CEL-SCI Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. The filing was signed December 11, 2015. CEL-SCI is a clinical-stage biotechnology company with no product sales; its lead candidate, Multikine, is in a global Phase 3 trial for advanced primary head and neck cancer.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Grant and other income | $657,377 | $264,033 |
| Research and development expense | $20.95 million | $17.00 million |
| General and administrative expense | $13.80 million | $10.61 million |
| Operating loss | $34.30 million | $27.57 million |
| Net loss | $34.67 million | $27.37 million |
| Basic loss per share | $0.42 | $0.48 |
- Grant and other income is not product revenue. The company reported no product sales and does not expect product revenue in the foreseeable future; profit margins are therefore not meaningful.
- Net cash used in operations was $23.83 million, versus $22.93 million in FY2014. Cash and cash equivalents declined $2.79 million to $5.73 million, after $21.15 million of net proceeds from stock and warrant sales.
- Current assets were $8.83 million and current liabilities $6.85 million, yielding working capital of $1.98 million, down from $8.50 million a year earlier. Total assets were $15.45 million; total liabilities were $20.68 million, including $13.69 million in derivative liabilities. Stockholders’ equity was negative $5.23 million.
- The related-party note had a $1.25 million carrying amount at year-end, was secured by substantially all company assets, and bore 9% interest under its amended terms. Its maturity was extended after year-end from July 2017 to July 2018.
Changes versus the prior year
- Net loss increased $7.31 million, as R&D expense rose $3.95 million and G&A expense rose $3.19 million. The higher R&D spend coincided with enrollment of 305 patients in FY2015 versus 142 in FY2014.
- G&A increases included approximately $1.98 million of restricted-stock compensation and $1.78 million of additional legal fees related to the former CRO arbitration. Equity-based compensation expense rose to $5.11 million from $3.96 million.
- The FY2015 result included a $641,276 debt-extinguishment loss and a $282,616 gain on derivative instruments. Derivative fair-value changes can cause material earnings volatility and do not represent operating performance.
- Common shares outstanding increased from 81.9 million at September 30, 2014 to 112.4 million at September 30, 2015. The May 2015 offering generated approximately $14.7 million net and included 20.3 million warrants.
Outlook, trial status, and risks
- As of November 30, 2015, 635 patients had been enrolled in the Phase 3 trial; management was targeting 880 enrollments and estimated completion in summer 2016. The primary endpoint requires a 10% overall-survival improvement and a specified number of death events; timing may vary with enrollment and event rates.
- CEL-SCI estimated $21.6 million of remaining Phase 3 trial cash costs after September 30, 2015, in addition to approximately $25 million already spent. Management said year-end cash and investments could fund the operating plan well into FY2016, but additional financing is needed to complete the trial; failure to raise funds could force delay, curtailment, or termination.
- The independent data monitoring committee had identified no safety signal requiring the Phase 3 trial to stop. This is a safety update, not evidence that the trial has demonstrated efficacy. Phase 2 survival and tumor-response findings were preliminary and based on small samples; the filing says they require confirmation in Phase 3.
- CEL-SCI is pursuing arbitration against former CRO inVentiv, seeking at least $50 million and stating estimated damages exceed $150 million. The arbitrator dismissed the professional-malpractice claim but allowed other claims to proceed. inVentiv asserted counterclaims seeking at least $24 million in aggregate stated amounts. The merits hearing was expected in spring 2016; no recovery is assured.
- Subsequent events: Ergomed increased its planned Phase 3 contribution from $10 million to $12 million; a litigation funder agreed to provide up to $5 million for arbitration expenses, repayable from proceeds; and an October 2015 stock-and-warrant offering raised approximately $10.59 million net. These events do not remove the company’s financing and dilution risks.
- Other material risks include CRO protocol or data-compliance issues potentially making some trial data unusable, regulatory failure or delay, dependence on Multikine, recurring losses, substantial lease commitments, potential further equity dilution, and uncertain commercialization, pricing, reimbursement, and market acceptance. The company reported an unqualified audit opinion and effective internal controls over financial reporting.
Investor verification priorities
- Confirm subsequent cash, financing proceeds, and the timing and terms of any additional capital needed to complete the Phase 3 trial.
- Track patient enrollment, evaluable-patient counts, death-event accumulation, trial-cost changes, and any regulator or monitoring-committee updates.
- Review the former-CRO arbitration, counterclaims, litigation-funding repayment terms, and any resulting liability or recovery.
- Assess the fully diluted share count, including outstanding warrants, options, convertible debt, and post-year-end issuances.
- Reconcile derivative liabilities and related-party debt terms, and distinguish accounting fair-value gains or losses from cash operating results.