Cel-Sci ($CVM): Hello June, The Big Day is Coming
My opinion, no investment advice. Twitter: @dinhvesting
A. Highlights:
As expected, data did not come in May
Double check is likely to have started and CEL-SCI will likely report positive data in June before the Annual Shareholder Meeting
If data does not come in June, pay close attention to Geert’s tone in July and after
Likely survival benefit, CEO sending ultra-bullish signal during double-check, regulatory and political support more favorable than ever, huge potential for a buy-out beauty contest, and a likely short squeeze on the back of a game-changing news: the stars having been aligning for a breakthrough success of CEL-SCI and its shareholders.
With a high probability of Phase 3’s positive data, an upside / downside ratio of 10-20x fundamentally, and potentially even more with a short squeeze, CEL-SCI is one of the most compelling bets ever seen.
B. As expected, data did not come in May
My previous article predicted that CEL-SCI’s Phase 3 data would be unlikely to come in May. This is a reality now.
C. Why is it likely that CEL-SCI will report data in June, before the Annual Shareholder Meeting?
In my previous article, I put a high probability of data coming in June for 3 reasons:
Geert (and likely ICON) initially expected data much sooner than June.
Shareholder meeting has been scheduled on July 1, 2021.
We are not far off as Geert refused an interview invitation from David Moadel on April 26, saying we might be very close to the data read-out.
Let’s take a closer look at recent events to better understand what’s going on:
On May 18, 2021, CEL-SCI issued a letter to shareholders dated May 11, 2021 which states “The important work is being conducted by outside experts and then double-checked by yet another statistical team”. This sentence suggests that the double-check had not started on May 11.
On May 18, 2021 again, CEL-SCI announced that the Annual Shareholder Meeting (“ASM”) would be held on July 1, 2021. I believe that Geert had been dragging on fixing the date of the ASM since April. This is likely because he wanted to have data before to avoid a difficult meeting with the shareholders. Hence, I believe that on May 18, Geert was quite certain that data readout would be before July 1. Not convinced? Okay, let’s reverse and assume that on May 18, Geert was not certain about releasing data in June:
Then, why did he rush to set the ASM on July 1 with the risk of facing shareholders without data? Why didn’t he just schedule the ASM in September like in 2018 to have more time?
As you can notice, all items on the agenda of the 2021 ASM are the usual ones: election of directors, approval of stock option plan, appointment of auditor. Nothing new and urgent. Geert had the choice to delay the ASM beyond July but he didn’t do it.
On May 21, 2021, Geert tweeted “Work of ICON gets double checked by another group”. This tweet suggests CEL-SCI was in the double-check phase, unlike the May 11, 2021 letter. Hence, my guess is: the double-check started during the week between May 17 to 21, 2021, very probably on May 17, or May 18 when CEL-SCI announced the date of the ASM.
The below calendar recaps the main events:
Now let’s try to understand why Geert would be confident that data will likely to come in June.
In order to release the Phase 3 data before the ASM on July 1, CEL-SCI will need to receive the data from ICON by June 28 at the very latest. This would leave Geert and his team 3 days to prepare the data press release before the ASM.
There are ~6 weeks between the week beginning May 17 and June 28, 2021. That means if the double-check process takes no more than 6 weeks, we will see data before ASM.
6 weeks is a decent amount of time to review the results.
Remember that in the previous article, Geert said on December 15, 2020, that he would be really really surprised if he would not get the the data before middle of June or ~6 months after data lock. This suggests he might have initially expected perhaps 4 months maximum for the full data analysis process, including the double-check. So 6 weeks for the double-check is 30-40% of the time of the entire process, a hence is a really decent amount of time.
As a reference point, scientific peer review usually takes between 3 to 4 weeks. If this is also the case for the double-check, we can understand why Geert was comfortable announcing the ASM date, as he would have 2 to 3 weeks buffer for any delay compared to a typical peer review period.
To go a little bit into the details, if Geert has the choice, he will likely prepare the press release over the weekend and announce data early in the week, especially on Monday to “bern” the shorts for a entire trading week.
In summary, I’m guessing that:
Double check has started likely in the beginning of the week of May 17.
Geert knows that the double check will be likely to take less than 6 weeks, and hence he will be able to announce data in June before the ASM. And he believes the probability of this scenario is high.
Now, high probability does not mean certainty. Let’s explore further.
D. What does it mean if data does not come in June?
It means the double-check process takes more than 6 weeks, longer than expected. This could suggest that there are some potentially sizable problems with the initial analysis of ICON, which need time to be fixed as explained in the below tweet:
Now, do not confuse methodological errors with the results because a correction of an error could lead to better or worse results.
Even unlikely, watch out for a potential ASM rescheduling as it could signal a new timeline.
If the ASM is still kept for July 1 and data is not out by then, the real red flag comes when Geert starts to change his bullish tone. This could signal that he might have learnt from ICON that something went very wrong with the double-check. So if data does not come by ASM, watch out for Geert’s tone during ASM and in his tweets in July and after. Given the survival benefit analysis that I have done, I put a very low probability on this scenario.
E. The stars have been aligning for Cel-Sci’s breakthrough success
1. Extremely likely survival benefit of Multikine
In the previous article, a simple statistical model shows that there is a very likely survival benefit of Multikine. I said that Geert would do the same analysis with better resources and insiders’ information. That’s perhaps why Geert has been openly very optimistic about a positive outcome. For example, he said in the following tweet in February 2021: “We just cannot see how our Phase 3 study will fail to show survival benefit”.
That’s the same feeling I have when playing with the statistical model. I just cannot see how Multikine would fail.
2. Geert keeps sending bullish signals after the beginning of the double-check
Based on the previous timing analysis, I said that the data analysis were finalized and the double-check was started likely at the beginning of the week of May 17. This is a crucial moment for Geert.
Although Geert is blinded to the final data, I expect that he did receive a verbal directional indication of the results from ICON, something like “Overall in line with expectations” or “No real surprise”.
Remember that CEL-SCI is the client of ICON. They have been working together for years. They might have personal relationship at executive or employee levels. So this type of verbal indication should be completely expected in practice.
Starting from May 18, when the data analysis was likely to have been completed, Geert keeps his bullish tone as illustrated by his “raging bull” tweet:
Or when Geert responded to a short, saying “Our success in this horrible cancer will teach you a big lesson...”
So I expect that at this late stage of data analysis and double-check, there hasn’t been any bad surprise so far. The uncertainty now is only in the remaining double-check process.
3. Favorable FDA support for unmet medical needs and political support for cancer treatment
In addition to a very likely survival benefit of Multikine, CEL-SCI’s Phase 3 data readout would take place in the best time ever from regulatory and political standpoints. Why?
Let’s take a look at the interview of Geert by David Modael on Jan 5, 2021. At 7:52, Geert mentioned:
Now let me add something really important here. 10, 12, 15 years ago, FDA was very very strict and they wanted absolute proof that cancer drugs worked.
And that's how our study is set up.
In the meantime though they realize that it becomes almost impossible to get cancer drugs to come to the market that way and they changed all of that.
In fact in the guidance that FDA issued in December of 2019 for our kind of drug, biologic, they say and I may paraphrase it here and shorten it.
Basically they say go through the whole study and give us every benefit that you can find. Then we will apply 2 screens: number 1 is it safe or not; number two is it an unmet medical need. And so you're even seeing getting cancer drugs approved but no survival benefit these days as long as they give clinical benefit and are safe.
So these are good times and because FDA is trying very hard to bring cancer drugs to the market.
I believe the document Geert referred to is this FDA guideline issued in December 2019. The guideline indeed shows the FDA looks at clinical benefits from many angles including patients’ feeling:
The clinical endpoints studied are a critical aspect of evidence quality (discussed in Section III.B). The Agency accepts clinical endpoints that reflect patient benefits (i.e., how patients feel, function, or survive) or validated surrogate endpoints (i.e., those that have been shown to predict a specific clinical benefit) as the basis for traditional approval.
In addition, for diseases with unmet medical needs like Head & Neck cancer, further flexibility can be granted, including a lower statistical standards:
Together these regulations recognize the importance of facilitating the development of, and access to, safe and effective treatment options for life-threatening and severely debilitating diseases with unmet medical needs. This approach has been reinforced by FDA’s interactions with patients and their caregivers who describe their willingness to accept less certainty about effectiveness in return for earlier access to much needed medicines.
A typical criterion for concluding that a trial is positive (showed an effect) is a p value of < 0.05 (two sided). A lower p value, for example, would often be expected for reliance on a single trial. For a serious disease with no available therapy or a rare disease where sample size might be limited, as discussed further below, a somewhat higher p value – if prespecified and appropriately justified – might be acceptable.
Now remember that during Phase 2, Multikine was proved having had reduced tumor size or even eliminated tumors, helping patients suffer less from the disease:
All in all, there are just so many ways for CEL-SCI to get FDA’s approval, not only from survival benefit but also from other endpoints.
In addition to favorable FDA support, we all know the political support is also favorable for cancer treatment. Although less relevant compared to the FDA, having the President of the U.S. on your side never causes any harm.
The Hill @thehill
.@POTUS: "We're going to beat cancer, I know we will." https://t.co/XNP9eM9gy74. Big pharma run for Head & Neck cancer highlights a huge potential for a competitive buy-out
Pfizer and Astra Zeneca have all recently failed in Head & Neck cancer:
Merck announced the acquisition of Phase 3 stage Xevinapant and started the pivotal study in September 2020.
So Merck is the main big pharma left in the run for Head & Neck cancer but is still many years away from the finish line. For others (and even for Merck), buying an approved treatment with the huge potential to tap in all kinds of solid tumor cancers does not sound like a bad idea.
Geert is smart and is a biotech investor himself. He surely has been thinking about a buy-out for a while, as suggested below:
And he has been preparing for the BLA and a turn-key solution in case of a buy-out:
5. Cherry on the cake, a highly shorted stock
Despite bullish evidences of the success of Multikine, the short interest of CEL-SCI stock remain extremely high at 25% or nearly 10 million shares to cover.
Although the short interest does not have significant impact on CEL-SCI’s business today, I expect significant volatility on the upside as we go further to the month of June, and especially after a positive data release. There is one crucial point to understand here: Unlike GameStop or AMC, if CEL-SCI releases positive data, CEL-SCI’s short squeeze will be supported by a fundamentally extremely positive news. This fundamentally positive news will completely change the intrinsic valuation of the company, hence putting higher pressure on the buy side and lower pressure on the sell side. These dynamics are much more favorable for CEL-SCI longs and more detrimental to shorts compared to GameStop or AMC squeezes.
Likely survival benefit, CEO sending ultra-bullish signal during double-check, regulatory and political support more favorable than ever, huge potential for a buy-out beauty contest, and a likely short squeeze on the back of a game-changing news: the stars having been aligning for a breakthrough success of CEL-SCI, and its shareholders.
F. The bet
I believe we are counting days / weeks away from a historic moment of cancer treatment history, and the life-changing milestone of the 30+ year epic journey of a small company in the route that many giants have failed.
Given the huge potential of Multikine, I estimate a valuation range of $10-20B or $200 to $400 per share, with a high probability of a buy-out. In addition, with a potential short squeeze on the back of a game-changing news, the share price could go anywhere on the upside which is impossible to predict.
Every investment is a bet on the future, the key is to understand the upside, downside and chance of success:
Based on current share price in the $20s, the upside is 10-20x from a fundamental valuation standpoint. With a potential short squeeze, there could be further unpredictable upside.
The downside, to be simple, is 100% permanent capital loss or 1x.
I estimate the chance of success is 80+% based on many elements summarized here:
Phase 2 shows good results with 33% improvement in survival and reduction in tumors’ size
The Independent Data Monitoring Committee recommended the trial to continue until the end
CEO Geert has never sold a single share, and even bought more in the past
The trial took 2.5 years longer than expected
Our statistical model, based on public information, shows a well-above 10% improvement in survival rate
The regulatory and political support are more favorable than ever for diseases with unmet medical needs and cancer
Geert keeps sending bullish signal even at the current late stage of the data analysis
The 20-% risk is for the unknowns, e.g. double check detects material adverse error, loss of key personnel…
With an estimated 80+% success probability and an upside / downside ratio of 10-20x or potentially more with a short squeeze, CEL-SCI is one of the most compelling bets I’ve ever seen.
G. Final words
Let me close the article with the quote on Geert’s twitter page, which summarizes the essence of this long story:
Sticking With It
“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not, the world is full of educated derelicts. Persistence and determination alone are omnipotent.” - Calvin Coolidge
I wish all the best for Cel-Sci’s team and Geert, one the most persistent and determined CEO ever seen, a CEO who would perfectly fit Charlie Munger’s definition of “Intelligent Fanatic”.
I’m long $CVM and I’m sticking with it.
Investing in biotech is risky. Do your homework before investing.
Another great writing. Thank you for gathering all the crumbles together and makes something well sewn together.
As we are now close to the data release date, I still believe MK will be the game changer in the fight against cancer. I also believe it will be a game changer ($$$) for those who hold shares... or those who borrowed some (margin calls).