Thursday, November 20, 1997

CEL-SCI Corp.
(AMEX: HIV)
Phone: 703-549-5293
Website: http://www.cel-sci.com
Price (11/19/97): $7 3/4

HOW DID IT DOUBLE?

Promising developments in the field of infectious disease control can leave investors feeling immune to trouble even before there's a product on the market. That's the story at CEL-SCI.

In June of 1996, research made public at an international AIDS conference showed that CEL-SCI's HIV vaccine/treatment worked in SCID mice. These special laboratory mice lack their own immune systems, but accept those they're given.

Researchers gave CEL-SCI's HGP-30 HIV vaccine to a group of HIV-negative subjects, whose blood was then injected into the mice. The mice were subjected to a high dose of a variant strain of HIV. The control involved blood from unvaccinated HIV-negative subjects.

Only 22% of the mice exposed to HGP-30 contracted HIV whereas 87% of the unvaccinated group did. Not perfect protection, but good for the world of HIV vaccines. CEL-SCI stock rose to $14 3/8 on the news. But after the SCID experiment came the stock skid... to $7 by late July 1996 and to $2 3/4 by last April.

The recent triple to $10 followed a spate of positive news beginning in early September. First, CEL-SCI received a patent on an HIV blood test. Plus, a Phase I trial showed that HGP-30 was safe when given to HIV infected people.

Then, the National Cancer Institute put up money to conduct animal tests on CEL-SCI's prostate/mammary cancer therapy. The company's L.E.A.P.S. herpes simplex vaccine also showed real promise in a mouse study. Finally, the company said that its Multikine therapy was producing good results in an ongoing Phase II clinical trial on people with head and neck cancers.

BUSINESS DESCRIPTION

CEL-SCI is a development stage biotech company working on therapies and vaccines that trigger immune responses against viruses, bacteria, parasites, and cancer tumors.

Its patented Multikine therapy is a mix of natural immune system regulators called cytokines, including Interleukin-2. Multikine is for use against HIV, prostate cancer, and head and neck cancer. It's been shown to shrink tumors in as little as two weeks.

The HGP-30 HIV vaccine is based on a highly conserved part of the core viral protein, which explains why it has shown promise against various strains of HIV. HGP-30 is different from other failed HIV vaccines in that it triggers a crucial cell-mediated response rather than just an antibody, or humoral immune response. A Phase II dosing trial is expected to begin shortly. CEL-SCI believes it can improve the vaccine's effectiveness.

The company's patented L.E.A.P.S. technology offers one way to refine its vaccines by including a second protein that binds to immune system T-cells and helps direct the immune response generated by the vaccine. The company is also working on L.E.A.P.S. vaccines for malaria and tuberculosis.

Insiders own about 7% of the stock currently outstanding. Until June, the stock traded on the Nasdaq SmallCap market as CELI.

FINANCIAL FACTS

Income Statement
12-month sales: $0.5 million
12-month income: ($8.3 million)
12-month EPS: ($0.95)
Profit Margin: N/A
Market Cap: $86.5 million*
(*Based on 11.16 million shares outstanding as of 10/14/97)

Balance Sheet
Cash: $3.4 million
Current Assets: $6.3 million
Current Liabilities: $0.3 million
Long-term Debt: N/A

Ratios
Price-to-earnings: N/A
Price-to-sales: 173

HOW COULD YOU HAVE FOUND THIS DOUBLE?

Development stage biotechs move on new research findings or trial results. CEL-SCI's work on an HIV vaccine might have put the company on a speculator's radar. The company certainly should have registered with investors when, on May 18, President Clinton announced a new effort to create an HIV vaccine.

Still, many large biotech/pharmaceutical companies have all but abandoned HIV vaccine work because they know the difficulties, fear the liabilities, and believe the market will be limited to developing countries without a lot of money to spend on the effort.

WHERE TO FROM HERE?

Since its inception, CEL-SCI has lost about $37 million. The company expects substantial losses for the foreseeable future. That's about what you'd expect from a biotech with some products in Phase I and II trials but none close to seeing the market.

In the meantime, the company has been sprouting new shares and giving its warrant holders a better deal in hopes they will convert the warrants into stock and provide CEL-SCI with some cash. If all outstanding warrants and options were converted, shares outstanding would increase to 16 million from 11.2 million today.

Arriving at a fair value for this kind of company is difficult. You need to understand the science well enough to know the challenges and handicap the competition. You need to know not just the size of the firm's potential markets but also its likely sales assuming the FDA cooperates. Then you need to construct a timetable and figure on future dilution. Even the savviest biotech investor is likely to badly miscalculate.

CEL-SCI is essentially a speculation. It seems likely that many people buying the stock of late are simply waiting for the next press release to carry the shares higher. An unexpectedly long wait and the stock could slide.

CEL-SCI's research appears interesting enough to merit further study by investors with the scientific background required. But there's simply no reason to pay up when the road to a profitable product still has so many turns ahead.

-- Louis Corrigan
(TMFSeymor@aol.com)

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