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CVM > SEC Filings for CVM > Form 10-Q on 9-Aug-2013All Recent SEC Filings

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Form 10-Q for CEL SCI CORP


9-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company's lead investigational therapy, MultikineŽ (Leukocyte Interleukin, Injection), is cleared for a Phase III clinical trial in advanced primary head and neck cancer. It has received a go-ahead by the US FDA as well as the Canadian, Polish, Hungarian, Russian, Israeli, Indian and Taiwanese regulators.

Multikine (Leukocyte Interleukin, Injection) is the full name of this investigational therapy, which, for simplicity, is referred to in the remainder of this report as Multikine. Multikine is the trademark that the Company has registered for this investigational therapy, and this proprietary name is subject to FDA review in connection with the Company's future anticipated regulatory submission for approval. Multikine has not been licensed or approved by the FDA or any other regulatory agency. Neither has its safety or efficacy been established for any use.

The Company also owns and is developing a pre-clinical technology called LEAPS (Ligand Epitope Antigen Presentation System).

All of the Company's projects are under development. As a result, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

Since inception, the Company has financed its operations through the sale of equity securities, convertible notes, loans and certain research grants. The Company's expenses will likely exceed its revenues as it continues the development of Multikine and brings other drug candidates into clinical trials. Until such time as the Company becomes profitable, any or all of these financing vehicles or others may be utilized to assist the Company's capital requirements.

Capital raised by the Company has been expended primarily for patent applications, debt repayment, research and development, administrative costs, and the construction of the Company's laboratory facilities. The Company does not anticipate realizing significant revenues until it enters into licensing arrangements regarding its technology and know-how or until it receives regulatory approval to sell its products (which could take a number of years). As a result the Company has been dependent upon the proceeds from the sale of its securities to meet all of its liquidity and capital requirements and anticipates having to do so in the future.

The Company will be required to raise additional capital or find additional long-term financing in order to continue with its research efforts. The ability of the Company to complete the necessary clinical trials and obtain Food and Drug Administration (FDA) approval for the sale of products to be developed on a commercial basis is uncertain. Ultimately, the Company must complete the development of its products, obtain the appropriate regulatory approvals and obtain sufficient revenues to support its cost structure. The Company believes that, counting its cash on hand and access to the capital markets established over the years, it will have enough capital to support its operations through year end. The Company is working on a number of collaborations that it believes will help the Company attract capital and interest from the financial community.


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The Company estimates the total cash cost of the Phase III trial, with the exception of the parts that will be paid by its licensees, Teva Pharmaceuticals and Orient Europharma, to be approximately $36.7 million going forward. This is in addition to approximately $8.2 million which has been paid as of June 30, 2013. This estimate is based on information currently available in the Company's contracts with the Clinical Research Organization responsible for managing the Phase III trial. This number can be affected by the speed of enrollment, foreign currency exchange rates and many other factors, some of which cannot be foreseen today. It is therefore possible that the cost of the Phase III trial will be higher than currently estimated.

On April 23, 2013, the Company announced that it has replaced the clinical research organizations (CRO) running its Phase III clinical trial. This was necessary since the patient enrollment in the study dropped off substantially following a takeover of the CRO which caused most of the members of the CRO's study team to leave the CRO. The Company announced that it has hired two CRO's who will manage the global Phase III study; Aptiv Solutions and Ergomed who are both international leaders in managing oncology trials. Both CRO's will help the Company expand the trial by 60-80 clinical sites globally. As of April 2013, the last update given by the Company, the study has enrolled 117 patients and has been conducted at 39 sites in 8 countries, including three centers in Israel where the Company's partner, Teva Pharmaceuticals, has the marketing rights, and nine centers in Taiwan where the Company's partner, Orient Europhama, has the marketing rights.

Under a co-development agreement, Ergomed will contribute up to $10 million towards the study in the form of offering discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specified maximum amount, only from sales of Multikine for head and neck cancer. Ergomed, a privately-held firm headquartered in Europe with global operations, has entered into five similar co-development agreements, including one with Genzyme (purchased by Sanofi in 2011 for over $20 billion). Ergomed will be responsible for the majority of the new patient enrollment since it has a novel model for clinical site management to accelerate patient recruitment and retention. For example, they have almost 25 physicians who can directly call on clinical sites to aid recruitment and retention. Some of the Ergomed physicians also have experience of being clinical investigators themselves. CEL-SCI believes that this interaction on a physician to physician level is what is needed to help physicians increase enrollment in the Multikine study.

During the nine months ended June 30, 2013, the Company's cash decreased by approximately $500,000. Significant components of this decrease include net proceeds from the sale of the Company's stock of approximately $9,807,000 offset by net cash used to fund the Company's regular operations, including its on-going Phase III clinical trial, of approximately $10,142,000. This compares to approximately $8,920,000 used in operations during the nine months ended June 30, 2012. Cash used in investing activities was approximately $118,000 and $122,000, for the nine months ended June 30, 2013 and 2012, respectively. The use of cash in investing activities consisted of purchases of equipment and legal costs incurred in patent applications. For the nine months ended June 30, 2013 and 2012, net cash provided by financing activities totaled approximately $9,803,000 and $12,004,000, respectively. The increase in cash provided by financing activities is due to proceeds of the December 2012 financing, which were approximately $10,500,000, less expenses of approximately $693,000, and offset by approximately $4,000 in capital lease payments. This compares to prior year financing activities which consisted of proceeds from the sale of Company stock and the exercise of warrants totaling approximately $16,954,000 offset by payments on convertible debt of $4,950,000.


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In August 2011, the Company paid a deposit of $1,670,917 to the landlord since the Company's cash balances did not meet the minimum amount required by the lease. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company.

In October 2011, the Company sold 13,333,334 shares of its common stock to private investors for $4,000,000, or $0.30 per share. The investors also received 12,000,000 Series F warrants. Each Series F warrant entitles the holder to purchase one share of the Company's common stock at a price of $0.40 per share at any time prior to October 6, 2014. The Company paid the placement agent for this offering a commission consisting of $140,000 in cash and 666,667 Series G warrants. Each Series G warrant entitles the holder to purchase one share of the Company's common stock at a price of $0.40 per share at any time prior to August 12, 2014.

In January 2012, the Company sold 16,000,000 shares of its common stock to one private investor for $5,760,000 or $0.36 per share. The investor also received Series H warrants which entitled the investor to purchase up to 12,000,000 shares of the Company's common stock. The Series H warrants may be exercised at any time after July 31, 2012 and prior to August 1, 2015 at a price of $0.50 per share. The Company paid the placement agent for this offering a cash commission of $403,200.

On December 4, 2012, the Company sold 35,000,000 shares of its common stock for $10,500,000, or $0.30 per share, in a registered direct offering. The investors in this offering also received Series R warrants which entitle the investors to purchase up to 26,250,000 shares of the Company's common stock. The Series R warrants may be exercised at any time on or after June 7, 2013 and on or before December 7, 2016 at a price of $0.40 per share. The Company paid Chardan Capital Markets, LLC, the placement agent for this offering, a cash commission of $682,500.

Results of Operations and Financial Condition

During the nine months and three months ended June 30, 2013, grant and other income decreased by approximately $2,000 and increased by approximately $79,000, respectively, compared to the nine and three months ended June 30, 2012.

During the nine and three months ended June 30, 2013, research and development expenses increased by approximately $1,689,000 and $1,300,000 compared to the nine and three months ended June 30, 2012. The Company is continuing the Phase III clinical trial and research and development fluctuates based on the activity level of the clinical trial.

During the nine and three months ended June 30, 2013, general and administrative expenses increased by approximately $275,000 and $109,000, respectively, compared to the nine and three months ended June 30, 2012. This increase is primarily due to increased cost of employee options.


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For the nine and three months ended June 30, 2013, the Company recorded a derivative gain of approximately $7,364,000 and $1,079,000 respectively. For the nine and three months ended June 30, 2012, the Company recorded a derivative gain of approximately $143,000 and $3,390,000 respectively. This variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of the Company's common stock.

Interest expense was approximately $128,000 and $43,000 for the nine and three months ended June 30, 2013 and consisted primarily of interest expense on the loan from the Company's president of $41,000 per quarter and interest on a capital lease. Interest expense was approximately $221,000 and $41,000 for the nine and three months ended June 30, 2012 and consisted of interest expense on the loan from the Company's president of approximately $124,000 and interest on the convertible notes of approximately $97,000.

Research and Development Expenses

During the nine and three months ended June 30, 2013 and 2012, the Company's
research and development efforts involved Multikine and LEAPS. The table below
shows the research and development expenses associated with each project.

              Nine months ended June 30,          Three months ended June 30,
                 2013              2012              2013               2012
MULTIKINE   $    8,939,630      $ 7,212,524     $     3,683,472      $ 2,367,751
L.E.A.P.S          269,270          307,062              86,066          101,415
TOTAL       $    9,208,900      $ 7,519,586     $     3,769,538      $ 2,469,166

Clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete. The extent of the Company's clinical trials and research programs are primarily based upon the amount of capital available to the Company and the extent to which the Company has received regulatory approvals for clinical trials. The inability of the Company to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent the Company from completing the studies and research required to obtain regulatory approval for any products which the Company is developing. Without regulatory approval, the Company will be unable to sell any of its products. Since all of the Company's projects are under development, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

Critical Accounting Estimates and Policies

Management's discussion and analysis of the Company's financial condition and results of operations is based on its unaudited condensed financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes. The Company believes some of the more critical estimates and policies that affect its financial condition and results of operations are in the areas of operating leases and stock-based compensation. For more information regarding the Company's critical accounting estimates and policies, see Part II, Item 7 of the Company's 2012 10-K report. The application of these critical accounting policies and estimates has been discussed with the Audit Committee of the Company's Board of Directors.


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