| CEL SCI CORP ITEM 1A RISK FACTORS Investors should be aware that the risks described below could adversely affect the price of CEL-SCIapstas common stock |
| CEL-SCI has had only limited revenues since it was formed in 1983 |
| Since the date of its formation and through September 30, 2005 CEL-SCI incurred net losses of approximately dlra99cmam000cmam000 |
| CEL-SCI has relied principally upon the proceeds of public and private sales of its securities to finance its activities to date |
| All of CEL-SCIapstas potential products, with the exception of Multikine, are in the early stages of development, and any commercial sale of these products will be many years away |
| Even potential product sales from Multikine are many years away as cancer trials can be lengthy |
| Accordingly, CEL-SCI expects to incur substantial losses for the foreseeable future |
| 17 Since CEL-SCI does not intend to pay dividends on its common stock, any return to investors will come only from potential increases in the price of CEL-SCIapstas common stock |
| At the present time, CEL-SCI intends to use available funds to finance CEL-SCIapstas operations |
| Accordingly, while payment of dividends rests within the discretion of the Board of Directors, no common stock dividends have been declared or paid by CEL-SCI and CEL-SCI has no intention of paying any common stock dividends |
| If CEL-SCI cannot obtain additional capital, CEL-SCI may have to postpone development and research expenditures which will delay CEL-SCIapstas ability to produce a competitive product |
| Delays of this nature may depress the price of CEL-SCIapstas common stock |
| Clinical and other studies necessary to obtain approval of a new drug can be time consuming and costly, especially in the United States, but also in foreign countries |
| CEL-SCIapstas estimates of the costs associated with future clinical trials and research may be substantially lower than the actual costs of these activities |
| The different steps necessary to obtain regulatory approval, especially that of the Food and Drug Administration, involve significant costs and may require several years to complete |
| CEL-SCI expects that it will need substantial additional financing over an extended period of time in order to fund the costs of future clinical trials, related research, and general and administrative expenses |
| Although CEL-SCIapstas equity line of credit agreement is expected to be a source of funding, the amounts which CEL-SCI is able to draw from the equity line during each drawdown period are limited and may not satisfy CEL-SCIapstas capital needs |
| The extent of CEL-SCIapstas clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI has received regulatory approvals for clinical trials |
| CEL-SCI is unable to estimate the future costs of clinical trials since CEL-SCI has not yet met with the FDA to discuss the design of future clinical trials; and until the scope of future clinical trials is known, CEL-SCI will not be able to price any trials with clinical trial organizations |
| Over the past three years CEL-SCIapstas research and development expenditures have decreased, due in part to the capital available to CEL-SCI The inability of CEL-SCI to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent CEL-SCI from completing the studies and research required to obtain regulatory approval for any products which CEL-SCI is developing |
| To raise additional capital CEL-SCI will most likely sell shares of its common stock or securities convertible into common stock at prices that may be below the prevailing market price of CEL-SCIapstas common stock at the time of sale |
| The issuance of additional shares will have a dilutive impact on other stockholders and could have a negative effect on the market price of CEL-SCIapstas common stock |
| During the two years ended September 2005 CEL-SCI has sold approximately 11cmam700cmam000 shares of its common stock to private investors at prices that were between 11prca and 22prca below the market price of CEL-SCIapstas common stock at the time of sale |
| Any failure to obtain or any delay in obtaining required regulatory approvals may adversely affect the ability of CEL-SCI or potential licensees to successfully market any products they may develop |
| 18 Multikine is made from components of human blood which involves inherent risks that may lead to product destruction or patient injury which could materially harm CEL-SCIapstas financial results, reputation and stock price |
| Multikine is made, in part, from components of human blood |
| There are inherent risks associated with products that involve human blood such as possible contamination with viruses, including Hepatitis or HIV Any possible contamination could require CEL-SCI to destroy batches of Multikine or cause injuries to patients who receive the product thereby subjecting CEL-SCI to possible financial losses and harm to its business |
| Although CEL-SCI has product liability insurance for Multikine, the successful prosecution of a product liability case against CEL-SCI could have a materially adverse effect upon its business if the amount of any judgment exceeds CEL-SCIapstas insurance coverage |
| Although no claims have been brought to date, participants in CEL-SCIapstas clinical trials could bring civil actions against CEL-SCI for any unanticipated harmful effects arising from the use of Multikine or any drug or product that CEL-SCI may try to develop |
| Although CEL-SCI believes its insurance coverage of dlra1cmam000cmam000 per claim is adequate, the defense or settlement of any product liability claim could adversely affect CEL-SCI even if the defense and settlement costs did not exceed CEL-SCIapstas insurance coverage |
| CEL-SCIapstas directors are allowed to issue shares of preferred stock with provisions that could be detrimental to the interests of the holders of CEL-SCIapstas common stock |
| The provisions in CEL-SCIapstas Articles of Incorporation relating to CEL-SCIapstas Preferred Stock would allow CEL-SCIapstas directors to issue Preferred Stock with rights to multiple votes per share and dividend rights which would have priority over any dividends paid with respect to CEL-SCIapstas Common Stock |
| The issuance of Preferred Stock with such rights may make more difficult the removal of management even if such removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if such transactions are not favored by incumbent management |
| Risks Related to Government Approvals CEL-SCIapstas product candidates must undergo rigorous preclinical and clinical testing and regulatory approvals, which could be costly and time-consuming and subject CEL-SCI to unanticipated delays or prevent CEL-SCI from marketing any products |
| Therapeutic agents, drugs and diagnostic products are subject to approval, prior to general marketing, by the FDA in the United States and by comparable agencies in most foreign countries |
| Before obtaining marketing approval, CEL-SCIapstas product candidates must undergo rigorous preclinical and clinical testing which is costly and time consuming and subject to unanticipated delays |
| There can be no assurance that such approvals will be granted |
| CEL-SCI cannot be certain when or under what conditions it will undertake further clinical trials, including a Phase III program for Multikine |
| The clinical trials of CEL-SCIapstas product candidates may not be completed on schedule, and the FDA or foreign regulatory agencies may order CEL-SCI to stop 19 or modify its research or these agencies may not ultimately approve any of CEL-SCIapstas product candidates for commercial sale |
| Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of CEL-SCIapstas product candidates |
| The data collected from CEL-SCIapstas clinical trials may not be sufficient to support regulatory approval of its various product candidates, including Multikine |
| For example, Multikine is now being made by a process that was different from the process tested in many of CEL-SCIapstas clinical studies to date |
| It is possible that the FDA will require CEL-SCI to conduct additional studies to demonstrate that the Multikine that it plans to use for its Phase III program is the same as the product previously tested in CEL-SCIapstas phase II studies |
| Even if CEL-SCI believes the data collected from its clinical trials are sufficient, the FDA has substantial discretion in the approval process and may disagree with CEL-SCIapstas interpretation of the data |
| CEL-SCI can make no assurances that the FDA will not require CEL-SCI to conduct more Phase II studies before beginning Phase III trials |
| CEL-SCIapstas failure to adequately demonstrate the safety and efficacy of any of its product candidates would delay or prevent regulatory approval of its product candidates in the United States, which could prevent CEL-SCI from achieving profitability |
| The requirements governing the conduct of clinical trials, manufacturing, and marketing of CEL-SCIapstas product candidates, including Multikine, outside the United States vary widely from country to country |
| Foreign approvals may take longer to obtain than FDA approvals and can require, among other things, additional testing and different trial designs |
| Foreign regulatory approval processes include all of the risks associated with the FDA approval processes |
| Approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries |
| In addition, changes in regulatory policy in the US or in foreign countries for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections |
| In addition to conducting further clinical studies of Multikine and CEL-SCIapstas other product candidates, CEL-SCI also must undertake the development of its manufacturing process and optimize its product formulations |
| CEL-SCI has only limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede its ability to obtain timely approvals from the FDA or foreign regulatory agencies, if at all |
| CEL-SCI will not be able to commercialize Multikine and other product candidates until it has obtained regulatory approval, and any delay in obtaining, or inability to obtain, regulatory approval could harm its business |
| In addition, regulatory authorities may also limit the types of patients to which CEL-SCI or others may market Multikine or CEL-SCIapstas other products |
| Even if CEL-SCI obtains regulatory approval for its product candidates, CEL-SCI will be subject to stringent, ongoing government regulation |
| Even if CEL-SCIapstas products receive regulatory approval, either in the United States or internationally, it will continue to be subject to extensive regulatory requirements |
| These regulations are wide-ranging and govern, among other things: 20 o product design, development, manufacture and testing; o adverse drug experience and other reporting regulations; o product advertising and promotion; o product manufacturing, including good manufacturing practice requirements; o record keeping requirements; o registration of CEL-SCIapstas establishments with the FDA and certain state agencies; o product storage and shipping; o drug sampling and distribution requirements; o electronic record and signature requirements; and o labeling changes or modifications |
| CEL-SCI and any third-party manufacturers or suppliers must continually adhere to federal regulations setting forth requirements, known as current Good Manufacturing Practices, or cGMPs, and their foreign equivalents, which are enforced by the FDA and other national regulatory bodies through their facilities inspection programs |
| If CEL-SCIapstas facilities, or the facilities of its manufacturers or suppliers, cannot pass a pre-approval plant inspection, the FDA will not approve the marketing application of CEL-SCIapstas product candidates |
| In complying with cGMP and foreign regulatory requirements, CEL-SCI and any of its potential third-party manufacturers or suppliers will be obligated to expend time, money and effort in production, record-keeping and quality control to ensure that its products meet applicable specifications and other requirements |
| State regulatory agencies and the regulatory agencies of other countries have similar requirements |
| CEL-SCI has an agreement with Cambrex Bio Science, Inc |
| whereby Cambrex agreed to provide CEL-SCI with a facility for the periodic manufacturing of Multikine in accordance with the cGMPs established by FDA regulations |
| This agreement expires on December 31, 2006 |
| If the Cambrex facility were not available for the production of Multikine, CEL-SCI estimates that it would take approximately six to ten months to find or build an alternative manufacturing facility for Multikine |
| CEL-SCI does not know what cost it would incur to obtain an alternative source of Multikine |
| If CEL-SCI does not comply with regulatory requirements at any stage, whether before or after marketing approval is obtained, it may be subject to criminal prosecution, seizure, injuction, fines, or be forced to remove a product from the market or experience other adverse consequences, including restrictions or delays in obtaining regulatory marketing approval, which could materially harm CEL-SCIapstas financial results, reputation and stock price |
| Additionally, CEL-SCI may not be able to obtain the labeling claims necessary or desirable for product promotion |
| CEL-SCI may also be required to undertake post-marketing trials |
| In addition, if CEL-SCI or other parties identify adverse effects after any of CEL-SCIapstas products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and CEL-SCI may be required to reformulate its products, conduct additional clinical trials, make changes in its productapstas labeling or indications of use, or submit additional marketing applications to support these changes |
| If CEL-SCI encounters any of the foregoing problems, its business and results of operations will be harmed and the market price of our common stock may decline |
| Also, the extent of adverse government regulations which might arise from future legislative or administrative action cannot be predicted |
| Without government approval, CEL-SCI will be unable to sell any of its products |
| 21 Risks Related to Intellectual Property CEL-SCI may not be able to achieve or maintain a competitive position and other technological developments may result in CEL-SCIapstas proprietary technologies becoming uneconomical or obsolete |
| The biomedical field in which CEL-SCI is involved is undergoing rapid and significant technological change |
| The successful development of therapeutic agents from CEL-SCIapstas compounds, compositions and processes through CEL-SCI-financed research, or as a result of possible licensing arrangements with pharmaceutical or other companies, will depend on its ability to be in the technological forefront of this field |
| Many pharmaceutical and biotechnology companies are developing products for the prevention or treatment of cancer and infectious diseases including Introgen Therapeutics, Inc |
| and ImClone Systems, Inc |
| which are currently developing drugs for head and neck cancer |
| Both Introgen and ImClone, as well as many other companies working on drugs designed to prevent, cure or treat cancer, have substantial financial, research and development, and marketing resources and are capable of providing significant long-term competition either by establishing in-house research groups or by forming collaborative ventures with other entities |
| In addition, smaller companies and non-profit institutions are active in research relating to cancer and infectious diseases and are expected to become more active in the future |
| CEL-SCIapstas patents might not protect CEL-SCIapstas technology from competitors, in which case CEL-SCI may not have any advantage over competitors in selling any products which it may develop |
| Certain aspects of CEL-SCIapstas technologies are covered by US and foreign patents |
| In addition, CEL-SCI has a number of new patent applications pending |
| There is no assurance that the applications still pending or which may be filed in the future will result in the issuance of any patents |
| Furthermore, there is no assurance as to the breadth and degree of protection any issued patents might afford CEL-SCI Disputes may arise between CEL-SCI and others as to the scope and validity of these or other patents |
| Any defense of the patents could prove costly and time consuming and there can be no assurance that CEL-SCI will be in a position, or will deem it advisable, to carry on such a defense |
| Other private and public concerns, including universities, may have filed applications for, or may have been issued, patents and are expected to obtain additional patents and other proprietary rights to technology potentially useful or necessary to CEL-SCI The scope and validity of such patents, if any, the extent to which CEL-SCI may wish or need to acquire the rights to such patents, and the cost and availability of such rights are presently unknown |
| Also, as far as CEL-SCI relies upon unpatented proprietary technology, there is no assurance that others may not acquire or independently develop the same or similar technology |
| CEL-SCIapstas first Multikine patent expired in 2000 |
| Since CEL-SCI does not know if it will ever be able to sell Multikine on a commercial basis, CEL-SCI cannot predict what effect the expiration of this patent will have on CEL-SCI Notwithstanding the above, CEL-SCI believes that trade secrets and later issued patents will protect the technology associated with Multikine |
| 22 Risks Related to CEL-SCIapstas Common Stock Since the market price for CEL-SCIapstas common stock is volatile, investors in this offering may not be able to sell any of CEL-SCIapstas shares at a profit |
| The market price of CEL-SCIapstas common stock, as well as the securities of other biopharmaceutical and biotechnology companies, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies |
| During the year ended September 30, 2005 CEL-SCIapstas stock price has ranged from a low of dlra0dtta46 per share to a high of dlra1dtta08 per share |
| Factors such as fluctuations in CEL-SCIapstas operating results, announcements of technological innovations or new therapeutic products by CEL-SCI or its competitors, governmental regulation, developments in patent or other proprietary rights, public concern as to the safety of products developed by CEL-SCI or other biotechnology and pharmaceutical companies, and general market conditions may have a significant effect on the future market price of CEL-SCIapstas common stock |
| Shares issuable upon the exercise of options and warrants, or as a result of sales made in connection with the equity line of credit may substantially increase the number of shares available for sale in the public market and may depress the price of CEL-SCIapstas common stock |
| CEL-SCI had outstanding options and warrants which as of September 30, 2005 allow the holders to acquire up to 15cmam798cmam603 additional shares of CEL-SCIapstas common stock |
| Until the options and warrants expire, the holders will have an opportunity to profit from any increase in the market price of CEL-SCIapstas common stock without assuming the risks of ownership |
| Holders of the options and warrants may exercise or convert these securities at a time when CEL-SCI could obtain additional capital on terms more favorable than those provided by the options |
| The exercise of the options and warrants will dilute the voting interest of the owners of presently outstanding shares of CEL-SCIapstas common stock |
| CEL-SCI has filed, or plans to file, registration statements with the Securities and Exchange Commission so that substantially all of the shares of common stock which are issuable upon the exercise of outstanding options and warrants may be sold in the public market |
| The sale of common stock issued or issuable upon the exercise of the warrants described above, or the perception that such sales could occur, may adversely affect the market price of CEL-SCIapstas common stock |
| Equity Line of Credit An unknown number of shares of common stock may also be sold under an equity line of credit arrangement with Jena Holdings LLC As CEL-SCI sells shares of its common stock to Jena Holdings LLC under the equity line of credit, and Jena Holdings LLC sells the common stock to third parties, the price of CEL-SCIapstas common stock may decrease due to the additional shares in the market |
| If CEL-SCI decides to draw down on the equity line of credit as the price of its common stock decreases, CEL-SCI will be required to issue more shares of its common stock for any given dollar amount invested by Jena Holdings LLC, subject to the minimum selling price specified by CEL-SCI The more shares that are issued under the equity line of credit, the more CEL-SCIapstas then outstanding shares will be diluted and the more CEL-SCIapstas stock price may decrease |
| Any 23 decline in the price of CEL-SCIapstas common stock may encourage short sales, which could place further downward pressure on the price of CEL-SCIapstas common stock |
| Short selling is a practice of selling shares which are not owned by a seller with the expectation that the market price of the shares will decline in value after the sale |