CEL-SCI (CVM) - 2020 Q4 - Annual Report

PART I Business Overview CEL-SCI is a clinical-stage biotechnology company focused on developing immunotherapies for cancer and infectious diseases Company Products The company's pipeline focuses on Multikine for head and neck cancer and LEAPS technology for rheumatoid arthritis and COVID-19 - The company's primary focus is on two product development platforms: Multikine for head and neck cancer and the LEAPS technology for rheumatoid arthritis and COVID-19[22] Multikine Multikine, the lead immunotherapy for head and neck cancer, is in final statistical analysis of its pivotal Phase 3 trial - Multikine has been granted Orphan Drug designation by the FDA for neoadjuvant therapy in patients with SCCHN[28] - The pivotal Phase 3 study is fully enrolled with 928 patients and reached the required 298 events in late April 2020, moving it into the final analysis phase[13][30] - As of September 30, 2020, direct costs for the Phase 3 trial totaled approximately $58.9 million, with an estimated $5.9 million in additional expenses expected for the remainder of the trial and FDA filing[33][34] - CEL-SCI has exclusive marketing and distribution agreements for Multikine with Teva Pharmaceutical for Israel and Turkey, Orient Europharma for several Asian and Pacific countries, and Byron Biopharma for South Africa[36][39][44] LEAPS Technology The LEAPS platform develops immunotherapies, including LEAPS COV-19 for COVID-19 and CEL-4000 for rheumatoid arthritis - LEAPS COV-19, a therapeutic treatment candidate, achieved a statistically significant 40% survival rate in transgenic mouse models challenged with SARS-CoV-2, compared to 0% survival in control groups[17][50] - The company was awarded a $1.5 million Phase 2 SBIR grant from the NIH to advance its LEAPS candidate for rheumatoid arthritis, CEL-4000, towards an IND application[15][53] Intellectual Property Intellectual property protects Multikine and LEAPS via patents, with Multikine's manufacturing process as a trade secret Key Patent Expiration Dates | Technology | Jurisdiction | Expiration Year(s) | | :--- | :--- | :--- | | Multikine | U.S. | 2023 | | | Europe | 2025, 2026 | | LEAPS | U.S. | 2021, 2022, 2032 | | | Europe | 2029, 2034 | - The manufacturing process for Multikine, a complex biological product, is protected as a trade secret rather than by patent[69] Manufacturing Facility The dedicated Multikine manufacturing facility is expanding for commercial demand, with its lease expiring in 2028 - The company is expanding its manufacturing facility to meet expected demand for Multikine upon potential regulatory approval[73] - The lease on the manufacturing facility expires on October 31, 2028[74] Government Regulation Company products are subject to extensive FDA and global regulations, with Multikine holding Orphan Drug Designation - The FDA approval process for biologics involves multiple stages: preclinical testing, IND submission, three phases of clinical trials to establish safety and efficacy, and finally, a BLA submission for marketing approval[76][81][82][83] - Multikine has received Orphan Drug Status from the FDA, which can provide seven years of market exclusivity if it is the first product approved for its specific indication[104][106] - Upon commercialization, the company will be subject to various healthcare laws, including the Anti-Kickback Statute and the False Claims Act, and will face challenges related to pricing and reimbursement from third-party payors[108][111] Risk Factors The company faces significant risks including financial losses, Multikine dependence, high costs, and regulatory and IP challenges - The company has incurred net losses of approximately $384 million since inception and expects to continue incurring losses, raising substantial doubt about its ability to continue as a going concern without additional capital[128][135] - The business is heavily dependent on the success of Multikine, its only product in late-stage clinical development; failure to obtain regulatory approval or commercialize Multikine would materially harm the company[118][130] - The COVID-19 pandemic has caused business disruptions, including delays in the Phase 3 trial data lock and the expansion of the manufacturing facility[125] - The company's bylaws include fee-shifting and exclusive forum provisions that may discourage shareholder litigation[170][175] - Intellectual property risks include the potential for patents to not provide adequate protection and the reliance on trade secrets for manufacturing, which are vulnerable to disclosure[267][271] Properties CEL-SCI leases corporate, lab, and a 73,000 sq ft manufacturing facility, which is being upgraded for Multikine production Leased Properties | Property | Location | Size (sq. ft.) | Lease Expiration | | :--- | :--- | :--- | :--- | | Office Space | Vienna, VA | N/A | Nov 30, 2025 | | Laboratory | Baltimore, MD | 17,900 | Feb 28, 2022 | | Manufacturing Facility | Near Baltimore, MD | 73,000 | Oct 31, 2028 | - The manufacturing facility is undergoing an upgrade estimated to cost $10.5 million to prepare for potential commercial production of Multikine; the landlord has contingently agreed to finance the final $2.4 million of these costs[287] Legal Proceedings The company reported no material pending legal proceedings - Not applicable[288] Mine Safety Disclosures This item is not applicable to the company - Not applicable[289] PART II Market for Common Equity and Related Stockholder Matters CEL-SCI's common stock trades on NYSE American; no dividends are paid or planned, with historical price data provided - The company's common stock trades on the NYSE American under the symbol "CVM"[290] - CEL-SCI has not paid and does not plan to pay any dividends on its common stock in the foreseeable future[292] Quarterly Common Stock Price Range (High/Low) | Quarter Ended | High ($) | Low ($) | | :--- | :--- | :--- | | 9/30/2020 | 15.10 | 11.29 | | 6/30/2020 | 18.00 | 9.64 | | 3/31/2020 | 17.80 | 6.35 | | 12/31/2019 | 9.74 | 6.00 | | 9/30/2019 | 9.93 | 5.80 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) FY2020 net loss increased to $30.3 million due to higher operating expenses; the company relies on equity financing and faces going concern doubts Results of Operations FY2020 saw increased R&D and G&A expenses, leading to a net loss of $30.3 million, up from $22.1 million in FY2019 Year-over-Year Financial Performance (in millions) | Metric | FY 2020 | FY 2019 | Change (%) | | :--- | :--- | :--- | :--- | | R&D Expenses | $17.8 | $12.7 | +41% | | G&A Expenses | $11.7 | $8.0 | +46% | | Operating Loss | ($29.0) | ($20.2) | +44% | | Net Loss | ($30.3) | ($22.1) | +37% | R&D Expenses by Project | Project | 2020 | 2019 | | :--- | :--- | :--- | | Multikine | $16,146,248 | $11,623,050 | | LEAPS | $1,694,042 | $1,036,237 | | Total | $17,840,290 | $12,659,287 | Liquidity and Capital Resources The company relies on equity financing, with $15.5 million cash as of FY2020, facing significant capital commitments and going concern doubts - The company raised net proceeds of approximately $25.8 million in FY2020 and $14.8 million in FY2019 through stock sales and warrant/option exercises[312] - In December 2020 (subsequent to year-end), the company raised an additional $13.6 million in net proceeds from a public stock offering[312][590] - The company's auditor has issued an opinion with an explanatory paragraph expressing substantial doubt about its ability to continue as a going concern[330] - Future capital needs include an estimated $5.9 million for the remainder of the Phase 3 trial and clinical study report, plus an estimated $7.4 million to complete the manufacturing facility upgrade[327][329] Controls and Procedures A material weakness in internal controls over financial reporting, due to an ASC 842 ROU asset error, rendered disclosure controls ineffective - A material weakness was identified in internal control over financial reporting[348] - The weakness stemmed from an error in calculating the right-of-use (ROU) asset under ASC 842, which understated the opening finance ROU asset and stockholders' equity by approximately $2.04 million as of October 1, 2019[348] - As a result of the material weakness, management concluded that disclosure controls and procedures were not effective as of September 30, 2020[344][353] PART III Directors and Executive Officers This section details the company's directors and executive officers, highlighting their backgrounds and the board's independent members Officers and Directors | Name | Position | | :--- | :--- | | Geert R. Kersten, Esq. | Director, Chief Executive and Financial Officer | | Patricia B. Prichep | Senior Vice President of Operations | | Dr. Eyal Talor | Chief Scientific Officer | | Dr. Daniel H. Zimmerman | Senior Vice President of Research, Cellular Immunology | | John Cipriano | Senior Vice President of Regulatory Affairs | | Dr. Peter R. Young | Director | | Bruno Baillavoine | Director | | Robert Watson | Director | - The Board of Directors includes three independent directors: Dr. Peter R. Young, Bruno Baillavoine, and Robert Watson[372] Executive Compensation Executive compensation includes salary and stock options, with CEO Geert Kersten's FY2020 total compensation at $3.3 million, and performance-based options granted Executive Compensation Summary (FY 2020) | Name | Position | Salary ($) | Option Awards ($) | Total Comp ($) | | :--- | :--- | :--- | :--- | :--- | | Geert R. Kersten | CEO & CFO | 756,102 | 2,492,320 | 3,335,103 | | Patricia B. Prichep | SVP, Operations | 366,722 | 1,212,480 | 1,610,633 | | Dr. Eyal Talor | CSO | 308,250 | 1,212,480 | 1,539,561 | - In April 2020, the company granted 1.872 million performance-based stock options to officers and directors from the 2020 Non-Qualified Stock Option Plan; these options vest upon achieving stock price targets ranging from $20 to $40 per share or the filing of a marketing application for Multikine[418][545] - Key executives have employment agreements with change-in-control provisions, providing for lump-sum payments of 18 to 24 months of salary upon resignation following a change in control[396][404] Security Ownership This section details beneficial ownership of common stock, with CEO Geert R. Kersten as the largest insider shareholder at 7.3% Beneficial Ownership of Common Stock (as of Dec 1, 2020) | Owner | Shares Beneficially Owned | Percent of Class | | :--- | :--- | :--- | | Geert R. Kersten (CEO) | 2,949,013 | 7.3% | | All Officers and Directors as a Group (8 persons) | 5,262,784 | 12.43% | Principal Accounting Fees and Services This section discloses fees billed by BDO USA, LLP for audit and other professional services for fiscal years 2020 and 2019 Fees Billed by BDO USA, LLP | Fee Category | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Audit Fees | $553,700 | $363,000 | | Audit Related Fees | - | - | | Tax Fees | - | - | Financial Statements Report of Independent Registered Public Accounting Firm The auditor's report includes a "Going Concern Uncertainty" paragraph, citing recurring losses and capital needs - The auditor's report contains a "Going Concern Uncertainty" paragraph, citing recurring losses and the need to raise additional capital as factors that raise substantial doubt about the company's ability to continue operations[450] Financial Statements FY2020 financial statements show a net loss of $30.3 million, with $15.5 million in cash and $19.7 million in stockholders' equity Key Financial Data (as of and for the year ended September 30) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Statement of Operations: | | | | Net Loss | $(30,255,244) | $(22,134,640) | | Net Loss Per Share | $(0.82) | $(0.71) | | Balance Sheet: | | | | Cash and cash equivalents | $15,508,909 | $8,444,774 | | Total Assets | $40,536,454 | $27,622,994 | | Total Liabilities | $20,809,780 | $22,489,327 | | Total Stockholders' Equity | $19,726,674 | $5,133,667 | Notes to Financial Statements Notes detail going concern dependence, ASC 842 adoption and error correction, warrant and stock compensation plans, and major commitments - The company adopted the new lease accounting standard ASC 842 on October 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet; an error in the initial calculation understated the finance lease ROU asset and equity by approximately $2.0 million, which has been corrected[483][485] - The company has a co-development and revenue sharing agreement with Ergomed, which contributes to the Phase 3 study costs in exchange for a percentage of future milestone and royalty payments; as of Sept 30, 2020, Ergomed's contribution in the form of discounted services totaled approximately $11.1 million[557] - The company has numerous series of outstanding warrants, many of which are treated as derivative liabilities and re-measured at fair value each period, causing fluctuations in the statement of operations[503][511] - The company has contingent obligations with vendors, estimating it will incur an additional $5.9 million for the remainder of the Phase 3 clinical trial and the filing of the clinical study report with the FDA[570]