Flaherty Financial News Newsletter #55
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CEL-SCI Corporation's (NYSE:CVM) Phase III Cancer Immunotherapy Comeback Continues!
Record patient enrollment for a February in CEL-SCI Corporation's pivotal world's largest global head and neck cancer Phase III study. Its $50 million arbitration suit with an extra possible $100 million in consequential damages against its initial CRO is scheduled to start a final hearing (trial). Full patient enrollment of 880 will be achieved this  summer. In about 2 years patient survival results are expected to be available. Success will add $ billions to stock valuation. Only 2 years to the finish line. Also: Wow! Dow 89,000! Sir John Templeton's forgotten forecast.
                                                                                       March 7, 2016
Bob Flaherty Rides Again! Frightening predictions of doom like an "80% stock market crash in 2016" or "100% certainty of a recession in the U.S." liven up our daily financial news. In some countries bond yield interest rates have turned negative and customers pay banks even for accepting their money.
You think the investing environment is bad now! Remember back to the days when I was editor of Equities Magazine when our late guru Sir John Templeton helped set the tone for our readers. In gloomy l982 Sir John announced "The Dawn of People's Capitalism" so readers could buy big while the depressed DJI was under 800. Institutional Investor ran a black cover designed to look like an obit announcing "The death of Equities." Others predicted that the individual investor and maybe the stock market would never come back. Both did.
Later "the world's wisest investor" alerted our readers to prepare for the unexpected l987 and l989 stock crashes, the instantaneous continuous super bull market and the internet Tulip Mania collapse on which Sir John made $95 million shorting high tech IPOs. Here's the good news. In 2002 when no single country's stocks were a bargain, Sir John predicted there would be record U.S. stock prices before the end of the decade (which happened) and Dow 89,000 within 40 years.
WOW! DOW 89,000! Hmm. Fourteen years have already gone by. That means within the next 26 years the DJI must rise 450% to achieve Dow 89,000. So take a long run point of view. We repeat last issue's  positive message that Sir John would give to today's readers if he were still with us. While daily roller coaster ups and downs are nerve wracking, stocks offer your best protection from the relentless shrinking purchasing power of your dollars. Held over the long- term stocks will average out to annual gains of 9%.
If you are not a good individual stock picker or have a weak stomach we suggest Vanguard Total Stock Market Index Fund (symbol VTSMX) as a core holding. This no load index fund owns only NYSE and Nasdaq stocks. By far it charges the lowest annual expense ratio around. You will own the stock market at its high and be invested at every low. No market timer can match that. It's the safest way to lock up that 450% gain when Sir John's Dow 89,000 pops up.
For those who like to do more than just play safe this issue spotlights the continuous progress of CEL-SCI Corporation (NYSE:CVM-0.63). It's my favorite stock for 2016. This issue's "CEL-SCI's Comeback Continues" describes how "the most undervalued Phase III biotech" is succeeding at last. While its stock remains on the bargain counter a comeback team has turned the company around. Here's the scoop: CEL-SCI can rise 450% as Sir John predicted the DJI will but you won't have to wait 26 years. CEL-SCI's $50 million arbitration suit with a possible extra $100 million in consequential damages is scheduled to start fairly soon. This summer CEL-SCI's goal of fully enrolling 880 head and neck cancer patients in its global Phase III trial will be achieved. Expected in about 2 years the 300th patient enrolled in the two main study groups will die and survival results can then be measured. The stock's bargain price and its huge discount from intrinsic should vanish as the finish line approaches. Good things are happening. Read on and see if you agree.
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CEL-SCI Corporation's (NYSE:CVM) Phase III Cancer Immunotherapy Comeback Continues!
Record patient enrollment for a February in CEL-SCI Corporation's pivotal world's largest global head and neck cancer Phase III study. A hearing (trial) of the $50 million arbitration suit with an extra $100 million in consequential damages sought from its initial CRO nears. Summer will bring full patient enrollment of 880. Expected in about 2 years when the 300th enrolled patient in the two main comparison groups dies results will be measured. A 10% improvement in overall patient survival versus the current standard of cancer care should increase the stock valuation by $ billions. That makes CEL-SCI Bob Flaherty's personal new Favorites of the Famous pick for 2016.
 
By Robert J. and Brian D. Flaherty
Our next issue will be our 35th annual Favorites of the Famous feature where about a dozen money men and financial journalists each will pick their single favorite stock for the next 12 months. My own personal favorite pick will be CEL-SCI Corporation
(NYSE:CVM-0.63).
Why? Good things are about to happen which could double or triple the price of the stock. A final hearing (trial) in CEL-SCI's $50 million arbitration suit with an extra $100 million in possible consequential damages sought from their dismissed first Clinical Research Organization nears. Considering that the former CRO was only enrolling about one patient a month versus its replacement CRO Ergomed plc's sensational current enrollment of one patient  a day, CEL- SCI has a very strong case.
Supporting that view with its own cash is the litigation funding firm Lake Whillans whose experts spent months doing due diligence, examining every document and exhibit. Then the firm committed up to $5 million to cover CEL-SCI's future litigation costs in exchange for a piece of what they believe will be a very big pie. This non-dilutive funding will only be paid back from proceeds of the arbitration. With a recent total stock market cap of only $83 million, the stock price does not reflect the litigation firm's optimism that CEL-SCI will be a big winner. A large settlement or trial victory would probably double CEL-SCI's stock price.
Under its new CRO the Phase III immunotherapy study is going very smoothly. February, the shortest month filled with multiple holidays, broke the record for any February by  enrolling 27 new patients up from 25 in February of last year. That shows continuing momentum! Now 724 patients are enrolled as of Feb. 29, 2016. Only 156 new patients need to be enrolled for CEL-SCI to reach its current study full enrollment goal of 880 patients sometime this summer.
This January CEO Geert Kersten made his biggest single personal stock purchase ever of 3 million shares near CEL-SCI's 12 month stock 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 global first standard of care for many cases of solid cancer. That would be a revolutionary change! It also confirms his belief in the intrinsic value of the shares.
The comeback team's persistence and staying power is another positive. After the heart breaking fiasco from the first CRO's bungling failure to launch the clinical trial many emerging growth companies would have gone under. CEL-SCI's team had the heart to turn negatives into positives and get back on track.
That's important. In the real world the unexpected always occurs. Good management has to be able to react and progress forward. That's because in the real world crazy things happen. They just aren't reported too often- if at all.
The intrinsic value of CEL-SCI's important 75,000 sq. ft. U.S. biologics plant, patents, pipeline of other multi-billion market developmental like a vaccine for rheumatoid arthritis are worth many times the current stock price. However, the initial Phase III fiasco under the fired CRO depressed the stock price 95% which has yet to recover. That was because the former CRO enrolled so slowly that the Phase III study would have taken 40 years to end. Naturally investors gave up on the stock. Surprise! Now the study is going well. Unfortunately, CEL-SCI's lost credibility has yet to return.
With survival no longer in doubt  investors now ask CEL-SCI a new question. Is their Multikine immunotherapy treatment drug showing a survival benefit in the Phase III study? A very hopeful hint is that the current CRO Ergomed plc (AIM: ERGO) has invested $12 million of its own money to help fund the study. Its return can only come from a successful drug gone commercial. Obviously, Ergomed which is managing the Phase III study must be encouraged by what they see so far to invest their own funds.
Here's another reason for optimism. CEL-SCI's Multikine drug treatment used in the Phase III study is the exact same unchanged product being developed by the U.S. Navy at the Dan Diego to treat Human Immunodeficiency Virus (HIV) infected people for Human Papilloma Virus (HPV) infected diseases. So Multikine immunotherapy treatment has the promise to work not just on other solid cancers but on viruses as well.
Because the HIV population's 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. That's big enough to justify the current stock value of the entire company all by itself!
Believe it or not! Such huge under-valuations often exist before breakthroughs. Remember Apple Computer when its market cap was about $600 million and critics asked if its new personal computer would be just a fad? Like CEL-SCI today, after initial hiccups now- leading biotech companies had difficulty getting investors to believe in them. As their progress unfolded, their stocks soared. For example, Pharmacyclics was bought out for $24 billion. In 2014 two cancer immunotherapy stocks jumped over $1 billion in a single day by just issuing a simple press release. CEL-SCI's valuation disconnect can vanish overnight.
The Phase III finish line is about 2 years away. In the drug development world that is almost tomorrow. A CEL-SCI success would usher in a revolutionary era. Immunotherapy treatment would be administered to newly diagnosed cancer patients BEFORE and  not AFTER our current standard of surgery, radiation and chemotherapy. Today this brutal trio devastates the cancer patient's immune system before immunotherapy even begins. If the data proves CEL-SCI right its Multikine will help millions of patients.
We will be there waiting at the finish line hoping to take a victory lap with CEL-SCI. Also isn't it an exciting prospect that in the distant future some newly diagnosed cancer   patients will be administered immunotherapy first and potentially have complete cancer elimination?)  
  
BUY RECOMMENDATION:
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. 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 on and see if you agree.-RJF
  
CEO Geert Kersten of CEL-SCI Corporation (NYSE:CVM-0.63) presented recently at Source Capital Group's Disruptive Growth and Healthcare Conference. How fitting. No other presenter is doing anything more disruptive.
CEL-SCI is trying to completely turnaround the way immunotherapy treatment will be administered to newly diagnosed cancer patients. Right now, the current global standard of care is the cancer patient's immune system first is debilitated by brutal surgery, followed by debilitating chemotherapy and radiation. This trio results in weakening the immune system.
CEL-SCI believes its only common sense to administer immunotherapy FIRST while the immune system is still healthy and intact to get superior results. Success would usher in a new era of improved care for newly diagnosed head and neck cancer patients. CEL-SCI's immunotherapy treatment would be administered BEFORE instead of AFTER the patient's immune system has been debilitated by the current standard of cancer care. It would be a revolution.
The current global Phase III study is on newly diagnosed head and neck cancer patients. Those are about 6% of all cancers with about 650,000 diagnosed annually. If successful, the potential is to broaden treatment for other solid cancers. Because the Phase III global study is taking place in 24 countries the goal is to make this major treatment reversal of administering immunotherapy first happen not just in one country but the entire globe. That's a big dream.
Because recent moves have improved CEL-SCI's financial situation and any doubts about its ability to survive are gone, Kersten's presentations style and tone have changed. He's less defensive and much more relaxed. His focus has shifted toward future results.
Meanwhile the stock remained extremely undervalued in comparison with its peer group, especially those selling in the billions while his stock had a recent total stock market cap of around $85 million. The expectation is that the valuation gap will melt away as CEL-SCI continues its progress toward the finish line about 22 short months away.
"You're not a real biotech company unless you have been through the valley of death a few times," CEO Kersten began his Source Capital presentation. He claimed he got his grey hair when the former CRO, dismissed in 2013, messed up CEL-SCI's Phase III clinical trial launch causing CEL-SCI to lose its credibility. Its share price fell 95% and its credibility still hasn't recovered.
The setback followed by an unappreciated comeback created an investment opportunity. So the CEO bought 3 million shares with his own money in January. "During these volatile days I was scared but I know things are going well with our study," he emphasized.
"So I need to convey this to you," he continued, "but I also need to show you that I am not making this stuff up.
"I've been doing this for over 20 years. I've been working with one idea we think will change the way we treat cancer. Our hope is to create the first non-toxic cancer drug that will be administered to your body upfront to give you a better chance of being cured.
"That's why we struggled through all the difficulties. Our stock is only valued about $65 million (now $83 million) and we have raised $300 million. So today I look like a CEO who hasn't done a good job. On the other hand that can change in the moment we can show Phase III data.
"Immunotherapy drug development so far has been mostly with sick cancer patients who have already received surgery, radiation and/or chemotherapy, right? Patients are likely to die so you can try a new drug. That's basically how it works today.
"Does that make sense for your immune system? We don't think so. That's because your immune system is already shot once you have had radiation and chemotherapy. An immune system drug ought to work better in newly diagnosed patients who have not yet had chemotherapy, radiation and surgery and still have an intact immune system. But doing it first has never been done before. 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."
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? "The first rule as a doctor is to do no harm," says Kersten. "Therefore you cannot delay the patient's surgery which must take place within four weeks or you will increase the odds of the cancer spreading. Unless an experimental drug can be given within that four week window, it cannot be given. WE CAN THINK OF NO OTHER CANCER IMMUNOTHERAPY BESIDES OUR THREE WEEK MULTIKINE TREATMENT THAT FITS INTO THE FOUR WEEK WINDOW BETWEEN INITIAL CANCER DIAGNOSIS AND SURGERY."
Multikine could become a multi-billion drug. Over $100 million has been spent to develop manufacturing capability. When fully built out, CEL-SCI's U.S. full scale manufacturing facility has a capacity to supply about $3 billion worth of Multikine annually. It has passed inspection twice by European Qualified Persons.
"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.
"You must be sure that the product used in Phase III is identical in its biological activity to the product you are selling. So unless you have this locked down as we do you cannot get to market. So now we just need to show in our Phase III clinical trial which is ongoing that we are improving survival by 10%.
"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."
Investors are going to have to wait longer for results on Multikine to be presented to regulators. In most cancer studies almost everybody is very sick already and is going to die in a short time frame. In CEL-SCI's study half of the patients will live two to three years because their cancer is newly diagnosed.
Survival rates will be measured and results released only after the 300th patient in the two main comparison groups dies, which is estimated to take place in about 2 years. For success CEL-SCI's study should show that 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 33%, so the 10% survival improvement bar does not seem to be too high to clear.
Large unmet medical need! "If we reach the survival benchmark, we think we have a good shot at being part of the new global standard of care for head and neck cancer, which represents 6% of solid tumors. 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 last approval for advanced primary head and neck cancer was half a century ago. 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. Statistically, the chance of being successful with an orphan drug is somewhere around 75%.
"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 has set up clinical centers in Israel. Taiwan-based Orient Europharma has nine centers in Taiwan and is setting up centers for Malaysia, Philippines and Thailand.
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. Cytokines are any of various proteins secreted by cells, including Killer T Cells, that carry signals to 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 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. 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. There are some cytokines that every patient's body must make or you will die. We will supply these as part of our Multikine to these patients.
"Cancer immunotherapy is now considered to be the future and we are one of its great grandfathers. Our arena is to improve the current Standard of Cancer Care. We are not eliminating the surgery, radiation and chemo. We are adding ourselves first with the basic idea of improving survival for newly diagnosed cancer patients. We are about boosting a healthy immune system and making that first cancer treatment more successful. While we started with head and neck cancers, we hope to go on to other solid cancers too."
Skeptics questioned if CEL-SCI could afford to fight $50 million arbitration suit against the original CRO and also continue with its Phase III. But Kersten who is a lawyer by training married to a lawyer, a former crime-fighting Assistant U.S. Attorney, found a way. On Oct. 14 CEL-SCI received a commitment of up to $5 million for litigation expenses against its former CRO by litigation funding experts Lake Whillans. This non-dilutive funding will only be paid back from proceeds of the arbitration. If the costs go beyond $5 million, 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 CEL-SCI will pay $0 in legal fees. 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.
"We're almost at the Phase III finish line!"  "So far, our credibility has not returned," Kersten summed up. "We are now valued in the stock market about $85 million as a Phase III cancer immunotherapy company. It's a joke. So in January I bought 3 million shares personally. I believe Multikine will be successful and that we will win the arbitration!" - 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 under 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 
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 Flaherty Financial News Newsletter #55 dated March 7, 2016. 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 March 21, 2016. When 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.
As Flaherty Financial News editor I always reserve "Final Copy Responsibility" on what to include and what to leave out of every issue. The buck stops here. We have tried to be objective, but may have failed. We are not security analysts or stockbrokers engaged in buying or selling, but financial journalists with all the many failings of that profession. You readers must decide the merits of each investment yourself and whether to invest. -Bob Flaherty, Editor

Flaherty Financial News Inc. (FFN) and its newsletters Flaherty Financial News and Flaherty Special Situations are not registered as broker dealers or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Our newsletters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or suitability of the information contained in the publications for any purpose and are not liable for the timeliness, accuracy or completeness of the information. The information is provided for general information purposes and is not a substitute for obtaining professional advice from a qualified person or entity familiar with your personal circumstances. Please seek the help and advice of professionals as appropriate regarding the evaluations of any specific security, report, opinion, advice or other content. FFN is not responsible for trades placed by recipients. All opinions expressed, information and data provided are subject to change without notice. FFN, its officers and its employees may have positions in and may from time to time make purchases or sales of the securities discussed or mentioned by FFN. (However, we will avoid front running and the buying or selling of any security about to be discussed until ten business days after our particular report is released to the public.) FFN shall have no liability for any newsletter that is lost, intercepted or not received in a timely manner, or not received at all, for any reason. -RJF
Dear Readers: We admire 31-year-old Mark Zuckerberg and not just because he is the founder of Facebook. Each year Mark does one new thing to improve himself. Think what would happen if everyone did that! So if you'd like to change the world, begin with yourself. 
Bob and Brian Flaherty
Flaherty Financial News Inc.