For a development stage biotech, staying afloat is never a given and the options are not pretty as to how to go about it. Each company has its own strategy and each strategy has its own advantages and disadvantages. In this review I will go over four promising biotechs that are struggling to get their drugs to market, each one leading a different approach as to how to survive without any substantial revenue stream. I will point out the advantages and disadvantages of each approach in order to give you an idea of how each one might affect the given company's stock price in the event of success or failure.
Celldex (CLDX) strategy: Keep a nice capital cushion
At $900M, Celldex is quite large for a company with no sales revenue. Trading volume is consequently much higher than most of its competitors, as is liquidity in its share price. Celldex has six clinical trials currently being conducted, the most crucial of which is its Phase III trial for its interestingly-named brain cancer drug Rindopepimut for glioblastoma. The trial, codenamed ACT IV, will include 374 cancer patients by the end of enrollment, cost the company an estimated $60M, and Celldex estimates enrollment to be completed by the end of this year, with results coming in up to 24 months later.
The company tried to take the Big Pharma approach and get Pfizer (PFE) to fund ACT IV, and an agreement to do so was signed in April 2008, but it fell through in November 2010 and all rights to Rindopepimut were returned to Celldex (see page 2 at link above), which is now funding the trial on its own. Celldex also tried to fast-track its phase II and combine it into phase III to save time and money by structuring the trial with a control arm, meaning brain cancer patients who would not get Rindopepimut, and compare the two groups. In December 2008, that attempt failed and Celldex was forced to change the trial to strictly a phase II as patients randomized to the control arm simply dropped out of the study, for understandable reasons. So that shortcut didn't work either.
Celldex's strategy since then has been to pad its resources and balance sheet with lots of cash through preemptive equity financings. Since the beginning of 2013, it has raised over $114M in two underwritten public offerings in January and February consisting of over 16M shares. Enthusiasm for the company's product candidates, especially Rindopepimut, has levitated CLDX shares in the face of these two dilutions to make them unnoticeable. In fact, since January, the stock has skyrocketed 67%. The question is why? For that, we have to take a look at Rindopepimut.
Celldex's flagship pipeline drug is an immunotherapy that targets a protein called EGFRvIII, present in about one quarter of the 15,000 annual glioblastoma cases in the US. Phase II trial data showed (page 18) overall survival at 24.6 months over 15.2 months for the control group, and progression free survival of 8.5 months from diagnosis. If these data are replicated in phase III, FDA approval is likely, and investors know this. Also contributing to the optimism are Celldex's estimated timelines for phase III with enrollment scheduled to be completed in less than a year, which means much of the $60M costs will be have been covered by then. Third, ironically, is likely related to the fact that Pfizer dropped out of its licensing agreement, leaving all the rights to Rindopepimut in Celldex's hands. This means that it will see all the revenue from sales if and when the drug is approved. This, combined with the fact that the phase III is progressing, is what may be propelling CLDX lately.
The advantages to the preemptive capitalization approach are that its finances look healthy and its balance sheet firm. Indeed, with $117M in cash and less than $12M in total debt (1.3% of market cap), CLDX looks healthy and attractive to investors.
The disadvantages, however, are that the good impression is just that, and everything depends on the phase III. As of now, the stock is priced for success, but approval is around 3 years away, estimated at November 2016. Expect a collapse of the recent parabola and buy if and when it breaks $8.
Agenus (AGEN): Cover a wide area and have big pharma pick up the tab
For a company with four concurrent phase III trials for malaria, melanoma, lung cancer, and shingles (malaria just recently completed), Agenus sure seems to keep its spending under remarkable control. In fact, since last year, net loss has been cut in half to $11.3M. How does Agenus run four of the most expensive and time-consuming clinical trials at the same time and lose only $11M? The answer is to have GlaxoSmithKline (GSK) pay for everything. That, and the drugs being tested in all four of these phase III's are one and the same: a vaccine adjuvant called QS-21 Stimulon.
A vaccine adjuvant is not in itself a vaccine. Rather, it is a vaccine additive that enhances immune response. The drugs that QS-21 Stimulon are added to are Glaxo's however, which obviates partnering with it. The adjuvant has had its first real success in reaching both primary endpoints of its phase III malaria trial, reducing risk in African children exposed to the deadly disease by half (page 4). The only problem is that this success is not going to make Agenus any money, at least not directly. You can't really charge African children any money for vaccinating them against malaria, and Glaxo does not intend to try. The drug will be pro bono.
However, QS-21's success with malaria could be good tidings for its melanoma and lung cancer trials. Data for both trials are scheduled for this year, but even success there won't give Agenus the money it needs to pay off its nearly $36M debt. It will, however, show that QS-21 can succeed in more than one area and give bigger companies a strong incentive to buy it, possibly at a hefty price.
For the sake of being thorough, Agenus is developing its own vaccine for genital herpes with QS-21, but obviously its success will depend on QS-21's success in other trials.
The disadvantages to Agenus' approach are that the money it rakes in from any one success will be relatively small compared to Glaxo's take. Meaning, its adjuvant will have to have multiple successes in order for the company to really take off. However, the positives may outweigh the negatives, as the adjuvant approach leaves the field wide open for Agenus to attack whichever vaccine it thinks QS-21 may help and partner with the respective company. That, and of course clinical trials cost it nothing, and make QS-21 very attractive for a buyout if successes start piling up.
And as little relevance that a pro bono malaria vaccine will have on its earnings, it will give the $96M company a lot of good press, which small companies like Agenus are always in short supply of.
Currently at below $4, AGEN has been on a sharp downtrend from $7 last April. There is a good chance 2013 will give the stock new life as phase III malaria and lung cancer results start coming in.
Northwest Biotherapeutics (NWBO): The two-minute 4th quarter comeback Hail-Mary approach
Northwest Biotherapeutics has been going it alone since 1996, and it has been going after the holy grail of cancer vaccines. This company clearly wants it all, and it has taken a dangerous path to getting there. Repeatedly financing itself in bits and pieces quarter by quarter, NWBio will succeed or fail on its DCVax-L phase III trial. DCVax-L is an immunotherapy cancer vaccine for glioblastoma multiforme brain cancer. Unlike Celldex's Rindopepimut, however, DCVax-L is not limited to EGFRvIII versions of it. Rather, immune markers are picked up specific to the patient post-surgery after the tumor is removed.
The phase III trial is expected to complete enrollment by the beginning of next year, with results being reported by Q3 2014. The most encouraging aspect of DCVax-L is its phase I results which are still being collected a remarkable 82 months after initial surgery in some cases. 9 of 19 patients treated in that trial are still alive, which is incredible considering glioblastoma is fatal in 95% of cases.
The disadvantages of quarter by quarter financing are obvious. It has hurt the company's credibility as investors do not like seeing lopsided balance sheets and last minute saves, and it has smashed its market cap over the years, currently at under $100M. Investors have had to see multiple dilutions with perhaps one or two more on the way before this phase III is completed if the company cannot find an institutional investor. And of course, financing its own trials means it carries all the costs which it can only barely afford.
The advantages, however, are also considerable. With no company partnering with it, NWBio will reap all the benefits of success and share revenues with no one. Second, whereas stocks like CLDX are priced for success and experiencing parabolic advances by capitalizing well and capitalizing early, repeatedly flirting with bankruptcy has caused NWBO shares to be severely oversold in the case of DCVax-L approval. Meaning NWBO shares are priced for DCVax-L failure, making potential gains much, much bigger.
To cap it off, success of DCVax-L in 2014 will pave the way for NWBio's DCVax-Direct, currently in phase II with results coming in this year. DCVax-Direct is designed for all solid tumor cancers anywhere in the body. Success here will put NWBio in a league of its own, though approval is far off. The company has been mum about how DCVax-Direct works until recently, describing DCVax-Direct technology as proprietary in order to protect it. However, now I suspect the company is alerting the investment community as it sees the end game for DCVax-L near. See page 16 for DCVax-Direct details.
NWBio's stock price meanders along at $3.60 as traders place bets as to if DCVax-L will succeed.
Immunocellular Therapeutics (IMUC): Spend little and keep in touch with investors
Immunocelluar Therapeutics is also after a glioblastoma vaccine, and is pursuing a similar strategy to Celldex of capitalizing early and keeping some meat on its balance sheet. It raised $19.3M in an equity financing last October, giving it a total of $30M in cash. It is pursuing a somewhat unique addendum to this approach by updating the investment community constantly about its ongoing trials, the most important one being its phase II for glioblastoma. You can see its list of press releases here. This press blitz has helped keep IMUC stock on a strong uptrend since Q1 2009.
The advantages for investors are that if the media blitz continues apace, IMUC's price could continue on its upswing. The disadvantages are that the stock may be in weaker hands that rely on a company's own press machine to buy stocks.
IMUC's glioblastoma vaccines are based on the same in vitro concept as NWBio's. Phase I results are also very encouraging. To quote from a recent report:
Indeed, the phase 1 results showed that the median survival in 16 patients with newly diagnosed glioblastoma multiforme ((GBM)) - the type of brain cancer - was 38.4 months.
Patients were given three injections of ICT-107, in addition to standard treatment, which includes surgery, radiation and chemotherapy. ImmunoCellular reported a two-year overall survival rate of 80.2% from phase one trial results, compared to 26.5% with standard care alone.
After four years, 19% of patients remain disease-free.