CEL-SCI Corporation — Q1 FY2014 Form 10-Q
Reporting period: Three months ended December 31, 2013. Balance-sheet comparisons are with September 30, 2013. Financial statements are unaudited. CEL-SCI is a development-stage biotechnology company; it reported no product-sales revenue.
Financial performance and position
| Metric | Q1 FY2014 / Dec. 31, 2013 | Comparable period / Sept. 30, 2013 |
|---|---|---|
| Other income | $113,144 | $15,000 |
| Research and development expense | $4.02 million | $2.92 million |
| General and administrative expense | $1.97 million | $2.00 million |
| Operating loss | $5.93 million | $5.04 million |
| Net loss | $4.33 million | $2.31 million |
| Net loss available to common shareholders | $5.45 million | $2.31 million |
| Basic loss per share | $0.11 | $0.08 |
| Cash and cash equivalents | $13.49 million | $41,612 |
| Total current assets / current liabilities | $16.61 million / $3.38 million | $2.51 million / $3.55 million |
| Total liabilities | $9.69 million | $4.14 million |
| Stockholders’ equity | $15.11 million | $6.70 million |
- Operating cash outflow was $5.92 million, versus $2.99 million a year earlier. Financing provided $19.38 million, primarily from stock and warrant offerings; investing cash outflow was $8,587. Cash increased $13.45 million during the quarter.
- CEL-SCI recorded a $1.61 million gain on derivative instruments, compared with $2.75 million a year earlier. The gain reflects fair-value changes and is not operating revenue. Interest expense was $42,682.
- No profit margin is meaningful because the company had no product-sales revenue and incurred operating losses.
- At quarter-end, derivative liabilities were $6.14 million. The company also had a $1.10 million related-party loan bearing 15% interest, secured by substantially all assets; the lender may demand payment on at least 10 days’ notice. Capital-lease obligations were also reported.
Material changes and financing
- R&D expense increased about $1.10 million year over year, chiefly reflecting continued Multikine Phase III trial activity. Multikine R&D expense was $3.92 million; LEAPS expense was $97,064. G&A declined about $30,000, primarily due to lower employee stock-option costs.
- Net loss increased by about $2.02 million. The common-shareholder loss was further increased by a $1.12 million charge associated with additional shares issued under Series N warrant reset provisions.
- Two public offerings generated approximately $19.38 million net proceeds in the quarter. Common shares outstanding rose from 31.03 million at September 30 to 55.85 million at December 31; the filing reports 55.94 million shares outstanding on February 4, 2014. The offerings also issued Series S warrants, including 25.7 million outstanding at quarter-end with a $1.25 exercise price. Further dilution is possible.
- Derivative liabilities increased from $433,024 to $6.14 million, largely due to the newly issued Series S warrants. The company classifies these fair-value measurements as Level 3.
Business, outlook, risks and contingencies
- The principal program is Multikine, an investigational therapy in a multinational Phase III trial for advanced primary head and neck cancer, with Teva Pharmaceuticals and Orient Europharma as partners. The company states Multikine has not been approved and its safety and efficacy have not been established. LEAPS remains preclinical.
- CEL-SCI estimated approximately $33.3 million of remaining cash costs for its Phase III trial, in addition to approximately $11.3 million spent through December 31. The estimate may rise with enrollment pace, foreign exchange movements, or other factors. Ergomed agreed to contribute up to $10 million in discounted clinical services for the head-and-neck study in exchange for a share of specified future milestone and royalty payments.
- Management said the recent financings were expected to meet cash requirements through 2014 and described access to further financing as available; it also said additional capital would be needed to continue research and fund the trial beyond the next 12 months. The filing’s statements about runway are not fully consistent: a note says capital should support operations for more than 12 months, while MD&A says through year-end. There is no product-revenue or profitability guidance.
- Management warned that financing may not be available on acceptable terms or at all; insufficient funding could slow or delay the Phase III trial or curtail operations. Clinical and regulatory success, FDA approval, and eventual commercial revenue are uncertain.
- The company replaced its former Phase III clinical research organization in April 2013 after enrollment declined. The latest enrollment figure in this filing is 117 patients, reported as of April 2013; Aptiv Solutions and Ergomed were engaged to manage the study and support expansion to 60–80 sites.
- CEL-SCI initiated arbitration against former CRO inVentiv, alleging contract breach and fraud and seeking at least $50 million. inVentiv counterclaimed, alleging breach and seeking at least $2 million. The company said the matter was preliminary and its outcome could not be assessed.
- Management reported disclosure controls were effective as of December 31, 2013 and no change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm current cash runway against operating cash burn, the Phase III trial’s remaining cost, and management’s differing runway statements.
- Track trial enrollment, site expansion, costs, and any changes to the $33.3 million remaining-cost estimate.
- Assess dilution from Series S and other warrants, warrant reset terms, and the increase in common shares outstanding.
- Review the fair-value assumptions and potential earnings volatility from the $6.14 million derivative liability.
- Monitor the related-party loan’s demand provisions and the outcome of the inVentiv arbitration and counterclaim.