Over the past year, shares of CEL-SCI (CVM 1.63%), one of the most shorted companies in the biotech industry, have gone up 70% as the Reddit community r/WallStreetBets began speculating about its potential to launch a new head and neck cancer treatment. Some shareholders are very passionate about the company and what it's trying to do.
There is even a website called killcvmshorts.com with step-by-step instructions on orchestrating a squeeze against those betting on CEL-SCI's failure. At the same, Geert Kersten, the company's CEO, has been engaging in verbal showdowns with those who dare to criticize CEL-SCI's technology on Twitter. With 34% of the company's shares sold short, will this be the next legendary short-squeeze?
What's at stake?
Last May, CEL-SCI finally reached the required number of deaths (298) for its 11-year phase 3 clinical trial evaluating the effects of Multikine in treating head and neck cancer. The company is conducting a statistical analysis to determine whether Multikine met its primary endpoint of 10% survival improvement, and the data could be out anytime (it's already been a year).
This matters, as companies who bring even a single successful immunotherapy to market are often worth between of $10 billion to $20 billion. CEL-SCI has a market cap of a little under $1 billion, so there's definitely a lot of potential for the stock to fly if it succeeds. On the other hand, the company has no product revenues and only a small cash balance, so shareholders could very well lose their investment if Multikine disappoints.
What's behind the hype?
It's easy to understand why shareholders are enthusiastic about CEL-SCI's potential. Historical data have shown that head and neck cancer survival rates have not improved overall in the past decade. Meanwhile, CEL-SCI's clinical trial has gone significantly over estimated timeline, so it (allegedly) cannot be longer survival times from receiving the standard of care (SOC) that's responsible for the delay. That's why investors think the experimental drug must be keeping patients longer alive than expected.
What's behind the skepticism?
It is not uncommon to see the SOC significantly outperform (and the experimental therapy underperform) in immunotherapy trials. Maybe the patients in the CEL-SCI trials received quality SOC that puts their survival rate in the top percentile when compared to historical studies. For example, investigators are typically on-call during clinical trials to monitor for safety issues/cancer progression, and conduct rigorous follow-ups after the treatment is complete.
Because CEL-SCI never evaluated Multikine's efficacy against placebo in phase 2, we don't know which cohort is responsible for the prolonged survival. It could be that both patients treated with SOC and SOC + Multikine survive longer than the norm. .
Keep in mind that patients from neither cohort are treated with Multikine if their cancer recurs. During the study, immune checkpoint inhibitors such as Opdivo entered the market. Opdivo is 30% effective in reducing the risk of death in patients with head and neck cancer compared to those treated with SOC alone. What's more, such class of immune checkpoint inhibitors can significantly reduce or eliminate tumor activity even in patients with advanced-stage cancers who failed multiple courses of prior therapy, which could also be a reason for the prolonged survival.
So who's right?
The picture becomes clearer if we look at the situation from an ethical standpoint. In studies like this, an independent data monitoring committee (IDMC) has access to confidential trial data and makes recommendations based on efficacy and safety endpoints.
If an experimental therapy has robust efficacy, then it's unethical not to terminate the study and make the drug available to patients in the control arm (and approve it quickly) to save lives. Likewise, if the experimental therapy makes patients sick, then the IDMC would recommend the company terminate the study.
CEL-SCI's IDMC has twice recommended that CEL-SCI terminate the study, while the U.S. Food and Drug Administration (FDA) has placed a clinical halt on the study, citing safety concerns. The monitoring agencies rescinded all three decisions, and the trial was allowed to continue.
As sketchy as this looks, efficacy and safety data of drugs have a significant degree of variance over time. It's not uncommon for a drug to show no promise at the beginning of a trial, then start looking better as time goes on.
But the fact that the IDMC did not irreversibly terminate the study after so many years implies the drug has either a small benefit or causes only a small amount of harm to patients compared to SOC. The study measures benefit and harm using the overall survival (OS) endpoint. Take a look at the following excerpt from a research paper discussing survival endpoints:
However, the use of OS can be challenging. For example, if survival is only incrementally improved by a new treatment, the demonstration of increased OS may require large patient populations, several years of accrual and follow-up, and higher costs. This is especially true if the natural history of the disease course is lengthy.
Now let's compare that to the following passage taken from CEL-SCI's annual filings:
If the number of deaths continued to be accumulated at the current rate, it had been determined that it would take longer than originally planned to complete the study. To minimize this eventuality, CEL-SCI decided it would be necessary to enroll up to 1,273 patients to have 1,146 evaluable patients.
There were also other changes in the protocol, such as the required number of deaths (394) and the required increase in overall survival (6.5%) in favor of the Multikine comparator arm. With this increased patient enrollment, CEL-SCI expected a corresponding increase in the number of deaths, and, if this plan were implemented, the study could be completed in a more timely manner.
What's the verdict?
If I were to make a guess based on the length of the study, survival characteristics, its history of regulatory intervention and proposed design changes, the overall survival benefit among patients in the Multikine cohort could range between -10% to 10% in the final analysis. And the company's CEO said in an investor's conference last December that the data analysis "would really really surprise me if it took that long [to the middle of June]." Again, from an ethical standpoint, if the drug's efficacy was robust, then it would be a really low move to delay the rollout this long.
There are allegations from bears that the delay is due to CEL-SCI compiling complex secondary endpoints to paint a better overall picture of the drug, which is definitely possible. Overall, it looks 50/50 at this point as to what the outcome of Multikine will be. Investors who can stomach the looming volatility with the data release should read up on the history of the drug before making an informed decision. Going long on small-cap biotechs that rely on a single drug is about as risky as it gets.