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Cel-Sci: The Upside Is Still There

About: CEL-SCI Corporation (CVM)
by: Healthcare on the Move
Healthcare on the Move
Biotech, healthcare, value, long/short equity

Multikine has reported OS benefits in SCCHN indication in clinical setting.

Cel-Sci has other promising assets in its pipeline.

Investors should consider these risks.

Cel-Sci (NYSEMKT:CVM) has jumped up by almost 400% in the last year. Despite this mind-boggling rally, there is still significant upside potential in the stock for 2020. Today, we will see why this cancer immunotherapy company is an attractive investment opportunity for 2020.

Company overview

Cel-Sci is a clinical-stage biopharmaceutical company focused on developing immunotherapy products targeting cancer, autoimmune, and infectious disease conditions. The company's lead asset, Multikine (Leukocyte Interleukin Injection), is being studied as neoadjuvant therapy in patients with SCCHN (squamous cell carcinoma of the head and neck), administered right after diagnosis and before standard cancer treatment in an ongoing Phase 3 trial. The drug is also being studied in an ongoing Phase 2 trial for cervical dysplasia in HIV/HPV co-infected patients in an ongoing Phase 2 trial. Besides, Cel-Sci is also studying proprietary L.E.A.P.S. (Ligand Epitope Antigen Presentation System) technology in pre-clinical models in rheumatoid arthritis, pandemic flu, and breast cancer indications.

What is Multikine?

Multikine is an investigational immune-oncology biologic product containing 14 human blood-derived pro-inflammatory cytokines.

These cytokines are proteins that play a major role in regulating the immune response to tumor antigens. Multikine comprises cytokines such as interleukins, interferons, chemokines and colony-stimulating factors. These molecules and proteins act as the body's natural mix of defenses against cancer. Multikine is injected peritumorally or around the tumor or around the tumor and perilymphatically or into the lymph nodes. Many of the cytokines then bind to various receptors on the immune and cancer cells and help the patient's immune system to mount a strong immune response against the tumor antigens.

Multikine comprises mainly three types of cytokines such as lymphoproliferative, chemotactic, and necrotic. While lymphoproliferative cytokines help magnify the immune response to a tumor, chemotactic cytokines bring the immune cells close to the cancer cells. Finally, necrotic cytokines work to kill the tumor cells. All these modalities help overcome immunosuppression in cancer cells.

What is the market opportunity in SCCHN indication?

Cel-Sci aims to add Multikine to current SOC (standard of care) to cure or increase time to recurrence for newly diagnosed advanced head and neck cancer. Currently, there are 650,000 new head and neck cancer patients diagnosed per year. Approximately, 60,000 new patients are diagnosed annually in the U.S., while 105,000 new patients are diagnosed in Europe. Advanced primary head and neck cancer currently accounts for almost 66% of all head and neck cancer patients.

What is special about Multikine's dosing regimen in SCCHN indication?

Cel-Sci expects Multikine to help increase the immune response against cancer cells in its lead indication of SCCHN. The therapy is designed to be administered to treatment-naïve SCCHN patients, for only a short time frame before they receive SOC which includes surgery, chemotherapy, and radiotherapy. The regimen is three weeks long, for five days per week.

Since Multikine is to be administered immediately after diagnosis, in the weeks prior to normal scheduling of surgery, it will not delay the patients from receiving SOC. Hence, Multikine therapy will not delay surgery and hence will not have a detrimental effect on the overall survival of patients. Cel-Sci aims to mainly prevent micro-metastases through the early administration of Multikine, thereby prevent recurrence of cancer after SOC. Multikine therapy may also prove effective in killing the tumor.

The fact that Multikine does not delay SOC and yet can have a profound impact on patient outcomes is worth considering. This unique dosing regimen and dosing time frame awards a unique competitive advantage to Multikine against existing immune-oncology therapies. Existing immunotherapies will typically require a greater duration of administration to show effect in SCCHN patients. In this backdrop, it is very difficult to even compare these therapies with SOC in the clinical setting, since a delay in standard treatment can reduce OS (overall survival). Besides, the immune-oncology agents currently available in the market are targeting the metastatic and advanced lines of treatment in the SCCHN indication.

Further, the pre-SOC administration of Multikine ensures that the immunotherapy works synergistically with a strong immune system before it is ravaged by chemotherapy or radiotherapy. This, in turn, is expected to result in a higher impact of Multikine on cancer cells.

Multikine may prove cheaper than other immune-oncology therapies

Multikine is manufactured using the allogenic or "off-the-shelf" approach. Unlike autologous immunotherapies that are manufactured using a patient's own cells, allogenic therapies are manufactured with cells from other donors. Autologous therapies are costlier but result in much lesser rejection episodes. Allogenic drugs can be developed in advance and hence can be ready for use when patients require them. They can be administered rapidly and efficiently to patients. This biologic product is manufactured in accordance with GMP (Good Manufacturing Practices) requirements from an FDA licensed product, "Source Leukocytes" at Cel-Sci's manufacturing facility near Baltimore, MD.

Multikine comprises of isolated human cytokines which do not have allogenic signatures. Hence, they can be directly administered to patients without worrying about immune-rejection.

Besides, in-house manufacturing of Multikine can prove to be a major competitive advantage for the company in the field of complex biologics.

Cel-Sci has demonstrated the efficacy and safety of Multikine in multiple clinical trials

Multikine has already demonstrated robust efficacy and impressive safety in a number of clinical trials including several Phase 2 studies in SCCHN indication. Besides, the therapy has also demonstrated proof-of-concept in other indications in clinical settings.

Cel-Sci has demonstrated measurable anti-tumor response in SCCHN patients in the final "Proof of Concept" Phase 2 study. Of the 19 evaluable patients in this last Phase 2 trial, 10.5% had no remaining cancer cells after 3 weeks of Multikine therapy alone. The remaining patients saw a 50% decrease in cancer cells as measured by pathology during the three-week Multikine treatment prior to SOC.

The overall survival rate higher 33.3% higher for in Multikine pre-treated patients as compared to those only treated with SOC.

Multikine also demonstrated a robust safety profile with adverse events such as injection site pain, local minor bleeding, injection site edema, diarrhea, headache, nausea, and constipation all minor in severity.

The company may be close to reporting data from the Phase 3 MULTIKINE trial

In 2011, Cel-Sci launched pivotal open-label Phase 3 trial, IT-MATTERS, evaluating Multikine as first-line treatment for advanced primary head and neck cancer. The company completed enrollment of 928 patients across 24 countries and 93 sites by September 2016. The study is event-driven, with a cutoff of 298 events across all groups for trial completion.

The primary endpoint of this trial is 10% or greater overall survival for Multikine-pretreated patients who are later treated with SOC as compared to those treated with SOC alone.

In October 2019, IDMC (Independent data Monitoring Committee) recommended the continuation of the Phase 3 trial until the appropriate number of events had occurred. Cel-Sci believes that the non-occurrence of 298 events despite the study going on for nine years now may be a sign of Multikine's efficacy in improving OS.

Cel-Sci is also studying Multikine in the second major indication

Cel-Sci is currently studying Multikine therapy for treating cervical dysplasia in HIV/HPV co-infected patients. In the Phase 1 trial, the therapy had demonstrated its capacity to reduce the number of HPV strains in patients.

Investors should consider these risks

The growth prospects of Cel-Sci almost completely depend on the clinical and commercial success of Multikine in SCCHN indication. This exposes Cel-Sci to a high degree of business concentration risk, R&D failure risk, and market uncertainty risk. The company stands the risk of almost crashing, in case Phase 3 trial for Multikine in SCCHN indication does not prove successful.

Phase 3 IT-MATTERS is an event-driven study. The company has to wait for 298 events before the study is completed and data is unblinded. The trial is already in its 9th year since launch. Delay in the events can result in delayed data readout from the trial. The absence of catalysts for the company in 2020 can result in depressed valuations.

While the company has maintained that the delay in events is actually indicative of the efficacy of Multikine, some analysts feel that there is a high patient discontinuation rate in the trial. If true, this may be due to certain adverse events associated with Multikine. This can have a very detrimental impact on Cel-Sci's share prices.

The company is currently loss-making and can continue to be so for the foreseeable future. This can result in depressed valuations. Besides, Cel-Sci had only $9.38 million cash on its balance sheet as of September 30, 2019. On December 27, the company announced closing of the public offering and raised gross proceeds of $5.5 million. The proceeds increased to $6.3 million after full exercise of the over-allotment option granted to the underwriters. Despite this, the company seems to have cash that will last it hardly until September 2020. This calculation assumes that the company will spend around $16 million cash on its operations annually, similar to that spent in the last 12 months ending September 2019. This implies that there is a very high chance of more equity dilution in the coming quarters.

What price is right for the stock?

According to Finviz, the 12-month consensus target price of Cel-Sci is $18. On January 13, H.C. Wainwright analyst Vernon Bernardino initiated coverage for the stock with a Buy rating and $18 target price. Cel-Sci also stands a good chance of becoming an acquisition target, similar to promising clinical-stage oncology companies such as Loxo Oncology, Stemcentrx, Medivation, Pharmacyclics, and Tesaro. This can push up the share prices of the company much higher.

The future of Cel-Sci depends on the binary event of success or failure of Phase 3 trial for Multikine in SCCHN indication. While this is a high-risk stock, the company also has the potential to generate immense upside. In this backdrop, I believe that aggressive investors with at least a one-year investment horizon can give a thought to this company in 2020. I believe that the 12-month target price of $18 is a fair estimate of the true growth potential of this stock.

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.