Celldex Therapeutics: Plenty of Cash, Pending Clinical Catalysts

Oct.20.09 | About: Celldex Therapeutics, (CLDX)

At the beginning of the month, Celldex Therapeutics (NASDAQ:CLDX) announced the successful completion of its acquisition of CuraGen (formerly CRGN), which strengthens the balance sheet (approx. $85 million in cash / equivalents) while expanding the pipeline and increasing the expected news flow of clinical data catalysts for the combined entity over the near to intermediate term. At the end of 2Q09, Celldex reported cash / equivalents of $31.6 million, working capital of $20.7 million, and used $13.5 million in cash to fund operations in the first six months of the year.

Without the CuraGen merger, Celldex provided guidance at the time for adequate liquidity to fund operations for at least the next 12 months, which included an analysis of expected cash inflows from grants / collaborations, income interest, and pre-merger cash / equivalents. However, the balance sheet has been significantly strengthened with the closing of the CuraGen merger, which included a price tag of about $93.5 million after making adjustments for CuraGen’s $53.5 million in net cash.

Celldex Therapeutics has emerged as a bio-pharmaceutical company that is developing a robust pipeline of innovative, applied immunology product candidates focused on the treatment of cancer and infectious disease. The Company’s Precision Targeted Immunotherapy Platform generates product candidates for clinical development that include therapeutic cancer vaccines, monoclonal antibodies, and vaccines which are targeted to specific markers associated with the underlying disease.

The CuraGen acquisition includes its lead compound in development, CR011-vcMMAE, which is being evaluated as an antibody-drug conjugate that is currently enrolled in two Phase 2 trials for the treatment of melanoma and metastatic breast cancer, in addition to a Phase I trial to evaluate the safety and activity of alternate dosing schedules. CuraGen has previously provided guidance for presenting updated data for the breast cancer study during 2H09 and Celldex plans to provide an update on the development status for this compound during 1H10.

CR011 is an antibody-drug combination comprised of CR011 (a fully-human monoclonal antibody) linked to the compound, monomethylauristatin E (vcMMAE). CR011 targets a specific molecule located on the surface of cancer cells called glycoprotein NMB (GPNMB) and after the antibody-drug conjugate (CR011-vcMMAE) binds to this target protein, it is transported inside the cancer cell where vcMMAE is separated from the antibody and causes cancer cell death.

CLDX is developing CDX-110 as a peptide-based cancer immunotherapy product candidate targeting the tumor specific molecule called EGFRvIII, which is a functional variant (tumor-specific) of the epidermal growth factor receptor (EGFR), a protein that has been well validated as a target for cancer therapy (i.e. Erbitux). While originally discovered in GBM (glioblastoma multiforme / the most common and aggressive form of primary brain cancer), the expression of EGFRvIII has also been observed in a variety of other cancers.

CLDX presented mature data at ASCO 2009 from the Phase 2 ACTIVATE trial and updated data from the continuation study (ACT II) of CDX-110 in patients with newly diagnosed EGFRvIII-positive GBM. In both studies, CDX-110 was generally well-tolerated with local injection site reactions being the most commonly reported toxicity. In the single-arm Phase 2 ACTIVATE study, median overall survival (OS) was 26 months and median time to progression (TTP) was 14.2 months and three patients remain without relapse more than four years from surgery and continue to receive the vaccine. In the single-arm Phase 2 ACT II study, median TTP is 15.2 months and three patients continue without relapse after more than two years.

Results to date from this ongoing study estimate median OS to be 23.6 months. In collaboration with partner Pfizer (NYSE:PFE), CLDX is currently performing a Phase 2 study (ACT III) of CDX-110 in patients with newly diagnosed GBM. According to the ClinicalTrials.gov entry for this study (NCT00458601) (last updated 10/11/09, reflecting a quicker study completion date of April 2012), February 2010 is the estimated date for the primary outcome / progression-free survival status with full results likely to be presented at ASCO 2010. Celldex has transferred the IND for CDX-110 to Pfizer and the two companies are collaborating on the design of a randomized, controlled study for CDX-110 in the treatment of GBM.

Last December, Celldex announced an amendment that converted ACT III from a randomized Phase 2b/3 study to a single-arm Phase 2 trial in which all of the patients will receive CDX-110 in combination with Temodar (temozolomide). The decision to amend the study design was based on the observation that the majority of patients receiving the standard of care (SOC) treatment in the control arm withdrew from the study following randomization.

Celldex entered the pact with Pfizer in April 2008, which granted the latter an exclusive worldwide license to CDX-110 (being evaluated for the treatment of GBM) as well as the rights to EGFRvIII therapeutic cancer vaccines for other indications. Celldex received an upfront payment of $40 million (recognized at $1 million per quarter for 9.5 years), in addition to a $10 million equity investment (781,250 shares of CLDX at fair value of $13.91 or $10.9 million at the time) from Pfizer. Pfizer agreed to fund all development costs while Celldex is eligible to receive milestone payments exceeding $390 million and ongoing sales royalties upon successful commercialization.

Medarex, which was since acquired by Bristol-Myers (NYSE:BMY) is also a major shareholder of Celldex with approximately 2.96 million shares (since selling 2 million shares in late June) as part of previous agreements that include: (1) assignment of certain patent / IP rights and a license to Medarex technology; (2) a research and commercialization agreement for certain rights to obtain exclusive commercial licenses to proprietary monoclonal antibodies; and (3) a master services agreement related to agreed upon services to be provided by Medarex such as assistance with clinical / regulatory matters.

On 9/14/09, CLDX announced that the first patient has been dosed in a Phase 1/2 study of its vaccine candidate, CDX-1401, in patients with malignant solid tumors that express NY-ESO-1. CDX-1401 is a fully human monoclonal antibody designed to selectively deliver the NY-ESO-1 antigen to dendritic cells to generate a robust immune response against cancer cells expressing NY-ESO-1.

NY-ESO-1 is a tumor-associated antigen (TAA) expressed by several different types of cancers including lung, ovarian, prostate, bladder, melanoma, liver and esophageal cancers as well as multiple myeloma. The Phase 1/2 study is a dose-escalating clinical trial aimed at determining the optimal dose for further development based on the safety, tolerability, and immunogenicity of the CDX-1401 vaccine. The trial will evaluate three different doses of the vaccine in combination with resiquimod, an activator of toll-like receptors 7 and 8.

The study will accrue approximately 36 patients with solid tumor cancers expressing the NY-ESO-1 antigen and will follow each subject for six months post-treatment AND is being conducted at multiple clinical sites in the U.S., including Yale University, Henry Ford Health System and Cornell University. According to the ClinicalTrials.gov entry for this study (NCT00948961) (last updated 9/8/09), September 2011 is the estimated date for the primary outcome measure in the trial.

CLDX is developing CDX-1307 for the treatment of metastatic or locally advanced breast, colorectal, pancreatic, ovarian, or bladder cancers that express the beta chain of human chorionic gonadotropin, known as hCG-β, an antigen often found in tumors of these types of cancer, but not in most normal tissues. hCG-β is an established tumor-associated antigen, and elevated hCG-β serum levels and/or tissue expansion have also been shown to be an independent predictor of disease outcome and are associated with a more aggressive disease course in renal, colorectal, bladder and pancreatic cancers. CDX-1307 is a fusion protein composed of a mannose receptor (MR)-specific immunoglobulin human monoclonal antibody and the hCG-β antigen.

This antibody-vaccine is designed to deliver the antigen hCG-β to dendritic cells (DCs) and induce hCG-β specific cellular and humoral immune responses to activate the patient’s immune system against cancers that express hCG-β. ClinicalTrials.gov entries for this study include NCT00709462 with estimated primary outcome data collection date of December 2009 and NCT00648102 with estimated primary outcome data collection date of February 2010.

Development programs involving vaccine product candidates targeting infectious disease include:

  1. CholeraGarde (Phase 2b) / ETEC Vaccine (Phase 1): Celldex entered a license agreement with Vaccine Technologies, Inc. in January 2009 for the development and commercialization of these two product candidates for upfront / milestone payments and future royalties
  2. Typhoid Fever Vaccine (Ty800): In Phase 2 development as an oral vaccine with the potential to offer single-dose protection against the organism responsible for typhoid fever.
  3. CDX-2401: In preclinical development as a preventative vaccine for HIV / AIDS in collaboration with Rockefeller University in NY City.

In addition to the infectious disease / vaccine programs in development which are outlined above, the Rotarix vaccine is a marketed product for protection against rotavirus, which causes GI symptoms such as diarrhea / vomiting in children and infants. Celldex in-licensed the rotavirus strain in 1995 and makes a 30% license fee payment to Cincinnati Children’s Hospital Medical Center from net royalties received from GlaxoSmithKline (NYSE:GSK).

In May 2005, an affiliate of the Paul Royalty Fund (PRF) purchased an interest in the milestone payments and net royalties that Celldex receives on the development and net sales of Rotarix. Celldex has received a total of $60 million in milestone payments under the deal with PRF and no additional milestone payments are due. In September 2006, Glaxo began paying royalties on Rotarix sales at a lower rate (70% of the full rate) based on the belief that the product is not covered by patents that were licensed from Celldex in Australia and some countries in Europe.

Celldex is currently evaluating the merits of Glaxo’s claims and potential courses of action, but will still retain about 65% of royalties on the global sales of Rotarix once PRF reaches 2.45X the aggregate cash payments of $60 million that were made to Celldex. However, if Glaxo’s position remains in effect, the royalties to which PRF is entitled will no longer be limited by a $27.5 million threshold per year. In April 2008, Glaxo received FDA approval for Rotarix, which resulted in a $1.5 million milestone payment to Celldex – of which 50% was retained by the Company based on its agreement with PRF. Royalties on Rotarix range from 7-10% based on net sales in countries with valid patent protection with a 30% discount in non-patent countries that formed the basis for Glaxo’s decision to pay the lower royalty rate.

Key points to the bullish case for Celldex are outlined below, which establish a favorable risk / reward profile for buying the stock at 5 bucks given the substantial upside with a downside risk that is mitigated by a substantial net cash cushion and deep / diversified pipeline.

  1. Closing the CuraGen acquisition strengthens the balance sheet with approximately $85 million in cash
  2. The Company has a robust pipeline with an expected steady stream of clinical data news flow over the near to intermediate term providing the potential for upside catalysts for the share price
  3. The share price of around 5 bucks is very close to the 52-week low and well off the low double digit highs achieved in the past year and as part of the ASCO bounce in late May / early June
  4. Risk factors such as clinical development / data risk and lack of positive cash flow appear to be priced into the stock at current levels given the substantial net cash balance and the previously reported positive results for lead compound CDX-110 in the treatment of brain cancer, in addition to a robust pipeline (including at least one new IND filing to begin clinical development expected next year) that has expanded with the CuraGen acquisition.

Celldex is also a component in the actively managed HavRx ImmunoTherapy / Vaccines Index, which includes companies with market caps below $5 billion at the time of index inclusion which are developing or commercializing any type of immunotherapy, gene therapy, or vaccine product that is designed to stimulate the immune system for the eradication, combination treatment, or prevention of cancer. In addition, the index will track companies which are developing or commercializing any type of vaccine product or vaccine adjuvant for all types of infectious disease such as influenza (flu) and bio-defense applications.

Disclosure: Long CLDX

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