CEL-SCI break-out appears fundamental in nature Print E-mail
By Michael Morhamus, Contributor   
Wednesday, 21 March 2012 00:00
Shares of Virginia based biotechnology company, CEL-SCI Corporation (AMEX: CVM) appear to be technically breaking out to the upside again. Interest and volume in the stock has been on the rise and some recent fundamental developments appear to be fuelling the price rise.

Primarily focused on Oncology, CEL-SCI seems to have most of its value is locked in Multikine, its lead drug candidate currently undergoing late-stage clinical trials as a first-line treatment in advanced primary head and neck cancer. Globally, about 600,000 new cases of head and neck cancer - 5%-6% of total cancer cases - occur every year. With five-year survival rates of just 30% and the need for better treatments, regulators will be keen to promote new treatments for this killer disease.

Since Multikine is administered before traditional forms of cancer treatment - chemotherapy, radiotherapy and surgery - it may generate a better immune response because it galvanizes lethal action against cancerous cells when the immune system is at its strongest. Besides ensuring the treatment's effectiveness, this mechanism of action is also likely to score highly with regulators during the review process.

An estimated US market size of $3.2 billion for head and neck cancer treatment implies that there is ample elbow room for new treatments such as Multikine to rake in dollars by the millions. In fact, due to its first-line indication and solid clinical data, CEL-SCI is confident that the pipeline candidate can gobble up two-thirds of the market upon launch. Multikine's orphan drug status means that it will enjoy a seven-year marketing exclusivity upon launch, thereby enabling it to squeeze in a pricing advantage upon commercialization in the US. Critically, the immunotherapy will need to demonstrate effectiveness in just one pivotal study to reach the market, which can save CEL-SCI precious R&D dollars.

In December 2010, after having breezed through early and mid-stage trials with impressive results, Multikine strode confidently into an ambitious 880-subject, 48-centre Phase III clinical trial. The trial was designed to compare Multikine as an adjuvant therapy with the standard-of-care treatment versus the standard-of-care alone to treat primary advanced head and neck cancer. To protect its limited cash resources, CEL-SCI has adopted a smart strategy of granting licensing rights for Multikine on a country-specific basis to partners such as Israel-based Teva Pharmaceutical Industries (NASDAQ: TEVA), who are willing to pick up part of the expenses tab for conducting the trial. CEL-SCI anticipates that excluding its clinical trial partners - Teva and Taiwan-based Orient Europharma - conducting the Phase III trials will entail a cost of US$26 million. The Company expects to fund these expenses through new partnering agreements and additional capital injection - such as the US$5.76 million raised through an equity issue in January 2012.

Data from the Phase III study - the largest head and neck cancer study ever conducted - is expected to be comprehensive enough to facilitate a clear "go/no go" decision for regulators. To understand Multikine's prospects of getting a thumbs-up sign from regulators, it would be apt to take a quick peek at results from previous clinical trials. A 22-subject Phase II study on Multikine as a fist-line therapy followed by surgery and radiotherapy resulted in an overall survival rate of 63.2% after 3.5 years from surgery compared to a mere 47.5% for 7,294 subjects in 55 historical clinical trials on other drug candidates for the same indication. The study also found that a mere three-week regimen of Multikine resulted in a sharp 50% reduction in tumor cells, with 12% of the subjects being cancer-free. CEL-SCI expects to conclude the Multikine Phase III clinical trials by May 2015. Given the time lag expected for data read out from this humongous trial, the immunotherapy may be launched in the second half of 2016. Gazing beyond the horizon, Multikine's label could be expanded to include treatment of other cancers such as breast, skin, bladder etc.

With so much attention on its Oncology franchise, it is very easy to overlook CEL-SCI's nascent infectious diseases business platform - enabled by its proprietary LEAPS technology. LEAPS-H1N1 - a Phase I candidate from the LEAPS stable - is being tested for treating hospitalized H1N1 patients and could even find use as a broad-spectrum influenza treatment to target different strains of the Type A influenza virus (e.g. H3N1, H5N1). CEL-SCI's other pipeline candidates under the LEAPS program are currently in pre-clinical testing - for Rheumatoid Arthritis, Herpes, Malaria and Viral Encephalitis. However, CEL-SCI's investors may presently be seeing value only from the clinical advancement of Multikine, treating the infectious diseases program as an out-of-the-money call option on the stock.

CEL-SCI has been whip-lashed by the markets since Multikine entered late-stage clinical trials, but investors are starting to take notice of the firm's execution, firmer financial footing and some news leaks about early clinical observations in Phase III appear to be attracting more attention from both speculators and pharmaceutical partners.

The Company seems to be wading cautiously through the waters at present - a strategy that could provide a rich pay-off for the long-term investor - and possibly, earlier if it attracts acquisitive interest.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Michael Morhamus is Seeking Alpha Certified contributor and independent/boutique research firm analyst.
His firm provides investment products and solutions for institutions and individual investors and he pays particular attention to small and mid-cap companies in emerging markets.

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