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CVM: Rumor and Pandemic: A Volatile Mix They Make

02/27/2020

By John Vandermosten, CFA

NYSE:CVM

We joined CEL-SCI Corporation (NYSE:CVM) on a visit with Texas investors yesterday which coincided with a roller coaster ride in the stock. Company CEO Geert Kersten updated current investors, introduced the stock to new investors and provided a status report for the IT-MATTERS Phase III clinical trial for Multikine.

Mr. Kersten highlighted the company’s commission of the SEER analysis, which we discuss in our recent update and the anticipated two year shelf life of Multikine as well as commentary on other trials that have taken a long time among other items. All investors were eager to know when the trial will complete; however, management is still blinded. We gained increased confidence that if Multikine is successful in squamous cell carcinoma of the head and neck (SCCHN), it can be expanded to other types such as cervical, breast and ovarian cancer.

During the staid investor meetings, CEL-SCI stock was apoplectic. There were no investor discussions or news that we heard that would justify the substantial decline in CEL-SCI stock yesterday. Based on what we heard secondhand from traders, rumor and hearsay made the untrue assertion that the company had reported results from the IT-MATTERS trial and they missed the endpoint. Combine this uncertainty with general market skittishness regarding the coronavirus and the company’s meetings with investors that some may have assumed was a prelude to a deal, and the stock plunged.

An investor update letter was issued at the end of the day that walked shareholders through the pathway Multikine has traversed through the clinical trial phases. It clarified that IT-MATTERS had not ended and the data remained blinded. One of the highlights of the letter was the example of Bristol Myers’ Yervoy. The anti-CTLA-4 checkpoint inhibitor was initially in a front-line metastatic melanoma trial that was expected to last three years. However, at the three year mark, only 85% of the expected events occurred. The study continued for an additional 18 to 24 months to capture the last 15% of required events for the event driven trial. While we do not know if Multikine is following the same pattern, we have seen in a number of immuno-oncology Kaplan-Meier estimators where a bolus of events occur early, followed by an extended period where the curves extend horizontally with a decreasing event rate.

In response to the dips, management has been increasing their position in CEL-SCI stock. This morning we saw CEO Geert Kersten, SVP of Operations Patricia Prichep and SVP of Research Dan Zimmerman file SEC Form 4 along with several directors (PY, BB, RW). All increased their position in the company with share repurchases.

While we did not get any new news regarding the completion of the trial, we continue to believe that the longer than expected duration is a positive for the ultimate outcome of IT-MATTERS. CEL-SCI has increased its employee count by seven since the start of the year. We think that management smells a near term end to the trial and is willing to spend money to fill the ranks in advance of the next stages of data analysis and BLA submission.

Biotech stocks are not for the faint of heart. While we have no insights beyond publicly disclosed information regarding CEL-SCI, we think the shares are undervalued and maintain our $19 price target. Our thesis on CEL-SCI relies upon the lack of competitors in intent to cure squamous cell carcinoma of the head and neck and a 10% improvement in overall survival for patients enrolled in the IT-MATTERS trial. We see an immunotherapy with a favorable safety profile and fast action prior to standard of care as a strong contender if endpoints are met. Refer to our initiation for a full discussion of our thesis and background on the company.

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