Risks And Rewards For Cel-Sci: Phase III And Phase I Progress, And Arbitration
Oct. 1, 2015 4:15 PM • CVM
Summary
Phase III testing of Multikine on head and neck Cancer continues, with enrollment projected to be complete during the first quarter of 2016.
Phase I testing of Multikine as a treatment for HPV-related anal warts started in 2014 should be finishing up during October 2015, but maybe not?
A lawsuit that CVM has initiated against the CRO formerly running its Phase III testing is slated for the end of October 2015.
Absent an influx of cash from winning the lawsuit, CVM will need to do a capital raise during the next few quarters.
Cel-Sci Corporation (NYSEMKT:CVM), is a clinical stage bio-pharma company with a lead drug candidate (Multikine®) currently in the process of a long and slowly populated Phase III study for its effectiveness as a supplemental treatment for Head and Neck cancer. Multikine also is the subject of a Phase I test as a treatment for HPV (herpes virus) related perianal warts in HIV compromised patients.
The Multikine®drug (Leukocyte Interleukin, Injection) is an immunotherapy that CVM has developed that has shown promise in preclinical trials, and in Phase I & II clinical trials against certain types of cancers and against HPV-related warts in HIV-infected patients. The Multikine treatment for Head and Neck cancer is unique in that it is provided to cancer patients prior to their receiving the standard of care treatment of surgery, followed by radiation treatment alone, or radiation treatment concurrent with chemotherapy. The hypothesis here is that using the Multikine treatment to help shrink or arrest the growth of tumors prior to surgery, and prior to the immune system being impaired by follow-up radiation and/or chemotherapy can increase survivorship among patients by 10% or more.
Additionally, CVM possesses a validated manufacturing facility that is used to manufacture lots of its Multikine drug. This facility has been designed to meet US FDA and European quality standards for the manufacture of Multikine. CVM controls the facility it needs in order to go into production - once the drug has finally reached the stage where FDA review of results will allow CVM to go forward.
Financial Status and Concerns for CVM:
Cel-Sci does not have a revenue source other than through dilutive financing arrangements or stock-sales into the market. While CVM does not hold any significant quantities of long-term debt, the operating costs of the company while it has been ramping up Phase III testing have been high, and have increased significantly over the last few years. As of the most recent annual report, CVM reported a $27.57 MM operating loss for 2014, an increase in losses of ~$7.7 MM over what was reported for 2013. Most of this increased loss in 2014 can be explained by the increased spending on R&D functions due to the increased expenses of running the expanded Phase III trials as they were ramped during that year. Similar spending requirements during 2015 can be expected to continue on the Phase III trial and will continue to drive a large financial deficit again for the year. Direct assessments of the financial information from CVM's quarterly reports during 2015 indicates that a relatively high cash burn has indeed continued, and suggests that these high expenditures should be anticipated to continue at least until the Phase III study population has been filled sometime in early 2016.
CVM has raised operating capital during 2015 via private and public placements for $7 MM during the first quarter of 2015, and for $16 MM via public offerings of stock & warrants during the second quarter of 2015. Barring other sources of unanticipated revenue before the end of 2015, it is likely that CVM will have to undergo another similar round of dilutive financing in order to remain solvent and cover costs for their Phase III trial. The continued expectations for sales of stock and warrants have, understandably, had a net effect to help hold down share prices for CVM during 2015.
CVM is also involved in a lawsuit with the initial CRO for their Phase III trials in an attempt to reclaim damages to CVM caused by the mishandling of that Phase III trial by the Contract Research Organization (CRO) - a potentially positive factor I will discuss in detail a bit later in this article.
What we have here is a race between the needs for continued financing for CVM to continue moving forward with its Multikine drug, and the known risks for investors that dilutive financing would have on their bottom line for CVM and its shareholders in the short to medium term.
The R&D Factors for CVM during 2015 and into early 2016:
Phase III testing for Multikine in Head and Next Cancer:
The Phase III study for CVM's Multikine as a treatment for Head and Neck cancer has proceeded extremely slowly relative to expectations of investors when the trial was started. In part the slow pace of the study has been because of the large study population size required (880 patients enrolled to insure that at least 784 patients were retained in the final population) to ensure the statistical resolution needed to assess Multikine's effectiveness in treating this cancer was obtained. Adding to the sheer size of the study, the slow pace with which the Phase III trial has moved forward was negatively impacted because the CRO that was initially employed to run the study was ineffective and potentially negligent in getting their contracted work done.
During 2013, that CRO was fired by CVM, and new CRO's were brought in to rejuvenate the Phase III trial. Since that change in 2013, study enrollment has increased dramatically, numerous study locations have been added (currently over 20 locations worldwide are participating), and the Phase III study is on track to be fully populated during early 2016.
As of September 1, there were a total of 540 patients enrolled, and the number of patients added each month during 2015 has ranged between 19-34. The Phase III study is now projected for completion of enrollment during March 2016, but in this author's estimation may take a few months longer unless the rate of patients being enrolled increases over the next few months. This is about on Quarter after the previous estimated completion date of December 2015 for the endpoint for populating the Phase III study. This delay, while it may be understandable in light of the issues that CVM experienced with the initial CRO, is one of the many reasons that CVM share prices remain depressed relative to many other companies with drugs with a Phase III study ongoing testing. The risks in this delay are viewed as (justifiably) high by those that have been watching this company slog through clinical testing of Multikine.
Prior to the delays caused by the previous CRO, it was expected that the Study Completion date for assessing the primary outcome data would be in December 2017. The delay into 2016 for filling the study population could easily push that primary outcome assessment date into 2018. While some information on secondary outcome measures could be available prior to 2018, it is probably unrealistic to assert that CVM will have the data needed to apply for FDA approval of Multikine prior to sometime in late 2017, and the wait for shareholders could well continue into 2018.
Unless CVM can generate some other source of revenue to tide the company over through 2017 or 2018, that's a long time for investors to wait it out.
Phase I testing for Multikine against HPV Warts:
The Phase I clinical trial for Multikine against HPV warts in immunocompromised (HIV positive) patients was initiated as part of a Navy Cooperative Research And Development Agreement (CRADA) during 2013-2014. The original projected end date for that study for patient enrollment was during August 2015, and as of September 30, 2015, that study is listed as 'still enrolling patients' on the ClinicalTrials.gov website. The original study completion endpoint, for a total of 15 patients, for that set of trials was to be during October, 2015. However; to date there has been no indication that the study via the Navy CRADAS is being wrapped up in time to achieve this milestone. This is a source for concern and potential risk for CVM investors.
To complicate assessment of the success, or potential failure of this Phase I trial, there was an announcement during July of 2015 that a highly similar Phase I study was being initiated by (or expanded upon by) a different set of researchers. This second set of Phase I trials raises doubts in the minds of some investors, and begs the question as to whether any significant progress was made under the Navy CRADA that ran for more than a year. What aspects of that initial study under the CRADA either 1) merited the addition of this additional work to be conducted at UC San Francisco, or 2) indicated that the group slated to conduct the original Phase I work was not up to the task. This aspect of that Phase I study must be considered as (at best) unresolved, or (at worst) a negative sign for the future of CVM's Multikine as a treatment for HPV warts in these clinical situations.
When the Phase I study of Multikine against HPV perianal warts was initially announced for 2013-2014, one of the justifications made to take on the new potential use for Multikine was that the results needed to assess Multikine as a Cancer treatment would not be ready for 3-4 more years. Because of this long time-frame, pursuing Multikine as a treatment for perianal warts caused by HPV viruses in immunocompromised patients might bring Multikine to the market sooner, and thus bring in a revenue stream to CVM more quickly, and while CVM and its shareholders were waiting out the end results on Phase III testing for Head and Neck cancer.
Now there is at least the appearance that these Phase I trials are not moving forward quickly to fill that role. Justified or not - this potential delay plays into the existing narrative that CVM is a company that is not capable of bringing a treatment to market.
Absent some evidence that these anti-HPV wart studies for Multikine are moving forward, this makes the financial future of CVM appear even murkier, and with an added perceived risk that. Even if CVM can stay sufficiently financially together to allow it to finish out the Phase III testing of Multikine - can the company ride out the 2+ years it will need to see Multikine through to use as an anti-cancer treatment without more significant financial dilution to current shareholders?
A Wildcard for CVM - It's Lawsuit against its former CRO (inVentiv):
Barring further delays, the long-awaited trial for CVM against its previous Multikine Phase III CRO (inVentiv Clinical, LLC) for breach of contract and damages finally comes to a head at the end of October, 2015. CVM is suing inVentiv for up to $50 MM for the damages that they may have caused to CVM by not fulfilling their part of the contract in populating the large Phase III trial. When Inventive was fired in April of 2013, they had enrolled less than 120 patients in a year and a half, and the numbers of patients added to the trial was slowly dropping as months went on. Since April of 2013, over 450 patients have been enrolled in the study, and numerous study locations have been added world-wide. This dramatic change in trajectory at least superficially suggests that CVM has a viable case against the inVentiv when seeking damages. It also appears that the available appeals and delaying tactics for inVentiv have been exhausted at last, and the trial is going to go on as scheduled at the end of October.
There are three possible outcomes from this trial - two of which are extremely favorable for CVM's bottom line.
If there is a settlement prior to the trial, somewhat less than the $50 MM figure will be awarded to CVM. However, even 20-30% of that $50 MM figure would give CVM some of the operating capital that it needs to minimize the need for near-term dilution of current shareholders that the selling of more stocks or warrants into the market. At the least, an award of $10-15 MM would give CVM sufficient capital to complete the enrollment for Multikine for Head and Neck cancer treatments without having to do a capital raise.
If the case goes to trial and CVM wins the full $50 MM, then the concerns over needing to do a capital raise decrease for an even longer period of time - perhaps sufficient to tide CVM through the period it needs to get the Phase III primary outcome data for Multikine.
CVM loses the case. At which point shareholders are not really in a worse a financial situation than they are today and will continue to have to rely on dilutive financing to keep CVM a going concern.
As of September 30, CVM had a Market Capitalization of approximately $69.5 MM. Being awarded the full $50 MM in damages being sought would have an obvious positive effect on the perceived value of the company, on its short-term share prices, and on the outlook that CVM will have the financial resources to complete its Phase III testing, and to wait out the period before the primary and secondary outcome measures can be tabulated, and sent in for FDA review. In this case, it would not be a surprise to me to see share prices increase by 50% or more by November 2015.
Absent an award of damages resulting from this lawsuit - the immediate financial future for CVM will continue to be dependent on dilutive financing. More dilutive financing can be expected to continue to push down share prices for CVM and further crunch current shareholders. It would not be a surprise to see share prices decrease by another 25-30% from their current ~$0.60-0.70 trading range in immediate response to a failure to win damages.
October through the end of 2015 should bring a lot of clarity to CVM's ability to carry on with its Phase III testing of Multikine and maintain some financial stability for the company in the meantime.
Disclaimers:
Just One Lab Nerd has earned a Ph.D. in Genetics and possesses over 20 years working experience post-degree in genetics, biological chemistry, molecular genetics, population genetics, and in methods development and validation. The author has held a small long position in CVM since 2010, but has not added to or sold from his holdings since 2012 while waiting to see how CVM's Multikine Anti-Cancer drug has progressed through its Phase III trial, and how the lawsuit against inVentiv has progressed.
Disclosure: I am/we are long CVM, NNVC.
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.
