CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Three months ended December 31, 2014 (fiscal first quarter 2015). The interim financial statements are unaudited.
Business context
CEL-SCI is a clinical-stage biotechnology company. Its lead investigational therapy, Multikine, was being tested in a multinational Phase III trial for head and neck cancer; LEAPS was in preclinical development. The company reported no product-sale revenue and said Multikine was not approved and its safety and efficacy had not been established.
Key financial metrics
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Grant income and other | $136,838 | $113,144 |
| Research and development expense | $4.855 million | $4.020 million |
| General and administrative expense | $5.221 million | $1.971 million |
| Operating loss | $9.996 million | $5.934 million |
| Net loss | $7.845 million | $4.334 million |
| Basic / diluted loss per share | $(0.09) / $(0.11) | $(0.11) / $(0.15) |
| Net cash used in operations | $5.439 million | $5.917 million |
| Cash from financing | $6.404 million | $19.378 million |
Cash and cash equivalents were $9.461 million at December 31, 2014, versus $8.514 million at September 30, 2014. Total assets were $19.553 million; current assets were $12.313 million and current liabilities $3.791 million. Total liabilities were $7.714 million. No conventional bank debt is disclosed; the company had a $1.104 million related-party loan and a small capital-lease obligation. The related-party loan bears 15% interest, is secured by substantially all assets, and may be called on at least 10 days’ notice.
There was no meaningful product gross margin to report because the company had no product sales. Operating cash burn was partly offset by noncash items, including $3.060 million of employee stock-based compensation and a $2.163 million derivative fair-value gain. Derivative liabilities totaled $3.803 million.
Material changes versus the prior comparable period
- Net loss increased by $3.511 million, while operating loss increased by $4.061 million.
- R&D expense rose approximately $835,000, primarily reflecting continued Phase III activity. G&A expense rose approximately $3.250 million, including $2.605 million of employee compensation related to restricted shares issued in the prior quarter, approximately $503,000 of additional legal fees tied mainly to CRO arbitration, and approximately $122,000 of increased accounting fees.
- Cash provided by financing was lower than in the prior-year quarter. The October 2014 public and private offerings generated approximately $6.406 million net proceeds, in exchange for common shares and warrants.
- Shares outstanding increased from 81.902 million at September 30 to 91.483 million at December 31. The filing reported 91,542,416 shares outstanding on February 2, 2015.
Outlook, risks, contingencies, and unusual items
- Management estimated about $26.4 million of remaining cash cost for the Phase III trial, in addition to approximately $18.2 million already spent. Costs could exceed the estimate due to enrollment pace, foreign exchange, and other factors.
- The trial had enrolled 328 patients as of December 31, 2014; the CROs were aiming to enroll the planned 880 patients by year-end 2015. The company expected enrollment to accelerate, but that expectation is uncertain.
- The filing contains differing liquidity outlook statements: one says available cash and access to capital should support operations for more than the next 12 months; MD&A says funding should support operations through year-end. CEL-SCI also said it must raise additional capital and warned that failure to do so could slow or delay the trial or significantly curtail operations.
- The company is pursuing at least $50 million in arbitration damages from its former CRO, which counterclaimed for at least $2 million. CEL-SCI said the matter was preliminary and it could not predict the outcome.
- The $2.163 million derivative gain resulted from changes in warrant fair values driven by the company’s share price; it is not operating revenue. Employee stock-based compensation was substantially higher year over year.
- Management stated disclosure controls were effective as of December 31, 2014 and reported no change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile management’s differing statements about whether liquidity extends through year-end or more than 12 months, and assess the timing and terms of future financing.
- Track Phase III enrollment against the 880-patient target, trial costs against the $26.4 million estimate, and any changes to the projected timeline.
- Review dilution from outstanding shares, warrants, options, and restricted stock, including the potential effects of warrant exercises.
- Monitor the related-party loan’s July 2015 maturity, demand provisions, 15% interest rate, and security interest, as well as the CRO arbitration and counterclaim.
- Assess clinical and regulatory progress: Multikine remained investigational and had not established safety or efficacy or obtained marketing approval.