They are convertible at $0.67 per share; all company assets were pledged as collateral. While they remain outstanding, the company faces restrictions on new debt, dividends, certain existing-debt payments, and asset transfers.
- Management said settlement cash outlays over the following eight months could be reduced by up to $7 million if the share price stayed above the $0.67 conversion price and holders converted securities. Actual cash requirements therefore depend partly on the share price and holder decisions.
- The company reported that it needed additional capital to continue research and that clinical-trial completion, FDA approval, and eventual product revenue were uncertain. Its 73,000-square-foot manufacturing facility is subject to a 20-year lease with escalating rent and additional operating costs.
- Derivative liabilities are measured at fair value, with changes recorded in earnings; gains and losses can fluctuate with CEL-SCI’s share price. The company’s disclosure controls were reported effective as of June 30, 2011, with no reported change in internal control during the nine-month period.
- After quarter-end, the company announced an expanded Multikine licensing agreement with Teva covering Croatia and Serbia in addition to Israel and Turkey. Teva was to fund registration and selling costs in the added markets; milestone payments depend on approval, and revenues are to be shared.
Most important facts for investors to verify
- Cash burn, remaining cash runway, and actual availability and use of the MLV equity facility.
- Settlement repayment schedule, conversions or redemptions, collateral and covenant compliance, and any resulting dilution.
- Progress, enrollment, cost, and funding contributions for the Multikine Phase III trial, as well as clinical and regulatory milestones.
- Fair-value assumptions and future earnings effects for the $11.85 million derivative liability balance.
- Whether the Teva expansion produces approvals, milestone payments, and commercial revenue; no product-sale revenue was reported in this quarter.