CEL-SCI Corporation — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2013; financial comparisons cover the three and six months ended March 31, 2013 versus the same periods in 2012. The interim financial statements are unaudited.
Business context
CEL-SCI is a development-stage biotechnology company with no product sales revenue to date. Its lead candidate, Multikine, is in a multinational Phase III trial for advanced head and neck cancer; LEAPS remains preclinical. Multikine is investigational and has not been approved or established as safe or effective.
Financial performance and liquidity
- Revenue: No product-sales revenue. Grant and other income was $30,405 for six months, down from $111,567, and $15,405 for the quarter, down from $106,543.
- Six-month results: Operating expenses were $9.31 million, up from $8.82 million; operating loss was $9.28 million versus $8.71 million. Net loss was $3.02 million versus $12.08 million. The improvement primarily reflects a $6.28 million derivative gain, compared with a $3.25 million derivative loss in 2012; these fair-value changes are non-operating and share-price-sensitive. The 2012 common-shareholder loss also included $2.17 million of reset-share, warrant-modification and inducement-warrant charges.
- Quarterly results: Operating loss was $4.24 million versus $4.26 million; net loss was $713,371 versus $8.49 million. The quarter included a $3.54 million derivative gain versus a $4.20 million loss in 2012.
- R&D and G&A: Six-month R&D was $5.44 million, including $5.26 million for Multikine; six-month G&A was $3.65 million. The filing attributes the G&A increase mainly to public-relations costs. Gross margin is not meaningful because the company had no product sales.
- Cash flow: Six-month operating cash use was $6.67 million, compared with $5.79 million. Investing cash use was $87,000; financing provided $9.80 million, principally from the December 2012 stock offering. Cash increased by $3.04 million to $6.99 million.
- Liquidity and obligations: Current assets were $10.21 million and current liabilities $1.88 million at March 31, 2013. Total liabilities were $6.94 million, including $4.90 million of derivative liabilities. The company also owed $1.10 million on a related-party loan bearing 15% interest, secured by substantially all assets, with a July 2015 maturity and a holder conversion option. The prior senior convertible notes had been repaid in March 2012.
- Per-share data and dilution: Six-month basic loss per share was $0.01 and reported diluted loss per share was $0.03; quarterly basic and diluted loss per share were reported as $0.00 and $0.01, respectively. Shares outstanding rose from 273.1 million at September 30, 2012 to 309.2 million at March 31, 2013; 309.2 million were outstanding May 1.
Material changes and financing
In December 2012, CEL-SCI raised $10.5 million by selling 35 million shares at $0.30 each and issued warrants to purchase up to 26.25 million additional shares at $0.40. The offering generated approximately $9.81 million in net financing cash during the six-month period after costs. The derivative-liability balance fell from $6.98 million to $4.90 million, with the resulting fair-value gain materially affecting reported earnings.
Outlook, risks and contingencies
- Management said cash and access to capital markets were expected to support operations through year-end 2013. Additional funding will be needed for the trial and research; management planned to seek partnership, debt and/or equity financing, but availability and terms are not assured. Failure to raise funds could delay or curtail the trial and operations.
- The company estimated approximately $37 million of future cash costs for the Phase III trial, excluding portions payable by licensees, in addition to approximately $7.9 million already paid. Costs may exceed the estimate due to enrollment pace, foreign exchange and other factors.
- After patient enrollment slowed following a CRO takeover, the company announced on April 23, 2013 that it had replaced the trial CROs and planned to expand the study to 60–80 sites. As of early April, 117 patients had been enrolled at 39 sites in eight countries. Under a co-development agreement, Ergomed would contribute up to $10 million in clinical services in exchange for a capped, single-digit percentage of future Multikine head-and-neck-cancer milestones and royalties.
- Trial completion, regulatory approval and eventual product revenue remain uncertain. A long-term manufacturing-facility lease and its $1.67 million deposit are also significant commitments; the deposit is returnable only when the company meets the lease’s minimum cash-balance requirement.
- In March 2013, the board declined to purchase Eastern Biotech’s Multikine royalty rights for $500,000; the company president subsequently purchased them. The filing reports the board decision and transaction but does not quantify any resulting company obligation.
- Management concluded disclosure controls were effective as of March 31, 2013 and reported no change in internal control over financial reporting during the six-month period.
Important facts for investors to verify
- Current cash runway, actual burn rate, and the timing and terms of future financing.
- Phase III enrollment progress, CRO transition execution, total remaining trial costs, and the conditions and economics of Ergomed’s contribution.
- Multikine trial results, regulatory milestones, and the scope of partner funding or other obligations.
- Potential dilution from outstanding options and warrants, including the 26.25 million Series R warrants, and the valuation sensitivity of derivative liabilities.
- Terms, maturity, security and conversion provisions of the $1.10 million related-party loan and the manufacturing-lease cash-balance requirement.