IN SEARCH OF A CURE -- AND A NEW IMAGE

In the race to find a vaccine against AIDS, tiny Cel-Sci Corp. of Alexandria hopes to be the little engine that could. The company caused a ripple of excitement last month at the International AIDS Conference in Vancouver when a leading AIDS researcher reported that Cel-Sci's main vaccine project, known as HGP-30, appeared to help laboratory mice fend off HIV, the virus that causes AIDS.

The researcher, James Kahn of San Francisco General Hospital, was guarded in his remarks, saying the results in the mice were "a valuable framework," but cautioning that "it would be a mistake to say that we now have a vaccine against AIDS."

Cel-Sci chief executive Geert Kersten was decidedly less subdued.

"This type of test with animals is the gold standard in AIDS," he said at the time. A month earlier, in June, he appeared on the cable TV business channel CNBC predicting that Cel-Sci would have an AIDS drug on the market in a "little longer" than three years. In a press release two weeks ago Maximilian de Clara, Cel-Sci's founder, president and chairman, characterized HGP-30 as "the Achilles' heel of the AIDS virus."

It's getting publicity, but some Wall Street analysts said the 13-year-old, money-losing biotechnology firm, one of an estimated 260 U.S. biotech firms conducting AIDS research, may have trouble delivering the product.

"I'm neutral on whether their product works, but I'm very skeptical about the ability of the company to get it through the regulatory process even if it does," said Jim McCamant, associate editor of Medical Technology Stock Letter, a 13-year-old publication that follows the biotech industry.

McCamant and others think two factors may make it difficult for the firm to gain credibility in the financial community.

For one, they said, executives have painted a very rosy picture of the company's research, which has been promising but slow and inconclusive. The AIDS research community frowns on researchers who overstate the success and potential commercial applications of their work. Such statements create false hope in AIDS sufferers and, they said, tend to dry up future funding for other ventures when they fail to pan out.

For another, the company is conducting its studies of HGP-30 without the backing of the Food and Drug Administration, the federal agency that regulates prescription drugs. The company said it hasn't been able to agree on study details with the FDA, but doesn't want to hold up work in the meantime.

"Doing work outside FDA protocol is a cardinal no-no," said Angus Macdonald, a biotech analyst with Fahnestock & Co. Inc., speaking generally about the industry. "It's always a mistake." Fahnestock is a New York investment banking and brokerage firm.

By proceeding without FDA review, some analysts said, Cel-Sci might have to redo its research to conform to agency standards, thus causing delays. The company would not receive the benefit of special fast-track approval system that the FDA has set up for AIDS drugs.

The dispute over Cel-Sci's statementsspotlights the fine line biotech executives must walk between confidence, which stock investors demand, and self-promotion, which makes them nervous and untrusting.

The company's stock, which closed down 37 1/2 cents at $7.50 Friday, is trading at nearly three times the January level but has dropped below its June high of $12.93 3/4.

"I fail to see how we promote ourselves," said Kersten, who is de Clara's stepson. "It's only considered promotion if you say something and can't follow through."

Still, he concedes that Cel-Sci has had problems. "I know there's a certain amount of baggage that comes with this company," he said. But science is the key, and with it, he maintains, Cel-Sci will win investor confidence.

HGP-30 represents a novel approach to developing an AIDS vaccine. Vaccines work by exposing the immune system to all or part of a harmful microbe in a way that doesn't give a person the illness but nonetheless stimulates a body's natural defenses against it.

Most companies approach AIDS with products that mimic the proteins on the outside of the AIDS virus and, in theory, induce the body to produce antibodies to disarm the virus before it invades cells. One problem is that those proteins mutate so quickly that potential vaccine products quickly become obsolete.

HGP-30 instead mimics a protein inside the outer layer of the virus, a protein that mutates less often. Cel-Sci hopes the vaccine will stimulate a body's immune system to produce killer cells that will destroy cells infected with the virus.

The company was founded in 1983 and shortly afterward went public. But the investment firm that took the company public itself folded, tarring Cel-Sci's financial reputation in the process, Kersten said.

De Clara helped rattle confidence in the company by repeatedly filing late with the Securities and Exchange Commission when he sold more than $2.6 million of the company's stock from 1988 through mid-1991. The problem has been settled and there have been no late filings since, Kersten said.

Cel-Sci raised $13.5 million in 1992 after some promising results of initial tests with HGP-30 conducted by a company that Cel-Sci owned jointly with another area biotech firm, Alpha 1 Biomedicals Inc. of Bethesda. But lack of funding and squabbling between Cel-Sci and Alpha 1 delayed follow-up research, executives at both companies said, which meant that several years passed with little scientific progress on HGP-30.

Now that has changed. In the last 15 months Cel-Sci bought all rights to HGP-30, effectively dissolving the joint venture. Last November it began tests in humans through a community AIDS group in Los Angeles under the auspices of California state officials. Kersten said he hopes to have results early next year.

Cel-Sci has built a research and small production facility in Baltimore and last month won a $50,000 grant from the University of Maryland program to foster start-up companies in the state. Cel-Sci said it will use the money to try to develop an HIV test that would help doctors determine when the virus is about to erupt into full-blown AIDs and thus enable them to start aggressive treatment before a person becomes sick.

Today the company has 25 employees taking the research forward. And it has $7 million in cash on hand, enough to survive 18 months. Kersten hopes in that time to find the large corporate backer that he said is essential to complete the expensive and complex round of human testing required before HGP-30 can be submitted for approval to federal regulators.

Kersten said that to win a corporate backer the company needs to overcome its image of being unfocused and unable to follow through on research. As part of that effort, Kersten said, Cel-Sci paid the brokerage firm of Honolulu Securities Inc. an undisclosed amount to write a research report. David Watumull, the analyst who authored it last December, has been following the company and said being paid did not affect the report's conclusion, namely that Cel-Sci is undervalued, or his recommendation that its stock should be a "strong buy for speculative accounts."

Another brokerage firm, Meyers, Pollock, Robbins Inc. of Boca Raton, Fla., is preparing a report that its analyst, Dennis Roth, expects also will recommend the stock as a buy. Roth said his firm is not being paid by Cel-Sci for the report.

Kersten is hopeful he can change investor opinion. "If we have the data it won't make any difference what anyone thinks of this company," he said. "Just as in real estate it's location, location, location, in biotech it's data, data, data. When you have good results, all these points go away. By proving the critics wrong, that is where you make the money."

Cutline: CEL-SCI CORP.

* Headquarters: Alexandria

* Founded: 1983

* Offices: Research laboratory in Baltimore

* Chairman and president: Maximilian de Clara, 66

* Chief executive: Geert Kersten, 38

* Employees: 25

* Revenue: $424,000 for the year ended last Sept. 30.

* Net loss: $3.9 million

Cel-Sci chief executive Geert Kersten, left, and research

chief Prem Sarin hope to have results of AIDS vaccine tests sometime

early next year.

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