[Article From Last Year] - Multikine: Can It Really Be This Good?

Summary

• CEL-SCI has just announced the end of a 9-year Phase III clinical trial.
• Top-Line results should be announced in 2-3 months.
• If the results are positive, Multikine will be the first non-toxic cancer treatment given before surgery.
• Similar to blockbusters Keytruda and Opdivo, Multikine could capture a large cancer treatment market.

THIS ARTICLE WAS ORGINALLY PUBLISHED IN MAY OF 2020.  KEEP THAT IN MIND WHEN READING DATES AND TIMELINES.

Investment Thesis

CEL-SCI (NYSEMKT:CVM) has just completed a 9-year Head & Neck Cancer (“HNC”) Phase III trial with top-line results due very soon. If they achieve their endpoint, Multikine will be the first non-toxic cancer treatment given before surgery. Drug sales could be comparable with blockbusters Keytruda and Opdivo. Given their ~$600M market cap, the company’s share price is undervalued.

About CEL-SCI

CEL-SCI is a small clinical stage biotech. They are at the end of a 9-yr global Phase III trial for HNC, a nasty disease without a major drug approval in over 60 years. Their primary outcome measure is a 10% overall survival improvement (“OSI”) over Standard of Care (“SOC”). They have just reached the fatality threshold of 298 events.

Based on industry standard timelines to gather, verify, lock and analyze the data, the company is scheduled to report results within 2-3 months. This would put top-line data release in the July-August time frame.

Their flagship drug is Multikine (Leukocyte Interleukin, Injection), which is being evaluated in the Phase III trial. They have also developed LEAPS (a possible COVID-19 treatment) and CEL-4000, but those will not be discussed here. Here is a good write-up about LEAPS, if interested.

The HNC market is large with 600,000 global cases and is considered an unmet medical need. However, the off-label and new indication cancer market is much larger.

The Approach of Multikine

Before we can understand the HNC market & new indication potential, we need to understand how Multikine immunotherapy works.

Multikine is a mixture of naturally derived cytokines that boosts the immune system to fight the cancer before SOC treatment. Your immune system produces cytokines in response to antigens to fight diseases. The problem with cancer is it ‘hides’ from your immune system.

For HNC patients, surgeons perform wide-margin surgery. The goal is to remove the visible tumor and any smaller, possibly unseen tumors around the primary tumor. This is followed by chemo and radiation to get any very small tumors (i.e., micrometastasis) that might be remaining.

If any micrometastasis somehow survives chemo and radiation, these cells can lay dormant until they start to divide and grow. It is well known that if the cancer returns, your chances of survival are worse than during the first diagnosis.

Remember it is not the visible tumor that kills you. Some people live with tumors and lead relatively normal lives. It is the remaining micrometastasis that does the real damage. If your immune system is enhanced to see and destroy the micrometastasis, your chance of surviving improves drastically. Multikine proposes to accomplish this task when the immune system is still healthy (i.e., before it is damaged by surgery, radiation and chemo). Almost all other cancer immunotherapy drugs are given after traditional cancer treatments.

Multikine proposes to be non-toxic since it is made from cytokines, similar to ones produced by your immune system. While that designation cannot officially be granted until all results from the Phase III trial are compiled, multiple semi-annual reviews by the Independent Data Monitoring Committee (IDMC) permitted the trial to continue as designed. It is IDMC's job to terminate a study if patients are being unduly harmed by the drug under investigation.

Cash Position

The March 31, 2020 10Q indicates CEL-SCI has ~$14M in cash. The company is burning through approximately $1.4M of cash per month, which means they have enough cash for about 9 months at 1^st Q burn rates. However, now that the final event has occurred, the burn rate will decrease since the sites will wrap up. Top-line results are due in about 2 months; therefore, another equity offering will not be needed before Phase III data.

A Quick Review of Phase II

I will outline below reasons why Phase III should be successful. But first, we need to review Phase II setup and results. We can then understand how the Phase II trial became the model for the current Phase III trial.

CEL-SCI didn’t just do one Phase II clinical trial, they did several Phase I & Phase II trials to figure out the best indication, route, method and frequency of administering Multikine. Below is a graphic showing the numerous trials CEL-SCI conducted.

In 2005, CEL-SCI completed a Phase II trial for Multikine that enabled a model for designing the Phase III trial. The results of that Phase II trial were impressive. The trial encompassed 21 patients who received Multikine and 20 patients who did not. 15 Multikine injections were given once a day for 3 weeks.

It should be noted that 21 patients were treated with Multikine, but 19 patients were assessable. 2 patients did not meet the criteria for Oral Squamous Cell Carcinoma.

In summary, of the 19 evaluable patients treated with Multikine:

• 2 patients had cancer tumors that completely disappeared
• 2 patients had a tumor reduction of greater than 50%
• 4 patients had a tumor reduction of 30-50%

This is a response rate of 42%, which is notable. CEL-SCI also followed up with the patients 3.5 years later and learned the Multikine group had a 33% Overall Survival Improvement. It is important to note the comparison group survival rate was determined through a survey of 55 clinical trials of advanced primary HNC papers (published 1987-2007).

We must highlight that 2 of the patients had no signs of the tumor or cancer cells. This was verified by pathology. This is very impressive, bodes well for the premise that Multikine stimulates the immune system to see the tumor and destroy it.

After completing the Phase II trial, CEL-SCI proceeded to work closely with the FDA to design a Phase III clinical trial that would duplicate the results of the successful Phase II trial.

Bullish Arguments

Below are several reasons why I believe Phase III will be successful. In addition CEL-SCI management is behaving as if Phase III will meet its primary 10% OSI endpoint.

Ergomed Contribution

Back in 2015, approximately 2 years after they were hired by CEL-SCI, Ergomed increased its contribution up to $12M towards the Phase III trial. Their reward was potentially being paid 4X ($48M) that amount upon successful completion of the trail. In other words, Ergomed only gets paid if the trial is successful.

While this was almost 5 years ago, it does warrant a bullish mention. Ergomed does not have access to the unblinded data, then or now. Only the IDMC and the other CRO, ICON, do at this point. However, since Ergomed was possibly onsite during the Multikine administration, the surgery, as well as talked to surgeons, administrators and nurses, they may have anecdotal information about the effects of Multikine and its effect on tumors.

Options

At the April 17, 2020, shareholder meeting, CEL-SCI granted options for key individuals & employees totaling 3.5M shares. But there was a difference in these options vs. those granted in the past. These options were tied to stock price.

These options will vest at 25%, 50%, and 75% as the stock closing price exceeds $20, $25 and $30 (for 10 consecutive days), respectively. The purchase price is $10.93/share. 100% of the options will vest when either (A) the filing of the first marketing application for any pharmaceutical based upon the Company's Multikine technology in any of the USA, Canada, UK, Germany, France, Italy, Spain, Japan, or Australia or (B) the closing price of the Company's common stock exceeds $40.00 for ten consecutive trading days.

At this point, the options aren’t worth anything since the trigger price has not been met. Considering Multikine is their only clinical drug, this drug must perform in the P3 trial for 1) the share price to increase, or 2) for marketing applications to be filed.

Mathematical Simulations Show Success

There are 3 mathematical simulations that suggest Phase III success for Multikine.

The first was by Fosco Research in July 2019. Here is their article: On the Verge of Approval, and here is a link to their calculations.

If you consider yourself a spreadsheet person, you need to check out their calculations. They are updated almost daily, and they are skillfully done. The calculations (as of 5/10/20) show a 24.5% improvement over SOC.

The second simulation was done by Seaside Stocks in January 2020. They wrote a Seeking Alpha Blog outlining a computer model showing the success of Multikine. His calculations show a 17% improvement over SOC.

The third simulation was done by Zhiyuan Sun on Seeking Alpha in February 2020. He wrote an article titled A Kaplan-Meier Model Of Patients' Survival In Its Multikine Phase 3 Trial. His calculations show a 30% improvement over SOC.

Virtually Zero Management Turnover

The majority of current CEL-SCI senior management has been with the company for well over 25 years. Geert Kersten joined the company in 1987 and has been CEO since 1995. The founder, Maximilian de Clara (Director and President) has been with the company since its founding in 1983. Patricia Prichep (VP of Operations) has been with CEL-SCI since 1992. Eyal Talor (Chief Scientific Officer) has been with the company since 1993. In summary, most companies that have financial challenges similar to CEL-SCI's can have significant turnover, yet CEL-SCI’s senior staff has been with the company for decades. Could they be anticipating the success of Multikine? The answer could be "Yes."

Facility Improvements

In the 2020 quarterly report (page 21), management indicated they are making improvements to their manufacturing facility. In addition, they are also hiring several positions for their manufacturing facility. Why add to the cash burn? It appears management is anticipating Phase III approval, and eventual manufacturing of Multikine.

In addition, the company rents out a portion of its facility to another company. However on January 3, 2020, CEL-SCI notified the tenant that the lease will be terminated on April 3, 2020, since the space is needed to prepare the facility to produce Multikine for commercial purposes and before the Company’s Biologics License Application (BLA) can be submitted to the FDA. This is a bullish gesture by management since they don’t have the Phase III trial results, yet they are acting as if it will be successful.

Analyst Firm Buy Recommendation

On January 13, 2020, HC Wainwright initiated a buy rating for CEL-SCI with a price of $18.00. The stock was at $7.78 when the recommendation was issued. Then on May 14, 2020, HC Wainwright raised their price target to $23.00 and stated the following:

The completion of the Phase 3 trial with Multikine, which persevered through significant FDA scrutiny and multiple Independent Data Monitoring Committee reviews and recommendations for continuation, is an accomplishment that remains underappreciated.”

Overdue Trial Completion Date

The greatest argument for Phase III success is that it was supposed to end approximately 2 years ago. In other words, they should have had 298 events (deaths) several years ago. Yet CEL-SCI was just notified of the final event within the last 2 weeks. One could conclude that if Multikine is working, then patients aren’t dying as expected.

CEL-SCI's Potential HNC Market Value

CEO Geert Kersten put a price for Multikine of around $100,000 per treatment regimen back in 2015. This is low, but we will use it for our calculations. Note that Keytruda costs ~$150,000 for a year of treatment (2017 price) and it doesn’t cure the patient - it just permits an additional 3-4 months of survival, on average. Opdivo (a Keytruda competitor) costs ~$170,000 (2018 price) and only extends life by ~4 months, on average.

If Multikine succeeds it will become part of the new SOC. This is because it demonstrated a clinical improvement over the prior SOC. Doctors must now use it, or at least inform the patient. If they don’t, they open themselves up to lawsuits.

If Multikine is approved by the FDA & European Commission, Multikine will emerge onto the market as a first-line treatment for HNC. There are 150,000 new HNC cases in the US and EU annually, with two-thirds of these patients (~100,000) having advanced stages (III & IVa) of the disease making them ideal candidates for Multikine.

The CEL-SCI manufacturing facility can make 20,000 dosing regimens per year, but is expandable to 60,000 per year. If we figure the manufacturing facility makes 60,000 treatment regimens per year, this results in $100,000 x 60,000 = $6 Billion in sales just for HNC. Using an average market capitalization value of 1.5-2X sales (a low multiple for a biotech) would put CEL-SCI at a $9B-12B market cap. This is around $163-218/share (I used 55M outstanding shares – this includes all options and warrants). Note that it will take several years to achieve these sales numbers. Regardless of the timeline, one can see that using conservative numbers in all our calculations, the potential sales of Multikine are impressive.

Keep in mind this value is only based on the treatment of 60,000 cases of HNC – 10% of the global need. Up to 600,000 new cases (all stages) of Head & Neck Cancers are diagnosed every year.

If the company meets its Phase III primary endpoint, CEL-SCI can easily acquire additional funds and construct a brand new manufacturing facility to treat all global cases of HNC. If this occurs, the numbers outlined above are low.

Other Disease Possibilities

The authors of the Phase II Multikine study point out the drug may have applications for other solid tumors such as melanoma, B-cell non-Hodgkin's lymphoma, renal cell cancer and cervical cancer. The CEO has added to this list with breast and lung cancer. Altogether, this is a large market affecting hundreds of thousands of people.

To really grasp the scope of the Multikine's potential, the question one should ask is not "What can Multikine do?" but instead, "What diseases can Multikine treat by boosting the immune system?" The ultimate market for this drug, if successful, is quite impressive.

While Multikine is being tested for Head & Neck Cancer, if approved, it will most likely see off-label indications for similar types of cancers. Since Multikine proposes to boost the immune system, and immunotherapy is becoming increasingly popular, doctors will feel behooved to recommend it. However, it is difficult to properly assess the potential sales value of off-label indications so this article will not discuss off-label sales figures.

Instead, this article will focus on additional indications for Multikine. There are two other very popular immunotherapy cancer drugs that have racked up massive additional approvals. They are Keytruda and Opdivo.

Keytruda

Merck’s (NYSE:MRK) immensely popular immunotherapy drug Keytruda (pembrolizumab), was first approved in September 2014 for advanced melanoma patients who carry a BRAF mutation. Here is the timeline of their approvals:

• 2015 – It received a second approval as a treatment for patients with advanced (metastatic) non-small cell lung cancer (NSCLC). Later that year, Keytruda won an expanded indication for the treatment of patients with advanced melanoma.
• 2016 - It was approved as a treatment for patients with recurrent or metastatic head and neck squamous cell carcinoma. Then, it was approved as a first-line treatment for certain patients with metastatic NSCLC.
• 2017 - Keytruda nabbed five approvals in the US.
• 2018 - Keytruda won approval for six more indications in the US.
• 2019 – Keytruda won approvals for seven more indications in the US.
• 1^st Q 2020 – Keytruda won approval for high-risk bladder cancer.

Forbes reported Keytruda started with $55M in sales in 2014 and quickly ramped up to $7.2B in sales in 2018. This is an annual sales growth of 334%. 2019 Keytruda sales were $11.1B. The drug has become a massive sales generator for Merck despite extending life by only a few months (~3), on average. To date Keytruda has added 24 additional approvals in addition to their first back in 2014.

Opdivo

Opdivo (nivolumab), manufactured by Bristol-Myers Squibb (NYSE:BMY), has also become a massive sales generator. It is an immunotherapy drug that was also originally approved for Advanced Melanoma in December 2014. It initially managed to rack up additional approvals and sales faster than Keytruda; however, in 2017, Keytruda sales exceeded Opdivo’s. The drug has garnered 15 additional approvals in addition to their first back in 2014.

Here is a chart comparing the sales of Keytruda vs. Opdivo for all indications.

The Takeaway

The takeaway here is not the comparison. It is the rapid sales growth of both drugs for additional indications. The initial indication of both drugs was advanced melanoma. That indication is just a small fraction of the overall cancer market they now serve.

The majority of Keytruda and Opdivo approvals are for administration after other treatments have been tried, and the patient is no longer responding to the drugs. They are to be administered after the immune system has already been compromised. Plus they are not given to any patient who is cured during the first round of treatments, which makes obvious sense – therefore, this fact reduces the overall potential market.

CEL-SCI’s Multikine is administered before the immune system is compromised. If approved, it can be given to all HNC patients immediately after diagnosis.

Back to Multikine

The HNC SOC for stage III and IV is to cut out the tongue if a tumor is locally present. 42% of the patients in the Phase II Multikine study had an overall response rate (i.e., some tumor reduction, significant tumor reduction, or complete tumor elimination). Any patient diagnosed with HNC (for any stage cancer) is on a path where they potentially will have severe facial disfigurement, or could lose their tongue. Considering a physician’s guiding maxim is ‘do no harm’, it makes sense they would want to recommend, and administer, a drug that could potentially give the patient complete healing. This complete healing only occurs if Phase III results mirror the Phase II results. Remember in Phase II, 2 of the 19 patients had no signs of the tumor remaining when verified by pathology.

As noted earlier, Multikine is administered at the beginning of treatment. It is the first treatment given after diagnosis, when the immune system is still healthy. There is no reason that Multikine (if it works) wouldn’t be given to all HNC patients, regardless of their stage.

Below are the yearly US cases for different types of cancers the Multikine Phase II authors highlight as possible additional indications. [To properly address these indications, CEL-SCI, or their acquirer, will need to initiate multiple Phase III trials.]

Source: www.cancer.org

Using a low value of $50K/treatment x 25% of the above cases (~178K) give sales of $9B. They become even larger once you include global cancer cases.

Risks

Despite the chance of success, this company is not without risks. Even though Phase I/Phase II results were impressive, Phase III can still end up in failure. The FDA published a case study where Phase II and Phase III trials had divergent results. Such can be the life of a biotech.

The Phase III trial may have a high number of dropouts (>30%). There also could be protocol deviation not reported by the clinical site, or detected by the investigator. If any of this occurs, it would not be an enjoyable ride for shareholders at that point. The stock would drop to $1-2/share if Phase III fails.

In addition GBI research notes that companies generating significant revenue from immunotherapies for the treatment of cancer is expected to more than double from 14 in 2017 to 29 in 2024. Using immunotherapies to treat cancer is now accepted practice and generating strong interest from large and upstart biotechs. If CEL-SCI is successful, you can expect competition in the immunotherapy market.

Conclusion

Multikine proposes to enhance the immune system to see the cancer and destroy it. Phase III results are due shortly, and if CEL-SCI is successful, it will possess a drug with more revenue-generating potential than Keytruda and Opdivo. Given the potential sales and the current valuation of $600M, the company is significantly undervalued.