Flaherty Financial News Newsletter #52
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CEL-SCI (NYSE:CVM): Bob's Best Buy Got Better!  
A monthly record of 38 patients puts CEL-SCI just 272 patients from its goal of enrolling 880 head and neck cancer patients in its global Phase III trial in 2016.    Three major events de-risk shares.                       November 13, 2015
Bob Flaherty Rides Again!
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Bob's Best Buy Got Better! In our annual Flaherty's Favorites of the Famous panel CEL-SCI Corporation (NYSE:CVM- 0.48) was chosen as my favorite stock. Also in February we recommended CEL-SCI as a BUY in our Flaherty Special Situation Newsletter #38. We followed up its progress in Flaherty Financial News Newsletter #50 last August.
If my vision for CEL-SCI's future is correct its stock has just become an even better bargain. Its stock just hit a 12-month low while the recent news is highly positive. This cancer immunotherapy pioneer remains "the most undervalued Phase III biotech" even though management has turned the ship around.
A Spectacular Rescue! The heart of the credibility-gap crisis rests upon Wall Street's belief that its five-year-old global head and neck cancer Phase III study will never be completed. Based on the performance of the first Clinical Research Organization (CRO) running the Phase III study, such a conclusion was understandable.
However, the new replacement CRO has done a spectacular job rescuing the Phase III study. Surprise, it's rapidly moving toward its conclusion. Current patient enrollment is soaring and picking up more momentum each month. As the cancer trial progresses today's CEL-SCI backers will get their long- awaited victory lap. Circumstances in the trial have improved, but outsiders' perceptions have not yet caught up with reality.
Three New De-risking Events in October. Each created a lot of so far undiscovered value. Combined these provide an extra new $19 million in financial resources. Their even greater value lies in what they are indicating to us about the underlying business. All doubts about CEL-SCI's staying power have been dispelled. Now CEL-SCI has the resources to complete the planned enrollment in its Phase III global head and neck cancer Multikine drug treatment trial.
Millions versus Billions! Here's our opportunity! With its improved prospects CEL-SCI's stock market cap of $63 million is ridiculously low for a Phase III immunotherapy cancer trial company. Immunotherapy rivals in earlier Phases I or II studies are valued in the billions. Furthermore, some of these may not even make it forward as far as the Phase III trial stage where CEL-SCI already is now.
CEL-SCI's Multikine drug regime treatment could be transformative. Success could turn current solid cancer treatment upside down. Expected to be the largest head and neck cancer clinical trial ever conducted, it has global study sites in the U.S., Canada, Israel and parts of Europe and Asia.
The study takes an approach based in science and logic: Shouldn't we boost your immune system before we destroy it with radiation and/or chemotherapy? Will not doing so provide greatest benefit to cancer patients? This unique do-it-first approach is different from other cancer immunotherapy developments that wait to treat the patient until after radiation and/or chemotherapy has been administered.
CEL-SCI has a well thought out contrarian treatment approach! Once proven to work in head and neck cancer, why wouldn't the new approach work in other solid cancers too?  
CEL-SCI's unique goal is to prove that injecting its three week Multikine drug regime for newly diagnosed head and neck cancer patients during the four week window before surgery, radiation and/or chemotherapy will show at least a 10% improvement in overall survival. That benchmark is way below a 33% improvement observed in an earlier Multikine study. The bar does not appear to be too high to clear.
Either improvement of 10% or 33% would be a vast improvement for today's newly diagnosed cancer patients. Their cancer is treated with surgery, radiation and/or chemotherapy. All of these severely weaken the immune system. It's only common sense to assume that boosting the immune system before these difficult treatments should be very beneficial to the patients. Except for one thing. It's never been done before. That's why the upside here is so great.
High Hopes! If CEL-SCI's global Phase III head and neck cancer immunotherapy trial continues its accelerating patient enrollment and is successfully completed, CEL-SCI stock with its total stock market cap down to $63 million could jump over $1 billion.
Impossible? Not at all. Over $1 billion would be a reasonable for a cancer immunotherapy treatment like this one. It has the potential to become the fourth standard of care for solid cancers, joining surgery, radiation and/or chemotherapy in head and neck cancer. Later on it could become the fourth standard in other solid cancers too.
Believe it or not, twice last year cancer immunotherapy stocks skyrocketed for similar spectacular one- day gains. All it took were simple company press releases. Each just announced progress in their cancer drug trials.
Suddenly, risk adverse institutional investors leaped on board after deciding that the odds of success had swung in their favor. The stock of Puma Technology (NYSE:P: BYI) added almost $5 billion on July 23, 2014. The stock of Bristol-Meyers Squibb (NYSE:BMY) jumped about $7 million after announcing successful Phase II results for its own cancer immunotherapy drug On October 20, 2104.
The goal of our existing Flaherty Special Situation is a gain of 50% to 100% over two years. We believe our CEL-SCI pick will surpass our usual targets. For patient investors it should go on to become one of our biggest winners ever. Read our following more detailed profile. See if you agree.-RJF 
CEL-SCI (NYSE:CVM): Bob's Best Buy Got Better!    
 
Record monthly enrollment of 38 patients in October 2015 puts CEL-SCI only 272 patients from its goal of enrolling 880 head and neck cancer patients in its global Phase III trial in over 100 sites in 24 countries. The goal is to prove that injecting its three week Multikine drug regime during the four week window before surgery, radiation and/or chemotherapy will show at least a 10% improvement in overall survival. In October three major events de-risked shares. With planned full enrollment of its trial in 2016 and possible completion in 2017 a valuation reset from today's $63 million to over $1 billion could follow.
 
By Robert J. and Brian D. Flaherty
 
CEL-SCI Corporation (NYSE:CVM-0.48) is a classic special situation.
That is defined as a stock pick which will go up regardless of the direction of the overall stock market if we are right.
Right about What?
Right that newly diagnosed head and neck cancer patients in CEL-SCI's global Phase III Multikine regime treatment trial will be fully enrolled in 2016 and the study will be completed in 2017.
This immunotherapy pioneer suffers from a massive credibility problem. Wall Street believed that its Phase III trial will never be completed and the realization that the study is now being completed has not sunk in yet.
Here's the scoop! Current patient enrollment is soaring and picking up even more momentum each month. If the initial failure to enroll sufficient patients started CEL-SCI's stock on the downside, why shouldn't its new success enrolling them herald a big comeback? Cancer immunotherapy is considered to be the future of cancer treatment. 
A New Monthly Phase III Patient Enrollment Record! Under the leadership of CEL-SCI's spectacularly performing Contract Research Organization (CRO), Ergomed plc (AIM: ERGO) a new monthly record for patient enrollment of 38 was set in October. Enrollment exceeded one per day! As of October 31st 606 patients are enrolled-68% of the full enrollment goal of 880. There may be seasonal dips for holidays, but future monthly enrollment should continue to average upward. Why?
First, some test sites in of the participating 24 countries have not even started yet. Second, current participating sites where results are promising should pick up greater momentum. (Please see De-Risking Event One later in this profile.)  
Patient enrollment is the key to success. By next May 31st or during the following quarter full patient enrollment in the Phase III study should be achieved. Instead of worrying about exact full enrollment date for this highly complex global study grasp the following important point.
It's the recent accelerating upward momentum for patient enrollment!
Does this reveal something about what doctors are seeing in their patients following CEL-SCI's Multikine drug treatment? I would like to think that doctors will not push their patients to join a study where they have seen no benefits. Conversely, if doctors see benefits to their patients wouldn't they encourage more patients to participate and join the Phase III study? The increase in enrollment has been so great that some of this may well be taking place.
Other positives have been recently reported, but increasing enrollment is by far the most important. That is because success of the trial depends upon robust enrollments. Today Ergomed is signing up over one patient per day. That's sensational!
As the organization with the main responsibility for conducting the trial, Ergomed can see the new doctors and new institutions signing up. It can see results or lack of them. So increasing their co-development investment in CEL-SCI's Phase III study clearly indicates that Ergomed believes the Phase III study is going well. Otherwise it wouldn't be putting in an extra $2 million of non- recourse money. Its return can only come from a successful drug gone commercial. Annual Multikine revenues could be in the multi- billions. So ErgoMed wants to make its slice of the pie bigger.
BUY RECOMMENDATION: Everyone Loves a Turnaround and We Do Too!
We believe that we have found an incredibly undervalued stock for you. Turnaround CEL-SCI Corporation is trying to do something never done before. It wants to pioneer a revolutionary new way to activate and strengthen the immune system to fight cancer and infectious diseases before it is weakened or debilitated by surgery and radiation and/or chemotherapy.
Now nearly all of CEL-SCI's focus is on conducting and completing the largest Phase III head and neck cancer treatment trial in the world as its immunotherapy Multikine drug regimen is being administered to patients.The primary endpoint for CEL-SCI's Phase III Trial results should take place sometime during 2017 when the 298th of 880 enrolled patients dies.
Assuming the 10% improvement in patient survival is achieved, CEL-SCI would expect to submit a Biologics License Application (BLA) to the FDA seeking regulatory approval for its revolutionary commercial cancer immunotherapy treatment regime.
Cancer immunotherapy is the hottest spot out there. Phase I drug trial companies are trading for billions while our Phase III sleeper doing a global study in 24 countries has a total stock market valuation of recently $63 million. That is even less than many pre- clinical trial bio-techs.
The goal of this profile update and our existing Flaherty Special Situation is a gain of 50% to 100% over two years. We believe our CEL-SCI pick will surpass these usual targets. For patient investors the stock should go on to become one of our biggest winners ever.  
Wall Street hates surprises! The reason CEL-SCI has a credibility gap was its initial trial launch failed to enroll sufficient patients and Wall Street decided the Phase III study would never be finished and therefore the company would not survive. From a high of $17.90 (adjusted for reverse stock splits) in October 2009 shares declined 97% to today's $0.48.
"Wall Street assumed we would never finish the study and we are dead," explained CEO Geert Kersten. "We've fallen off the radar screen. It's as if we don't exist." The lower stock price created lasting and serious shareholder dilution because CEL-SCI had to issue many more shares at sharply lower prices to raise new capital.
CEL-SCI's Arbitration Suit: A lawyer who is also married to a lawyer who is a former crime-fighting Assistant U.S. Attorney, CEO Kersten has dedicated months of his life to CEL-SCI's $50 million arbitration suit against the original CRO in charge of its Phase III study. This arbitration is scheduled to go to the final hearing (trial) on March 1, 2016. Because this is a sensitive period in the arbitration we will not speculate on a possible outcome until that suit is resolved and we can report what actually happened.
Looking back is always easier than looking forward. Until early October CEL-SCI was plagued by investor doubts that it possessed the staying power to achieve its goals. So management which has shown great persistence achieved three major de-risking events.  
De-Risking Event One: Ergomed plc (AIM: ERGO), the Contract Research Organization which is carrying out most of the Phase III trial, is obviously best able to judge how the Phase III trial is going. No one else is closer. So it is highly positive that on Oct. 5 Ergomed decided to boost by $2 million its previously announced $10 million investment in co-funding the study up to $12 million. The deal was done under the same terms first put in place for its initial $10 million that call for only a single digit royalty on potential sales.
My old friend gadfly Ray Dirks wrote, "This clearly shows Ergomed's confidence not only in the likelihood of Multikine being approved but also in the large revenue potential of the cancer immunotherapy drug."
"At this point in the clinical trial we have decided to increase our investment in the development of Multikine, as we believe that it holds the potential to treat head and neck cancer in a new way", stated Ergomed CEO Miroslav Reljanovic. "Our potential returns from this agreement will increase in line with our investment."
Ergomed believes the Phase III study is going well. It wouldn't be putting extra millions of non- recourse money otherwise. Its return can only come from a successful drug gone commercial.  
De-Risking Event Two: On Oct. 14 CEL-SCI received a commitment of up to $5 million for litigation expenses against its former CRO with a company set up by Lake Whillans, litigation funding experts. This non-dilutive funding will only be paid back from proceeds of the arbitration. Any return of funds in the agreement is repayment of capital actually disbursed by Lake Whillans plus $5 million plus 15% of the net proceeds.
What if the costs for the arbitration go beyond $5 million? Good question! CEL-SCI's law firm has agreed to cap its costs and expenses at $5 million. That means whether it settles soon or goes to trial later CEL-SCI is starting with a clean slate. From now on it will spend $0 on the $50 million arbitration suit.
De-Risking Event Three: Besides the above described two new sources of non-dilutive funding, CEL-SCI dispelled any remaining doubts about its financial ability to reach full enrollment of the planned Phase III. On Oct. 28 Dawson James Securities completed a secondary offering with CEL-SCI for about $11.5 million before fees. Units comprised 17.2 million new shares and 17.2 million immediately detachable five year warrants exercisable at $0.67. Short term this new funding caused dilution. Long term it enhanced the ability to complete the Phase III trial.
A Huge Cancer Immunotherapy Market! Head and neck cancer is a huge market of about 650,000 new untreated patients annually. That is about 6% of the world's new annual cancer cases. Global Phase III study sites are in the U.S., Canada, Israel and parts of Europe and Asia. If the trial is successful then it is logical to expect marketing approval around the world.  
The study is different. It wants to help patients treat cancer successfully with the first treatment, not after the cancer has come back. It is the first Phase III clinical trial in which immunotherapy is to be administered to cancer patients prior to their receiving today's conventional cancer treatment. In contrast, rivals administer immunotherapy after a patient's immune system has been severely weakened by conventional standard cancer care, especially radiation or chemotherapy.
If successful, CEL-SCI's head and neck cancer Phase III Multikine trial could fundamentally change how other solid cancers are treated. Why wouldn't it work there too?  
Phase III Partners: If the trial is successful, positive results will be used to support applications which will be submitted to regulatory agencies in order to receive commercial marketing approvals around the world. CEL-SCI has retained key rights in lucrative North America and Europe where the biggest profits are typically booked. Teva Pharmaceuticals has marketing rights in Israel, Turkey, Serbia and Croatia and is enrolling Phase III patients in Israel. Taiwan-based Orient Europharma has nine centers in Taiwan and is setting up centers for Malaysia, Philippines and Thailand.
Ergomed, U.K. is performing spectacularly enrolling new Phase III patients. National Institutes of Health is trying to figure out what patients are most likely to benefit from Multikine therapy. Many other top medical research institutes, universities and hospitals around the world are also participating.  
The Gold Standard for Cancer Approvals: Overall Survival. Advanced primary (which means not- yet- treated) head and neck cancer is an unmet medical need. The last approval FDA gave for this indication was over 50 years ago. The regulators want to approve something helpful for these patients. That's an important plus.
A final Phase II study approximated a 33% increase in overall survival for patients who had been administered Multikine followed by the current standard of care over other patients who just received the existing standard of care at 3.5 years after surgery. For Phase III the FDA indicated it would be satisfied with a 10% improvement.
Upon the 298th death of  at least 680 measureable patients enrolled overall survival is expected to be measured sometime in 2017. Only then will CEL-SCI learn if it has succeeded or failed to achieve the Gold Standard for approving cancer drugs in its global Phase III trial.
Orphan Drug Status: CEL-SCI's Multikine treatment regime has orphan drug status. Statistically speaking, the chance of being successful with an orphan drug is somewhere around 75%. If successful then it could become standard of care first treatment for what is about 6% of the world's cancer patients. That's about 650,000 cases annually. Treatment of other solid tumors could follow.
CEL-SCI has composition of matter patents in the key countries until 2024. The FDA designated Multikine with Orphan Drug status in the U.S. so that by law CEL-SCI only has to conduct one Phase III clinical trial.
This qualifies CEL-SCI for seven years marketing exclusivity from the date Multikine is approved or licensed. Other benefits include the possibility that the approval time could be expedited; opportunity to apply for an Orphan Grant which would provide up to $350,000 per year for up to three years and tax incentives of up to 50% of clinical investigational costs associated with Multikine's development. Orphan Drugs also have much higher chances of being approved for sale.
Manufacturing Process Validation: Over $80 million was invested in the full validation of the Multkine manufacturing process of this complex biologic. To ensure closer product quality control CEL-SCI has built a $25 million drug manufacturing facility not in some far away third world country, but in Baltimore, MD. The plant already has passed inspection twice by European Qualified Persons, representatives of the EU. It has an annual capacity to generate an estimated over $3 billion worth of Multikine. Supplying Multkine just for head and neck cancer by itself will use up that capacity.
Being located in the Washington, D.C. area is beneficial: Vienna, VA-based CEL-SCI has lots of government collaborations. A number of preclinical technologies have been mostly developed with government funds.
"We are also working with the U.S. Navy on Multikine in a completely different disease, "says CEO Kersten. "Multikine is immunotherapy that can potentially be used against different cancer tumors as well as a virus. So the exact same product that we are using against head and neck cancers is also being used by the U.S. Navy at the San Diego Naval Base in the treatment of peri-anal warts in HIV/HPV co-infected men and women. These co-infected patients have about a 30-fold increased risk of developing anal cancer because of their compromised immune systems."
The latter indication is now a Phase I trial in conjunction with the U.S. Navy under a CRADA (Cooperative Research and Development Agreement). Under the CRADA the government pays for the clinical trials, but does not take any rights or royalties. CEL-SCI, which is responsible for the manufacturing and contributing of Multikine, will retain all rights to any currently owned technology. It will also have the right to exclusively license any new technology development from this collaboration.
Additional clinical indications for Multikine are being investigated. A Phase I trial has been completed at the University of Maryland relating to pre-cancerous cervical (the area of the uterus that joins the vagina) dysplasia in HIV/HPV co-infected women. The disease was not a big deal 10 years ago because patients tended to die before slow growing HPV caused problems. Now with new treatment extending lives many are going to catch HPV in their lifetimes.
This is a huge problem in the HIV population because their immune system is not strong enough to kill the HPV causing all kinds of HPV related diseases including cancer. It affects about 25% of the HIV infected population, 300,000 in the U.S. and 500,000 in Europe. There are no current effective approved therapies and CEL-SCI appears to be the only company that can deal with HPV in an HIV infected patient.
About 2% to 3% of women cannot control HPV. It requires continued cutting, scrapping or burning. It can affect ability to have children and can lead to cancer. People mistakenly think that with the new HPV vaccine HPV is no longer a problem. Alas only 32% of U.S. girls actually receive the three required shots that protect against all strains. Most guys skip  the vaccine. So HPV, the #1 sexually transmitted disease, will continue to be a serious national problem.
A Rheumatoid Arthritis Vaccine? CEL-SCI is developing its Ligand Epitope Antigen Presentation System (LEAPS). This patented T-Cell modulation process stimulates the immune system to fight bacterial, viral and parasitic infections, as well as autoimmune, allergies, transplant rejection and cancer. One program aims at developing a treatment of pandemic influenza. A $225,000 Phase I Small Business Innovation Research Grant from the National Institutes of Health is being used to develop a potential vaccine for rheumatoid arthritis with researchers from Rush University Medical Center. CEL-SCI is very interested in taking this effort into human studies.
Additionally, this rheumatoid arthritis vaccine candidate has just been accepted for a new program of technology commercialization and niche analysis managed by Foresight Science & Technology for the U.S. National Institutes of Health. This analysis will include interviews with experts and end users, recommendations for a market entry, launch tactics and revenue projections.
This LEAPS technology allows determining in advance the kind of immune response the body will make to the antigen, which is any substance foreign to the body that evokes an immune response.
Essentially LEAPS tries to redirect a person's faulty immune response into a correct one. The theory is the body would no longer attack itself. Some of the diseases where LEAPS showed animal challenge protection are H1N1, malaria, herpes, tuberculosis and breast cancer.
This is a Turning Point! Immunotherapy pioneer CEL-SCI Corporation (NYSE:CVM-0.48) has a huge credibility problem with Wall Street, which results in a very poor stock market valuation. That is because many are still looking backward instead of ahead.
Its ongoing global Phase III head and neck cancer study is going well. If the initial failure to enroll patients started CEL-SCI on the downside, why shouldn't its current success enrolling them herald a comeback?
The odds for success have shifted in CEL-SCI's favor. The Phase III study will be completed. If the study results show a 10% improvement in patient survival  it will be mean more than one more stock coup. Mankind, especially cancer patients, will benefit significantly too. - RJF
  
RISKS
  
CEL-SCI's current momentum is riding on completing its global Phase III trial head and neck cancer study. Any unexpected toxicity or negative clinical results, especially a disappointing extension of overall survival of Multikine treatment trial patients by fewer than 10%, would be a major setback. If CEL-SCI completes patient enrollment for its Phase III in 2016 and then completes the study in 2017 the future looks very bright.

COMPANY CONTACT INFORMATION
 
CEL-SCI Corporation
Gavin de Windt
Associate Director of Operations
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Phone: (703) 506-9460
For more information please visit http://www.cel-sci.com/

           
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Disclaimer: This Flaherty Financial News Newsletter contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected. We caution readers not to place undue reliance on any forward-looking statements and to supplement this newsletter with specific company SEC filings and their own research. Before purchasing any shares or making an investment, readers should review the company's SEC filings, including the most recent 10-K and 10-Q, available at www.sec.gov. Please be aware that there is risk in every company stock that you buy. Coverage or other mention of a stock or fund in this newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. We are not investment dealers or investor advisers registered with the SEC or State Security Authorities. We do not guarantee all the information in this newsletter is correct or will be updated. Remember some errors are inevitable. Reproduction without written permission is forbidden. Flaherty Financial News, Inc. received $10,000 in cash and 20,000 restricted 144 shares from CEL-SCI Corporation for an editorial writing and online distribution fee for CEL-SCI to be featured in this issue. Our own policy forbids editorial from buying or selling a featured stock until this issue is out at least 10 business days after its issue date, which in this case would be November 30, 2015. In cases where a report or profile is subsidized, readers should consider such subsidized articles as paid advertorials and understand that sponsored material will not be as objective as non-sponsored editorial.
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