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CVM: Primum Non Nocere

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By John Vandermosten, CFA

NYSE:CVM

READ THE FULL CVM RESEARCH REPORT

Third Quarter Fiscal Year 2021 Operational and Financial Results

CEL-SCI Corporation (NYSE: CVM) announced third quarter fiscal year 2021 results, filing Form 10-Q with the SEC on August 13, 2021.

Highlights for the third quarter ended June 30, 2021 and to date include:

➢ Bought deal offering announcement and closing - June 2021

➢ Data readout from IT-MATTERS - June 2021

➢ Phase III results investor call and discussion- June/July 2021

Letter to Shareholders - July 2021

CEL-SCI recognized no income and incurred operating expenses totaling $10.4 million for the quarter. This resulted in a net loss available to common shareholders of ($9.20) million, or ($0.22) per share.

For the fiscal third quarter ending June 30, 2020 compared to the same ended June 30, 2021:

➢ Expenses for R&D increased by 84%, from $3.91 million to $7.18 million, driven by $2.8 million increase in the ongoing Phase III trial and $0.5 million increase in employee stock compensation expense, offset by a $0.1 million decrease in miscellaneous R&D expenses;

➢ G&A expenses increased by 3%, from $3.19 million to $3.27 million, relating to an increase in stock compensation expense;

➢ Gain on derivative instruments was a loss of ($1.28) million compared to $1.12 million;

➢ Other non-operating gains were a loss of ($951,000) compared with $761,000;

➢ Net interest expense was ($274,000) compared with ($351,000);

➢ Net loss totaled ($10.22) million versus ($8.94) million or ($0.27) and ($0.22) per share, respectively.

As of June 30, 2021, cash and equivalents totaled $47.1 million. Cash burn for the nine months ended amounted to approximately ($22.6) million versus ($13.3) million in the prior year comparable period. CEL-SCI carries lease obligations valued at approximately $13.1 million, primarily for the manufacturing facility (San Tomas) lease as well as other leases. CEL-SCI holds no debt on its balance sheet.

Data Readout From the IT MATTERS Trial

On June 28, 2021, CEL-SCI reported selected data from the IT-MATTERS trial. While details for the primary endpoint were not provided, an important subset of the population in the Multikine arm produced a statistically significant 14.1% improvement in overall survival (OS) relative to standard of care (SoC). The p-value for the 5-year result was 0.0236 and the Hazard Ratio (HR) was 0.68 in a population representing about 40% of all advanced primary squamous cell carcinoma of the head and neck (SCCHN) patients. No safety issues were reported in the study population. We summarize below the key data provided by the company:

Additional detail provided by the company in a discussion following the July 1st Annual Shareholder Meeting identified a total of 923 patients in the intent to treat (ITT) group which were broken down into three divisions: Low risk, which did not receive chemotherapy, high risk, which did receive chemotherapy and exclusions, which captured patients who had been randomized, received Multikine, but did not elect to move on to SoC. Group sizes were 380 (41.2%) for the low risk (no chemo) group, 467 (50.6%) for the high risk (administered chemo) group and 76 in the exclusion group.

The cancer patient population exhibiting the response in the trial was at the advanced (stage III and IV) primary (not yet treated) SCCHN. Safety for the trial population which was treated with Multikine, did not raise any safety concerns and matched the favorable results demonstrated in earlier trials. No safety issues were found related to drug administration with no detection of late adverse effects.

Few details were released regarding the primary endpoint except that the press release noted that the study did not achieve the 10% improvement in OS in the combined study groups. We anticipate that this information will be made available later.

CEL-SCI, while blinded to the study, developed several prospective statistical analyses for the population prior to data lock. The company believes that the early identification of the Multikine neoadjuvant population exhibiting a 14.1% OS advantage at five years will be amenable to the FDA as it reviews the data. In an area of unmet need, such as head and neck cancer, the bar is lower for determined endpoints and we anticipate a near-term meeting with the FDA will provide additional clarity. Safety is a strong point with Multikine, which showed no safety issues in the Phase III trial nor in previous studies compared with SoC and with other immunotherapies that are associated with cytokine storm and other negative side effects. We think it is likely that the agency will look favorably upon a new treatment for an unmet need that is safe. To this point, we highlight the case of aducanumab, which demonstrated minimal, if any, efficacy, but was approved by the FDA given the substantial unmet need. We discuss the FDA’s thinking on this matter in a recent article here which may be applicable to CEL-SCI’s situation.

Now that the company has made its announcement, key drivers for valuation include the FDA’s willingness to accept the data available for a Biologic License Application (BLA) consideration. Additional data and information may be required prior to acceptance. The company has reached out to the FDA and contacted representatives from both the offices of oncology products and rare disease. We will update investors on these meetings, their outcomes and impact on valuation when details are made available.

Multikine Near Term Milestones

➢ Release of subset data for IT MATTERS – June 28, 2021

➢ Development of clinical study report – 2021

➢ Request meeting with FDA to determine path forward – 2021

➢ Development of paper for publication in peer reviewed journal - 2021

➢ Presentation of data package to review with FDA – 2021

➢ Establish internal SCCHN KOL advisory committee - 2021

➢ Address FDA Comments – 2021/2022

➢ Submission of BLA to FDA – 2022

IT-MATTERS Trial Background

After almost a decade, the IT-MATTERS clinical trial experienced its final event, reported in a press release on May 4, 2020. The event-driven trial for head and neck cancer added its first patients in 2011 in the US, Canada, UK, France and 20 other countries. 928 patients were enrolled, with the final individual treated in September 2016. The primary endpoint for the study was an overall survival benefit of 10% over standard of care alone in defined areas of the head and neck.

The trial enrolled three arms including:

1) Multikine plus CIZ (M+CIZ) followed by SOC

2) Multikine (CIZ-exclusion) followed by SOC

3) SOC therapy as the active comparator

Only the M+CIZ and SOC groups contributed to the event total for the trial. Over the duration of the trial, an independent data monitoring committee (IDMC) provided periodic checks approximately every 6 months to ensure patient interests were met and the trial was conducted ethically. In December 2020, the study entered its final stage of statistical analysis of all study data.

Letter to Shareholders

On July 7, 2021, CEL-SCI CEO, Geert Kersten, issued a Letter to Shareholders. The purpose of the letter was to clarify the suitability of the data generated for use in a BLA for submission to the FDA. Mr. Kersten emphasized that the successful treatment arm was pre-specified in the protocol, and that the five year data generated exceeded the 10% threshold and was statistically significant. The press release further noted that, if successfully approved, Multikine would be appropriate for 155,000 SCCHN patients per year, and that it would be addressing an unmet need in a serious disease. This total was based on a global number of head and neck cancer cases that has been cited for the last ~20 years and not accounted for disease or population growth. As an update in its most recent presentation, CEL-SCI updated its addressable market to reflect 2018 GLOBOCAN numbers that are over a third greater, generating an addressable population of 210,000. We reiterate the company’s argument for a successful submission:

➢ Primary efficacy target met in pre-specified population;

➢ Statistically significant result for overall survival endpoint;

➢ Statistical significance reached;

➢ Model results are robust and extend to five years;

➢ No safety issues;

➢ Multikine is a product that has demonstrated efficacy in a identifiable orphan population and an unmet need offering favorable reward to risk for patients.

Summary

CEL-SCI reached the final event in the IT-MATTERS trial in May 2020 and released selected data for a key treatment arm in June 2021. The data demonstrated a 14.1% 5-year survival advantage for patients in the Multikine, surgery and radiotherapy treatment arm. Efforts now are centered on further analysis of the data, scheduling a pre-BLA meeting with the FDA and preparing a manuscript for publication of the study in a journal. There are a number of favorable factors that support the approval of Multikine, which we have listed above. Other cancer drugs have been approved on weaker data such as overall response rate and with less statistical significance than now presented by Multikine. In a disease where a majority of the treatments are toxic or are associated with serious side effects, CEL-SCI’s candidate provides a favorable safety profile with no serious side effects, a must in a space where the first goal is to do no harm.

We are in the process of rebuilding our model and testing each of our assumptions based on the results yet presented and reflecting trends of other successful products. Meanwhile, CEL-SCI is making improvements to its manufacturing facility in anticipation of commercialization with completion expected soon as well as preparing for regulatory interactions and publication of a paper analyzing the IT MATTERS study.

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1. Our year over year comparison uses numbers as originally reported in the June 30, 2020 10-Q.

2. The 0.68 Hazard Ratio was better than and below the pre-specified cutoff of 0.721

3. Compiled by Zacks’ analysts from company press release.

4. Source: CEL-SCI July 2021 Corporate Presentation

5. Source: CEL-SCI July 2021 Corporate Presentation

6. The overall survival comparison is made between groups 1 and 3. The primary purpose of the smaller Group 2 is to gain additional information on the mechanism of action and toxicity of Multikine. CIZ is added to decrease tumor suppressor mechanisms and thereby is thought to increase Multikine’s effectiveness.