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CEL-SCI Corporation's Thrilling Comeback!
Surviving almost miraculously, CEL-SCI Corporation's turnaround team has the Phase III finish line in sight for its world's largest global head and neck cancer study. In late 2017 a 10% improvement in overall survival versus the current standard of cancer treatment could spark more than a stock valuation reset of $ billions. Success could usher in a new era of improved care for newly diagnosed cancer patients. Their immunotherapy treatment would be administered BEFORE instead of AFTER the patient's immune system has been debilitated by surgery, chemotherapy and radiation. The CEO's largest stock purchase ever.
By Robert J. and Brian D. Flaherty
During a recent presentation, CEO Geert Kersten of CEL-SCI Corporation (NYSE:CVM-0.49) was relaxed. "Among a class of college students in Economics 101 no one would ever believe the kind of stuff that happens to biotech companies," he quipped. "No one would ever invest if they knew, right? But the flip side is that nowhere can you make as much money as in small biotech companies which become successful!
"Sheer persistence," is Kersten's explanation of CEL-SCI's almost miraculous survival. "My management team has been with me for 20 years. Where do you still find that? What holds us together is our data-driven belief that our Multikine drug treatment works.
"People gave up on us because we had to change the original Contract Research Organization (CRO) running our Phase III study," Kersten continues. "That CRO was acquired in a private equity roll up of multiple CROs. Key people left. Things got totally messed up. We dismissed them. Our stock price took a brutal beating of 95% and still hasn't recovered.
"Under the guidance of our replacement CRO Ergomed plc (AIM: ERGO) which took over the patient enrollment, the study is going extremely well," says Kersten. "Two years ago there was a fear our study would never be finished. No one expresses that fear to me today. The old fired CRO's enrollment of newly diagnosed cancer patients was about one a month around the time we dismissed them. How is performance like that even possible? Today Ergomed is enrolling over one patient a day. Is that not an amazing comeback?"
Almost 700 patients are enrolled at 84 sites in 24 countries including the U.S., Canada, Israel and parts of Europe and Asia. Obviously, the Phase III trial is gaining momentum. "We should be fully enrolled with 880 patients by somewhere in the middle of this summer." says Kersten. Because the initial CRO's work on about 100 of 117 patients it treated may not be usable in a regulatory drug market application, CEL-SCI is considering enrolling an additional 100 patients in the fall.
Survival rates will be measured and results released after the 300th patient in the two main comparison groups dies, which is estimated to take place in late 2017. For success CEL-SCI's study should show the patients receiving its Multikine drug treatment plus surgery, radiation and chemotherapy have a 10% improvement in overall survival over those in the group receiving only the current standard of care of surgery, radiation and chemotherapy. An earlier study showed a 33% improvement so 10% does not seem to be unreachable. If achieved, CEL-SCI would submit a marketing application to the FDA seeking regulatory approval for its revolutionary commercial cancer immunotherapy treatment regime.
Few tiny companies could survive the setback from the initial CRO's fiasco. Lost credibility is hard to recover. Wall Street plays hardball where one strike and you're out! CEL-SCI stock continues to remain on the bargain counter even though the comeback team has turned the company around.
Scoop! CEL-SCI really is succeeding. Their comeback creates an impressive investment opportunity. Its recent market cap of $62 million is a tiny fraction of the $ billions commanded by earlier stage Phase I or Phase II rivals. Our Phase III sleeper's stock market valuation iseven below many pre- clinical bio-techs still testing mice.
CEL-SCI's situation is not that different from past biotech companies. Some now- leading companies could not get investors to buy into their stories. As their progress unfolded, stock returns were sensational. Remember comeback- Company Pharmacyclics was bought out for $24 billion. By just issuing a simple press release two cancer immunotherapy stocks jumped over $1 billion in a single day in 2014. CEL-SCI's valuation disconnect can vanish overnight.
"Things are going very well except for our low stock price," says a frustrated Kersten. "So I decided to make some money on it." To also demonstrate his belief in his company and his comeback team's exciting turnaround, the CEO made his biggest single personal stock purchase ever in January. It was 3 million shares near his stock's 12 month market low. This aligns management's interests with those of the shareholders. Besides leadership, it shows the CEO's confidence in CEL-SCI's strategy to become the first standard of care for many cases of solid cancer. It also confirms his belief in the intrinsic value of the shares.
BUY RECOMMENDATION: A comeback management team at CEL-SCI Corporation has transformed their formerly troubled biotech into a classic special situation. That is defined as a rare stock whose price should rise regardless of the overall stock market direction because of its momentum and intrinsic value.
In the early l980s the stock of Digital Switch Corp was being lambasted. Big time media chewed up the most negative Initial Public Offering prospectus ever written. That's because important positives weren't included. In my contrarian cover story "Hope for the Horrible Example" and also an accompanying Special Situation I wrote that a talented technology team had just come aboard backed by savvy financial investors. Digital Switch's stock went on to rise over 10,000%!
In last March's annual Flaherty's Favorites of the Famous CEL-SCI Corporation was chosen as Bob Flaherty's favorite stock and it still is. Ironically, December tax selling drove the share price down after being de-risked by management's three astute major moves in October plus significantly improving enrollment of newly diagnosed patients in its all-important cancer study. This cancer immunotherapy pioneer continues to be "the most undervalued Phase III biotech" even though management has turned their ship around.
This is where opportunity comes in! With his 3 million share purchase, the CEO saw it. I hope you do too!
Understand why the intrinsic value is worth many times the recent stock price. Consider CEL-SCI's issued or pending patents, its lead product Multikine's Orphan Drug Status , valuable European-inspected U.S. manufacturing facilities, know-how crucial for turning out this complex immune system boosting biologic cancer drug treatment, its top notch partnerships and its research pipeline with new multibillion dollar market potential.
The goal of our existing Flaherty Special Situation Newsletter #38 is a gain of 50% to 100% over two years. We believe our CEL-SCI pick will surpass our usual targets and go on to become one of our biggest winners ever. Read this exciting biotech comeback story and see if you agree.
"We're almost at the Phase III finish line!" CEL-SCI is heading toward three significant short term events. The first should be a conclusion to CEL-SCI's $50 million arbitration suit which is scheduled to go to trial in a few months. The second should be full Phase III study enrollment of the initial target of 880 patients in mid- summer. Then, estimated around late 2017 upon the death of the 300th enrolled patient in the two main Phase III trial comparison groups, survival results can be measured and released.
The 10% benchmark was not set too high to clear. CEL-SCI's unique goal is to prove that injecting its three week immunotherapy treatment Multikine drug regime into newly diagnosed head and neck cancer patients during the four week window BEFORE currently required surgery, radiation and chemotherapy will show at least a 10% improvement in overall survival. That benchmark is well below a 33% improvement observed in an earlier Multikine study. The bar does not appear set too high to clear.
Doing it BEFORE has never been done! Success would bring a vast improvement for newly diagnosed cancer patients. Today cancer patients' immune systems are boosted AFTER treatment of surgery, radiation and/or chemotherapy. All severely weaken the immune system. It is common sense to assume that boosting the immune system BEFORE this trio of debilitating procedures will benefit patients. Except for one thing. Administering immunotherapy treatment BEFORE has never been done.
High Hopes! CEL-SCI's unique immunotherapy treatment has the potential to become the fourth standard of care for solid cancers, preceding and joining surgery, radiation and chemotherapy in head and neck cancer. If successful, Multikine treatment could be expanded to other solid cancers. Also Multikine's boosting of the immune system could work on other diseases and viruses. In fact, CEL-SCI is running a study against a virus using Multikine with the U.S. Navy!
Time to dream of a new era of cancer treatment! The CEO's prime focus is on CEL-SCI's Phase III Multikine drug treatment to boost the immune system of newly diagnosed head and neck cancer patients because that is the real driver for his company and his stock.
"This is our message," says Kersten. "All cancer drug development happens in patients who have failed initial treatment of surgery, radiation and chemotherapy. What does the immune system look like then? It's debilitated, right? Do you really want to wait to boost the immune system of these people? What's left to be boosted?
"In contrast, CEL-SCI thinks the best place to start and develop a cancer immunotherapy treatment is to give it to the newly diagnosed patients who have not yet had chemotherapy, radiation and surgery. That's where we have the greatest chance of success in boosting their immune system. Yet we are the only ones in the world to be doing that in our Phase III trial."
Starting with newly diagnosed cancer patients in contrast to rival's use of sicker ones suffering from recurrent cancer explains why CEL-SCI's Phase III is taking so much longer to obtain final results to submit to regulators. All too often after surgery, radiation and chemotherapy, the cancer comes back. The patient ends up in a brutal fight for survival. Naturally the results from these sicker groups come quickly because the great majority of this group will die quickly.
"In our case instead of most of the patients dying within a short time period, it's about 40% to 50% dying within two to three years," Kersten explains. "Therefore, to achieve statistical significance our Phase III studies are larger and take longer."
Boosting the immune system upfront while it's still healthy is such a logical idea. How is it possible that CEL-SCI is the only company in the world doing so in its Phase III trial? "Ethically, as a doctor, you are supposed to do no harm," says Kersten. "Therefore you cannot delay the patient's surgery which must take place within four weeks. Unless an experimental drug can be given in that four week window, it cannot be given.
"That's where CEL-SCI's Multikine regime fits in. WE CAN THINK OF NO OTHER CANCER IMMUNOTHERAPY THAT FITS INTO THOSE THREE WEEKS BETWEEN INITIAL CANCER DIAGNOSIS AND SURGERY. ( For example, if you wanted to use the Check Point Inhibitor class of drugs PD-1 or PDL-1 which require three months of treatment you couldn't fit them in without postponing surgery.)
"We are about boosting a healthy immune system and making that first cancer treatment more successful. We started with head and cancer and from there we hope to go on to other solid cancers.
"If we're right, we may develop a new standard of care. If we increase overall survival, the gold standard for cancer approval, in the largest study ever done in head and neck cancer wouldn't we have a shot at becoming the new standard of care? Cancer patients would get our drug first. That's what this is about."
There must be a better way! Most people don't die from the original tumor. They die from the recurrence, mostly from tumor cells left over around the tumor and in the lymph nodes. Surgeons know this. Any suspected areas are cut out with wide margins. Still people have recurrence of tumors near the original location or in the lymph nodes and then they tend to die. To kill the left over tumor cells patients get radiation and chemotherapy. Yet even with radiation and chemotherapy added, the death rates are still very high.
"We postulated that if we inject our Multikine for three weeks, five days a week, at 12, 3, 6 and 9 o'clock around the tumor and near lymph nodes, we can boost the immune system while it is still relatively healthy," says Kersten. "The goal is for Multikine to clean the margins and kill the tumor micro metastases. Subsequently, surgery takes the tumor out. This combination should lead to less recurrence and increased survival. That's what we showed in Phase II and that is what we now hope to prove now in the biggest Phase III head and neck cancer study in the world."
What is Multikine? Multikine is a mixture of 14 cytokines. These are various proteins secreted by cells which carry signals to the neighboring cells. That mixture is one of the reasons why it cost CEL-SCI almost $100 million to develop and validate the manufacturing process. Everyone knows people who seemed perfectly healthy who died of cancer. They took their vitamins and exercised regularly, but they died because essentially the immune system generally could not see cancer. The tumor makes itself invisible to the immune system. That's the problem.
"Our Multikine drug treatment regime unmasks the cancer," says Kersten. "The immune system before surgery, chemotherapy and radiation is potentially strong enough to help win the fight against cancer. We have seen massive immune responses against the tumor in just two or three weeks. While we appear to eliminate the tumor in some patients in just three weeks of treatment, that is simply an unexpected bonus. Just eliminating the micro metastases around the tumor and in the lymph nodes should be helpful for reducing the cancer recurrence."
Large unmet medical need! The last approval for advanced primary head and neck cancer was half a century ago. Head and neck cancer represents 6% of all the solid cancer cases. There are about 650,000 new cases annually, 150,000 in the U.S. and EU. It's a big unmet need and it's fatal in far too many people. The regulators would like to approve something to help these patients. CEL-SCI already has an orphan drug designation for advanced primary head and neck cancer from the FDA.
"Cancer immunotherapy is now considered to be the future," says Kersten, who remembers when it was not. "We are one of the grandfathers of cancer immunotherapy.
"Most investors don't know this. Half of the approval process for a biologic like Multikine is for manufacturing. It is called a BLA, a Biologics License Application. That means your manufacturing facility is a vital part of the process. Unless you have that locked up before Phase III you might have a successful study and you will still not get to the finish line.
"We spent an enormous amount of time and money on manufacturing. Multikine is a complex biologic. Between the validation and our manufacturing facility we spent about $100 million.
"The facility has been inspected twice by the European Qualified Persons. We have top notch partners, The National Institutes of Health, its related National Institute of Allergy and Infectious Diseases (NIAlD), U.S. Navy, Teva Pharmaceutical, Orient Europharma Co., Ltd. and Ergomed. We have published research in top notch places and presented at important scientific conferences. NOW WE JUST NEED TO PROVE OUR MULTIKINE DRUG TREATMENT WORKS BY FINISHING OUR PHASE III TRIAL."
The U.S. Navy is using the exact same medicine in a study on Human Papilloma Virus (HPV). Multikine is not simply a head and neck cancer product. It is an immune system product that enables your body to fight a disease more effectively, not just head and neck cancer. In this case the target is HIV/HPV. Why can't the HIV infected patients fight HPV properly? (For the answer please read the section Multikine can be used to treat viruses in co-infected HIV/HPV men and women later in this newsletter.)
De-risking Events! After it had to fire its old original CRO running the Phase III trial, CEL-SCI has been plagued by investor doubts that it possessed the staying power to achieve its goals. Last October three major de-risking events occurred. Combined these provide an extra new $19 million in financial resources. But their greater value lies in what they indicate about the potential success of CEL-SCI's underlying business.
De-Risking Event One: Ergomed plc (AIM: ERGO), the Contract Research Organization which is now 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. It is highly positive that on Oct. 5 Ergomed decided to boost by $2 million its previous $10 million investment in co-funding the study up to $12 million. The deal was done under the same terms first put in place that calls for only a single digit royalty on potential sales. Its return can only come from a successful drug gone commercial.
De-Risking Event Two: Kersten is a lawyer who is also married to a lawyer, a former crime-fighting Assistant U.S. Attorney. This CEO has dedicated over two years 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) in a few months.
Skeptics questioned if CEL-SCI could afford to fight the suit and also continue with its Phase III. Kersten felt that the big company he was suing wanted to grind little CEL-SCI down. For help he sought a litigation funding firm. On Oct. 14 CEL-SCI received a commitment of up to $5 million for litigation expenses against its former CRO from a company set up by litigation funding experts Lake Whillans. 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 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 CEL-SCI settles sooner or goes to trial as scheduled in a few months CEL-SCI will pay $0 in legal fees.
What's the best news for investors? After spending months of review, an expert litigation funding firm decided CEL-SCI had a winning case. The fact the original fired CROs work on about 100 of the 117 patients it treated may not be usable for a regulatory market application greatly strengthens CEL-SCI's legal case. That's why the litigation firm wanted a piece of potentially $150 million in direct and consequential damages. An arbitration win could double the price of CEL-SCI's shares.
De-Risking Event Three: On Oct. 28 Dawson James Securities completed a CEL-SCI secondary offering 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.
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. The 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.
Orphan Drug Status: CEL-SCI's Multikine treatment regime has been granted Orphan Drug Status by the FDA. Statistically speaking, the chance of being successful with an orphan drug is somewhere around 75%. If successful then Multikine 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.
Multikine can be used to treat viruses in co-infected HIV/HPV men and women. 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 and will 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 systems are not strong enough to kill the virus, HPV causes all kinds of HPV related diseases including cancer. This condition 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. Surprisingly 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 because there is a new HPV vaccine HPV will no longer be a problem. Alas, only 32% of U.S. girls actually receive the three required shots that protect against all strains. Naturally, most guys skip getting the vaccine. 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. A successful win in CEL-SCI's arbitration suit could provide the funds to turn this into a reality.
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 that then 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.
The odds of success shift in CEL-SCI's favor! The Immunotherapy pioneer's ongoing global Phase III head and neck cancer study is going very well and picking up momentum. The odds for success have shifted in underdog CEL-SCI's favor. Money talks! Outside experts in their fields, after full due diligence and with knowledge of the facts, have invested millions which will pay off only if CEL-SCI is successful. If the Phase III study results show a 10% improvement in patient survival the stock value could soar $ billions.
Success would bring more than a stock coup. Newly diagnosed cancer patients will benefit as immunotherapy treatment will be administered BEFORE the immune system is debilitated by surgery, chemotherapy and radiation instead of AFTER as it is today.
Years from now Multikine treatment may allow for the elimination of surgery in some cases where an organ, such as the tongue, can be saved. It may also reduce the need for chemotherapy. Think about those last two lines! This is a great comeback story! - RJF
RISKS
CEL-SCI's current momentum is riding on completing its global Phase III trial head and neck cancer test. Any unexpected toxicity or negative clinical results, especially a disappointing extension of overall survival of Multikine treatment trial patients below 10%, would be a major setback. If CEL-SCI completes patient enrollment in 2016 and then completes its Phase III study successfully in late 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
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