Investors Wondering Why Cel-Sci Has Quietly Amended Previously Filed Paperwork Print E-mail
By M.E.Garza   
Wednesday, 11 November 2009 03:00

Is the management at CEL-SCI Corporation (AMEX:CVM) signaling that something big is coming?

In mid September, on the same day that CEL-SCI Corporation (AMEX:CVM) announced that the U.S. Food and Drug Administration (FDA) had indicated that the company could proceed with its first clinical trial to evaluate the effect of its investigational LEAPS-H1N1 treatment on the white blood cells of hospitalized H1N1 patients, CEL-SCI Corporation also announced plans to raise $20 Million in Registered Direct Offering. Shares showed some resiliency after investors were told that the net proceeds from the offering would be used to commence a pivotal Phase III clinical trial with its cancer drug Multikine and that the company would rapidly take its new LEAPS - H1N1 compound into human studies for the treatment of hospitalized H1N1 patients.

After the market closed on Tuesday, investors learned that the company had filed an "amended" Form S-3 with the SEC. The form appears to be part of a $30 million bump to a previously filed "shelf offering" that had just been filed with the SEC two weeks ago, on October 30th.

In that original filing, the company had disclosed that they were looking to raise only $10 million. The total now is $40 million. Was there a miscalculation? Did something unforeseen develop at the recent vaccine conference in D.C.?

While the filing has impacted the shares negatively over the last couple of days, the company may not even be planning to take advantage of the new shelf immediately.

These types of filings, while not usually publicized, give informed investors significant information regarding the securities offered, and are basically designed to help alert investors ahead of any sudden moves.

Still, one is left to wonder. Is this a "tell?" Especially given the odd timing of the filing.

One day prior to the amendment, the company had reported from the big conference in Washington that their L.E.A.P.S. platform had shown the ability to modify immune response. Those findings based on studies conducted by Dr. Kenneth S. Rosenthal, Professor of Immunology and Microbiology of Northeastern Ohio Universities College of Medicine and Pharmacy, in collaboration with scientists at the Cleveland Clinic were supportive of the role that the technology might play in the treatment of H1N1 hospitalized patients.

That news, coupled with a release two days earlier that an Institutional Review Board of The Johns Hopkins University School of Medicine (Johns Hopkins) had given clearance for the company's H1N1 clinical study to proceed. The news boosted credibility among investors and basically let them know that CEL-SCI had indeed been working diligently with their CRO and Johns Hopkins to actively prepare submissions to the FDA.

The aim, as explained by company officials in a released statement, is to move ahead "in the fastest and most effective way" towards clinical trials going forward for this unique investigational treatment. That sent shares up 50% during back-to-back sessions on Friday and Monday.

Then came the new amended filing.

Here is what we do know:

Some time in the next two years (as allowed by the SEC), Cel-Sci can offer and sell up to $40 million of the securities described in the registration statement. The terms of any future offering would be established at the time of the offering and would be subject to market conditions and approval by the company’s board of directors.

So while the Company doesn't appear to have any immediate plans to use the shelf registration statement, this filing may allow CEL-SCI to offer and sell securities on an expedited basis if market opportunities present themselves and that prospect has left investors wondering if some kind of news, event or even partnership is in the works.

We know that the company has several pending news items including, but not limited to:

1- The validation of its newly completed state-of-the-art facility in Maryland which it expects to utilize to launch aseptic filling for stem cell produced therapies and other biological products. In addition to serving as the "home base" for manufacturing Multikine® going forward, the facility could also bring substantial revenue to the company if they decide to lease it to other companies on a per-hour or per-day basis.

2- The official announcement that the long awaited global Phase III trials for Multikine®- which is being readied as a cancer vaccine in advanced primary head and neck cancer- have begun.

3- An announcement- or series of announcements- regarding CEL-SCI's prevention and treatment for H1N1 swine flu using their L.E.A.P.S. technology platform. Those announcements could include the results of clinical human blood tests, FDA designation or status changes for the H1N1 treatment. Another expedited trial announcement or change of clinical process itself . After this past weekend's hearing in front of congress, where the nation's top health officials were criticized for not investing more into U.S. based flu prevention platforms and being "ill-prepared" to deal with the pandemic flu- as evidenced by the late delivery of vaccines, it's not even far fetched to think that some kind of federal funding for the L.E.A.P.S. H1N1 program (similar to the funding seen for BioCryst's (NASDAQ:BCRX)  Peramavir) could come into play.

Take a look at that company's stock performance during the last two months. Impressive. Especially given the criticism that Peramavir has gotten in the press.

Like Tamiflu and Relenza, Peramavir is a neuraminidase inhibitor and the problem with neuraminidase blocking is that there are  human genes that utilize neuraminidase for normal and healthy cell function (NEU1, NEU2, NEU3, NEU4). Critics of the drug argue that any neuraminidase blocking drug runs the risk of interfering with general communication needed for healthy cell function. The L.E.A.P.S. platform works completely differently and is intended to enable stimulation of the specifically-needed immune responses, while avoiding the administration of regions of H1N1, and other viruses, which may exacerbate the problem of cytokine storm, which scientists believe may be involved in the death of these H1N1 patients.

"What's promising is LEAPS immunogen's ability to activate the desired immune response without generating pro-inflammatory responses, which should make for inherently safe vaccines," According to Melly Alazraki of AOL's Daily Finance which published a story about researchers who are rushing to build better defenses against H1N1 on Wednesday.

Speculation. All of it. Yet it fuels the market and particularly stocks like CVM, who have so much ammo in their trunk.

On the other side of the coin, critics pounce on CEl-SCI's possible motives and cry "Dilution!"

"We just hope the company gives some of it's investors a chance to actually make money on good news, instead of simply raising money and keeping that entirely for themselves," says one long time investor in the company. "I'm not happy about the latest filing and it makes me wonder why they're going to go after more money. After all, didn't the company just announce that they had enough money to finally start Phase III trials for Multikine and to provide funding for their H1N1 program the last time they raised money?"

As explained so clearly in Investopedia, "sometimes current market conditions are not favorable for a specific firm to issue a public offering. For example, suppose the housing market is heading toward a dramatic decline. In this case, it may not be a good time for a home builder to come out with its second offering, as many investors will be pessimistic about companies working in that sector. By using shelf registration, the firm can fulfill all registration-related procedures beforehand and go to market quickly when conditions become more favorable."

After cruisin' the message boards, one reader sent me this comment by a poster who goes by the name xji590. Apparently, his take has attaracted quite a bit of attention from the longs.

"The shelf is an opportunistic move," he writes. "It is there in case someone comes along willing to buy a major block of shares at a price that the company thinks is reasonable. But clearly he needs to wait to utilize the shares made available through this shelf until he can minimize dilution. They are well capitalize right now, however, the H1N1 opportunity has thrust upon the company cash flow requirements, I'm sure, that were not anticipated a year ago, or even six months ago. Geert (Kersten, the CEO) knows that his cash flow model has changed, and needs to put the company in a position, through the shelf, to raise additional working capital should the company need to do that... I love seeing the company going out with a bold statement like this shelf offering... They have confidence. So what are they confident in? That's the $60 thousand dollar question... If they just need cash, Geert would go out with a shelf grabbing $2M, $5M maybe even $10M... But $40M??? That's a big shelf for CVM. That conveys management confidence."

Shares closed down only slightly for the second day in a row.

I'd venture to say that given all the drama and attention, what comes next will definitely be interesting.


Disclosure: Long CVM

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