CEL-SCI Corporation (CVM) is a small-cap company engaged in the research and development of immunotherapy, known mostly for their investigational cancer immunotherapy drug Multikine which is currently in Phase 3 studies. From the end of March until mid-May 2019, it is curious that the stock slowly moved up from around $3 to over $8, without what many consider to be any strong news. As a developmental company, most of the attention around CVM is not currently focused on their earnings and financials (in CVM's latest earnings report for the first fiscal quarter of 2019, they had just $126,414 in revenue with operating expenses of over $5 million), but rather the progression of Multikine and whether the drug can be FDA approved in future. In this article, I will look into the catalyst for CVM's recent move as well as what appears to be the likelihood for Multikine to hit the market in future.
Catalyst For CVM's Recent Move
On March 29, CVM released a press release announcing that the Independent Data Monitoring Committee (IDMC) had completed its recent review of the Phase 3 study data for Multikine, recommending that the study should continue “until the appropriate number of events have occurred.” Later on May 8, the CEO of CVM sent a shareholder letter which stated that the length of the Phase 3 study could be an indication of Multikine’s effectiveness and reiterated the IDMC's recommendation to continue Phase 3 studies. Those are the only two news items as of late.
Why Investors Should Tread Carefully
First, what appears to be the primary catalyst for CVM's move – the IDMC announcing that Phase 3 studies should continue until the appropriate number of events have occurred – is absolutely not an indication that we can expect FDA approval in future, and can only really be interpreted as bullish news if one was worried about the possibility of Multikine being immediately declared futile or unsafe before Phase 3 studies are officially concluded. That is somewhat meaningful (there is always a non-insignificant risk with drugs of this type being considered futile or unsafe mid-study, as has in fact happened before with Multikine as explained below), but it remains entirely possible that Multikine is rejected.
Second – and perhaps less known by many CVM investors – Multikine has had a somewhat questionable history. A dig through CVM's Form 10-K for the fiscal year ended September 30 2016 states the following regarding Multikine and the FDA's decision at that time to place the Phase 3 study on clinical hold:
FDA identified the following specific deficiencies: a) FDA stated that there is an unreasonable and significant risk of illness or injury to human subjects and cited among other things the absence of prompt reports by us to the FDA of IDMC recommendations to close the study entirely (made in spring of 2014) or at least to close it to accrual of new patients (made in spring of 2016); b) FDA stated that the investigator brochure is misleading, erroneous, and materially incomplete; and c) FDA stated that the plan or protocol is deficient in design to meet its stated objectives
Later in that same filing, we can see that the IDMC had similar reservations regarding Multikine's study around that time that were only later resolved:
On two occasions the IDMC has issued recommendations that would have closed the study entirely (spring of 2014) or at least closed it to accrual of new patients (spring of 2016). On one occasion, in the spring of 2014, the IDMC made a recommendation that the study be closed for safety and efficacy reasons. However, following review of additional information submitted by us, the IDMC recommended that the study may continue. In the spring of 2016, with close to 800 patients enrolled, the IDMC made a recommendation that enrollment in the Phase 3 study should stop.
Finally, as a developmental company, a look at CVM's most recent Form 10-Q for the quarterly period ended December 31 2018 shows cash and cash equivalents of only $6.7 million versus an operating loss for that quarter of around $5.2 million, indicating a significant risk of financial issues and the need to raise additional capital in future. And as stated in CVM's filings including its most recent Form 10-K, even if Multikine is approved somewhere down the line, CVM “has not established a definite plan for the marketing of Multikine” and there will be a financial challenge involved in selling the drug on a wide scale in any case.
With the current price of CVM hovering around $7 and $8, we now have a company with a market cap of around a quarter of a billion dollars. In its latest Form 10-Q CVM shows current total assets of $25.9 million (including the aforementioned $6.7 million in cash and cash equivalents) versus current total liabilities of $23.2 million, so for the current valuation of CVM to make sense, its Multikine drug has to be worth - very roughly speaking - somewhere in the neighbourhood of $250 million. That is $250 million for a drug which has struggled for years in its Phase 3 study and has absolutely no guarantee of ever being FDA approved and hitting the market, and will almost certainly require millions more in operating expenses to support.
Outlook And Short Thesis
I believe that at its current price, CVM appears overvalued, as its recent move appears exaggerated. It seems absurd to believe the market capitalisation should more than double merely because the IDMC stated Phase 3 for Multikine should continue until more events occur, as that says rather little about the actual likelihood of the drug becoming approved in the end. Rather than this news specifically, I strongly suspect that much of this move can be explained by short squeezes, and that there is a real risk of a correction in the near future. As demonstrated above, we have seen that their primary Multikine drug has already been in trials for years and there is still a major battle for it to be FDA approved. For this reason, I am leaning towards the short side for CVM.
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.