Cel-Sci's Successful Safety Review Not Yet Factored Into Valuation

| About: Cel-Sci Corporation (CVM)

CEL-SCI Corp. (AMEX: CVM) released news last week that pretty much went unnoticed by investors during a very rough negative trending market, this judging by the non-reaction of the company's stock price.

The announcement that may have seemed like just another update about CEL-SCI Phase III clinical trial was actually one of the most important and value creating announcements CEL-SCI has made in a while. This once again begs the same question I've asked in the past: How does the current undervalued share price for this big board listed, late stage biotech even make sense?

CEL-SCI announced the results of an interim review of their Multikine Phase III Clinical Trial data by an Independent Data Monitoring Committee. This was a scheduled review of all the available data from CEL-SCI's ongoing Multikine Head and Neck Phase III Clinical Trial. To conduct this review the company and their Clinical Research Organization (CRO) unblinded the data and prepared it for a review by the committee. The data preparation took several months, and the Committee then conducted their review that traditionally can take several weeks. The review consists of a major review of all data, all possible adverse events as well as an extensive statistical analysis of the data to determine if the trial should continue based on the Committee's findings regarding the trial's safety profile.

According to CEL-SCI's announcement, the results of the review by the Independent Data Monitoring Committee "raised no safety concerns". The Committee went on to indicate "no safety signals were found that would call into questions the benefit/risk of continuing the study." There are several important takeaways that investors should garner from this announcement. First the Phase III Clinical Trial for Head and Neck Cancer is continuing. Second, investors should realize, to conduct a safety trial like this one, a substantial amount of patients have had to be treated, suggesting that the patient population is growing towards its end-point at an effective pace.

Third, this milestone has reduced the risk of the Phase III trial. Studies have shown that 30% of Phase III trials fail because of safety concerns. A very recent example is Reata Pharmaceuticals, which terminated its Phase III trial for bardoxolone in chronic kidney disease due to excessive adverse events and mortality in the drug study arm of the trial. Abbott Laboratories (NYSE:ABT) had paid $450 million for the drug up front in 2010.

CEL-SCI is currently conducting their Phase III open-label, randomized, controlled, multicenter clinical trial with Multikine. The FDA, Health Canada and seven other regulators have given the go-ahead for the Phase III trial. The trial is being conducted in 8 countries with a planned enrollment of 880 patients to achieve 780 evaluable patents. The trials end when about 300 patients die. CEL-SCI has partnered with Teva Pharmaceuticals in Israel and Orient Europharma in Taiwan.

Both partners are paying for the cost of the trial and managing the trials in their respective countries. To date CEL-SCI has 36 centers up and running and they expect to add additional centers to bring the total number of centers to about 50. The primary endpoint is a 10% improvement in overall survival. Under the current standard of care about 50% of head and neck cancer patients die within 3 years following treatment, so an expectation of 3 years or more to complete the trial is not out of line.

CEL-SCI's press release has the following information on the Phase III Clinical Trial:

The Multikine Phase III study is enrolling patients with advanced primary, not yet treated, head and neck cancer on 3 continents around the world. The objective of the study is to demonstrate a statistically significant 10% improvement in overall survival of enrolled patients who are treated with Multikine plus Standard of Care (SOC) vs. subjects who are treated with SOC only. The universally accepted current standard of care for the patient population being enrolled in the CEL-SCI study is surgery plus radiation or surgery plus concurrent radiation and chemotherapy, dependent on the risk factors for recurrence found after surgery. Multikine treated patients receive 15 local injections of Multikine over a 3-week period prior to standard of care treatment. Multikine injections are administered in the area around the tumor and in the area of the adjacent lymphnodes since those two areas are where the tumor is most likely to recur. Multikine is intended to create an anti-tumor immune response to reduce local / regional tumor recurrence and thereby increase the survival of these patients.

As with most biotechs, the reality here is that CEL-SCI's projects are under development and as a result, CEL-SCI cannot predict when it will be able to generate any revenue from the sale of any of its products. The bottom line for investors they should realize is that the Multikine Phase III trial is going exactly the way it is supposed to be going.

Regulatory authorities prefer to see biologics such as Multikine manufactured in the same manufacturing facility for Phase III clinical trials and for the sale of the product since this arrangement helps ensure that the drug lots used to conduct the clinical trials will be consistent with those that may be subsequently sold commercially. Although some biotech companies outsource their manufacturing, this can be risky with biologics because biologics require intense manufacturing and process control. With biologic products a minor change in manufacturing and process control can result in a major change in the biological activity of the final product.

Good and consistent manufacturing and process control is critical and is best assured if the product is manufactured and controlled in the manufacturer's own facility by the Company's own specially trained personnel. Prior to starting this late stage trial, CEL-SCI spent $25 million to build a manufacturing facility just outside Baltimore, Maryland. The facility includes True Cold Fill (+4°C) capability to avoid loss of biological activity during the fill. The lab underwent and passed a successful audit in the Fall of 2010 and the facility is supplying the Phase III study of Multikine and its subsequent commercial sale.

Since inception, CEL-SCI has financed their operations through the issuance of equity securities, convertible notes, loans and certain research grants. That may be part of the reason why the stock has failed to lift-off. Speculators know that CEL-SCI's expenses will likely continue to exceed its revenues as it pushes through the development of Multikine, but the good news, despite a few critics, is that the company appears to be spending money as they should be.

This is a key point that CEO, Geert Kersten defended in a recent, widely viewed video interview. Kersten has continued to insist that there are no short cuts and that they are committed to seeing the development of their lead candidate through the highest standards possible, in order to ensure FDA compliance at the highest levels.

To that point, this Phase III trial is the largest clinical trial for Head and Neck Cancer undertaken by any company, with a patient population derived from three continents and it is likely to expand now that this data is in hand. As we know, the trials have received a go-ahead by the US FDA as well as the Canadian, Polish, Hungarian, Russian, Israeli, Indian and Taiwanese regulators.

Investors should come to understand that this announcement of the Committee raising no safety concerns is a major de-risking of the trial and thus should be realized by an increase in the valuation of the company's stock. For example, many institutional investors will not consider investing in a biotech firm until the drug candidate passes the Phase III safety assessment, just as this one just has.

Unfortunately retail investors in general do not think of the safety assessment as a risk to their investment, until they have lost most, if not all, of their money. Since 30% of all clinical trials fail at this juncture, CEL-SCI's odds of success have significantly increased and the intrinsic value of the company should also increase.

As investors begin to realize the significance of the announcement, the stock price should begin to reflect the significance of the announcement as well. Since the announcement is not yet reflected in the stock price, this is a good entry point for investors looking for good value with minimized down-side risk in the biotech sector.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.