CEL-SCI Corporation — Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2013; fiscal year ends September 30. The filing was signed August 9, 2013.
Business context and financial performance
CEL-SCI is a development-stage biotechnology company. Its lead candidate, Multikine, was in a multinational Phase III trial for head and neck cancer; its LEAPS program remained preclinical. The company reported no product-sales revenue. Grant and other income was $114,000 for the quarter and $144,000 for the nine months.
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Operating expenses | $5.63 million, up from $4.25 million | $14.94 million, up from $13.07 million |
| Research and development | $3.77 million, up from $2.47 million | $9.21 million, up from $7.52 million |
| Operating loss | $5.51 million, versus $4.21 million | $14.80 million, versus $12.92 million |
| Derivative gain | $1.08 million, versus $3.39 million | $7.36 million, versus $143,000 |
| Net loss | $4.45 million, versus $835,000 | $7.47 million, versus $12.91 million |
| Net loss available to common shareholders | $4.51 million, versus $835,000 | $7.53 million, versus $15.08 million |
| Loss per common share, as reported | Basic $0.01; diluted $0.02 | Basic $0.03; diluted $0.05 |
Quarterly losses widened as operating costs rose and the derivative gain was lower than in the prior-year quarter. The lower nine-month net loss chiefly reflects a much larger derivative gain; that fair-value gain is not an operating revenue source. No meaningful sales margin was reported.
Cash, liquidity, and financing
- Cash and cash equivalents were $3.48 million at June 30, 2013, down from $3.94 million at September 30, 2012. Operating cash use was $10.14 million for the nine months, compared with $8.92 million a year earlier; investing cash use was $118,000.
- Financing provided $9.80 million, primarily from the December 2012 registered offering. The company reported $9.81 million in proceeds from common-stock issuance. It ended the period with $14.75 million in total assets and $7.80 million in stockholders’ equity.
- Current assets were $6.24 million and current liabilities $2.97 million. The balance sheet included a $1.10 million related-party loan and $3.82 million of derivative liabilities, down from $6.98 million at September 30, 2012.
- The loan from the president bears 15% annual interest, is secured by substantially all company assets, and was extended to July 6, 2015. CEL-SCI cannot prepay it without the lender’s consent. Senior convertible notes had been fully repaid in 2012.
- Common shares outstanding increased from 273.1 million at September 30, 2012 to 309.9 million at June 30, 2013. The December offering issued 35 million shares and included warrants for up to 26.25 million additional shares.
Material changes, outlook, and risks
- Management said cash and its access to capital markets should support operations through fiscal year-end, but stated that additional capital or long-term financing would be needed to continue research and fund the Phase III trial. The filing also states there is substantial doubt about the company’s ability to continue as a going concern.
- CEL-SCI estimated approximately $36.7 million in remaining cash costs for the Phase III trial, excluding portions payable by licensees; approximately $8.2 million had been paid by June 30. Costs could exceed the estimate due to enrollment pace, foreign exchange, and other factors.
- After a takeover at the prior clinical research organization disrupted staffing and patient enrollment, CEL-SCI replaced it with Aptiv Solutions and Ergomed. The company said the partners would help expand the trial by 60–80 sites. As of the latest update cited, in April, 117 patients had enrolled at 39 sites in eight countries.
- Under a co-development agreement, Ergomed agreed to contribute up to $10 million through discounted clinical services in exchange for a single-digit percentage of specified Multikine milestones and royalties, subject to a cap. This is not described as an equivalent cash contribution.
- Multikine had not been approved by the FDA or other regulators, and its safety and efficacy had not been established. The company could not predict when it would earn product revenue; failure to raise financing could slow or delay the trial or significantly curtail operations.
- Research and development expense rose by $1.69 million for the nine months, primarily reflecting the ongoing trial. General and administrative expense rose by about $275,000, mainly due to employee option costs. The company recorded $2.09 million of employee stock-based compensation for the nine months.
Most important facts for investors to verify
- Cash runway and access to financing, including whether funding beyond management’s stated year-end runway is secured.
- Actual Phase III enrollment progress, site expansion, trial timeline, and remaining cost versus the $36.7 million estimate.
- The scope and economic terms of Ergomed’s discounted services and the licensees’ trial-cost responsibilities.
- Potential dilution from future equity financing and outstanding warrants, alongside the increase in shares outstanding.
- The terms, maturity, security, and continuing interest burden of the 15% related-party loan and the company’s going-concern disclosure.