CEL-SCI Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited report for the quarter and six months ended March 31, 2017. CEL-SCI is a clinical-stage biotechnology company developing Multikine, its lead investigational therapy, and preclinical LEAPS technology. It had no product-sale revenue; the six-month statement reports $34,433 of grant and other income.
Financial results and liquidity
| Metric | Three months ended March 31, 2017 | Six months ended March 31, 2017 | Comparable 2016 period |
|---|---|---|---|
| Research and development | $7.06 million | $11.08 million | $4.63 million / $9.80 million |
| General and administrative | $1.35 million | $2.75 million | $1.68 million / $2.31 million |
| Operating loss | $8.38 million | $13.80 million | $6.27 million / $12.06 million |
| Net loss | $8.41 million | $4.87 million | $8.84 million / $6.50 million |
| Basic and diluted loss per share | $0.05 | $0.03 | $0.07 / $0.06 |
| Net cash used in operations | Not presented separately | $7.23 million | $10.80 million |
The six-month net loss includes an $8.88 million noncash gain from revaluing warrant liabilities; the quarterly period instead recorded a $48,700 derivative loss. These fair-value changes materially affect reported earnings and do not represent operating cash generation. No meaningful revenue base or profit margin is reported.
Cash and cash equivalents were $1.53 million at March 31, 2017, down $1.39 million from September 30, 2016. Six-month financing provided $5.85 million, mainly from stock and warrant offerings. Current assets of $3.48 million were below current liabilities of $8.41 million, a working-capital deficit of approximately $4.93 million. Total liabilities were $11.80 million; these include $3.44 million of warrant derivative liabilities. The filing does not provide a clear cash-runway estimate.
Material changes versus comparable periods
- Six-month R&D expense increased $1.28 million year over year; second-quarter R&D rose $2.43 million. Management attributed fluctuations to Phase 3 trial activity and said it did not expect R&D expense to remain at the recent level, given current billing information and no planned enrollment of additional patients.
- Six-month net loss narrowed from $6.50 million to $4.87 million, primarily reflecting a larger noncash gain on derivative instruments, despite higher operating expenses. Quarterly net loss improved to $8.41 million from $8.84 million.
- Accounts payable rose to $7.07 million from $3.09 million at September 30, 2016. Common shares outstanding rose to 216.48 million from 155.96 million; 229.83 million were outstanding May 8, 2017. Further equity and warrant issuance creates substantial dilution potential.
- April 2017, after quarter-end, CEL-SCI withdrew its FDA-submitted protocol amendment seeking additional Phase 3 patients. It said additional patients may not be needed or may be fewer than previously proposed; any future amendment would require FDA clearance.
Outlook, commentary, risks and contingencies
- The Phase 3 Multikine head-and-neck cancer trial remained on partial FDA clinical hold. Of 928 enrolled patients, the company continued follow-up toward 298 deaths needed to assess the primary endpoint. Following a February 8, 2017 Type A meeting, the FDA requested an updated Investigator’s Brochure and procedures addressing regulatory compliance, plus a list and review plan for major protocol deviations. CEL-SCI said it submitted responses in April; FDA review and the hold’s resolution remain uncertain.
- The company warned that if the hold is not lifted, the current trial may not reach its endpoints in time or may be unusable as a pivotal U.S. study, potentially requiring an entirely new Phase 3 trial. Even a timely hold resolution would not assure regulatory acceptance of the existing study.
- Management estimated remaining direct cash costs for the current Phase 3 trial at approximately $12.9 million, in addition to $36.6 million spent through March 31. The estimate excludes some related costs, including drug manufacturing, and may change with enrollment, event timing, foreign exchange and other factors.
- CEL-SCI stated that recurring losses and future liquidity needs create substantial doubt about its ability to continue as a going concern. It expects to need additional capital or long-term financing and discussed partnerships, debt and equity financing, while warning funding may not be available on acceptable terms or at all. Insufficient funding could delay or curtail operations. No product approval or commercial revenue is assured.
- A pending arbitration against former clinical research organization inVentiv seeks at least $50 million in damages. inVentiv has asserted counterclaims seeking at least $24 million across several claims; CEL-SCI considers them meritless but disclosed that an adverse outcome could materially affect its business, financial condition and liquidity. The arbitration hearing was expected to conclude in the second quarter of 2017.
- After quarter-end, the company reported an April 30 registered direct offering of 13.199 million shares for approximately $1.51 million gross, with additional warrants issued. The filing also describes warrant-linked financings during the six-month period and potentially dilutive outstanding warrants and options.
Most important facts for investors to verify
- Current FDA status of the partial clinical hold, response review, and any further FDA or IDMC direction.
- Whether the existing Phase 3 trial can reach its required endpoint and support a marketing application, and whether additional patients or a new trial will be required.
- Cash burn, near-term obligations and funding needs against the $1.53 million quarter-end cash balance and $12.9 million estimated remaining trial cost.
- Subsequent financing, warrant exercises and resulting dilution; reconcile share counts and financing proceeds with later filings.
- Developments and potential exposure in the inVentiv arbitration, including counterclaims and any recovery or costs.