Seeking Alpha
Long only
Profile| Send Message|
( followers)  

Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Report Overview

The disappointing Phase II results of ImmunoCellular's (NYSEMKT:IMUC) ICT-107 in newly diagnosed glioblastoma has resulted in a severe decline in IMUC's price and has refueled the widely held skepticism on Wall Street about cancer vaccines. Also, some investors are pondering if there are implications for Celldex's (NASDAQ:CLDX) rindopepimut. I have been working for some time on an update report on rindopepimut so that this report was well in the works before the ICT-107 results were released.

The mechanism of action of rindopepimut is quite different from ICT-107; the latter uses a technology that loads dendritic cells with six synthetic peptide mimetics of commonly expressed glioblastoma antigens. Rindopepimut targets one specific antigen, EGFRvIII that is a mutation of the EGFR receptor that is expressed in roughly 30% of newly diagnosed glioblastomas. Perhaps importantly, it is believed to create an immune response to cancer through antibodies while ICT-107 appears to act more through T-cell activation.

In terms of clinical trial data that led to broader clinical trials, ICT-107 development expanded into Phase II trials on the basis of an open label Phase I trial in 16 patients. Rindopepimut has reported data from three open label trials that involved 105 patients and in which the results were consistent across all three trials. A major difference between IMUC and Celldex as companies is that IMUC is essentially dependent on ICT-107 and has a strained balance sheet. CLDX has a broad pipeline of products and is in a powerful cash position with about $323 million of cash.

These are some of the differences between ICT-107 and rindopepimut, but it is by no means exhaustive. I don't think that the results with ICT-107 have any significant implications for rindopepimut. I know that some investors believe that no cancer vaccines will work, period! This belief has strong empirical support based on a long string of failures of cancer vaccines of varying mechanisms of action in various tumor types. I am more hopeful that cancer vaccines could be a major advance in cancer treatment. In regard to rindopepimut, I think that the scientific rationale behind the drug and the clinical data created to date, make me hopeful for success. However, this is a high risk, paradigm changing drug development effort. I can't put odds on the outcome in the ongoing trials of rindopepimut other than to say that there is a reasonable chance for success.

Celldex released interim data on the ReACT trial of rindopepimut in recurrent glioblastoma at the Society for Neuro-Oncology (SNO) on November 24, 2013. I am always cautious on rushing out with an interpretation of data from a clinical trial shortly after it is released. There are many different data points in a trial and it often takes clinicians and investors weeks, months or years to parse the data.

I find that when I make quick judgments concurrent with the release of data that I often misinterpret key points. I am also reluctant to rely exclusively on company press releases. There is a tendency to highlight positives more than negatives; this is just human nature. Hence, the release of my views on the ReACT data comes about three weeks after its initial release and a conference call by Celldex. This note summarizes what I found most interesting on my looking through the data. I guarantee that it is not an exhaustive review.

Key Investment Points on Celldex

There was a great deal of anticipation of this data following a release by Celldex on August 12, 2013. The company said that based on early evidence of anti-tumor activity, including stable disease, tumor shrinkage and investigator reported response, it decided to add an expansion cohort of approximately 75 patients to cohort 2 of this trial. This cohort was comprised of 25 patients with recurrent glioblastoma patients who were refractory to Avastin who were then treated with a combination of rindopepimut and Avastin.

Investors reacted very positively to this press release and in the month that followed, the stock rose strongly and steadily from $20 on August 12th to a high of $38 on October 1st. It has since retraced most of this move. The initial reaction following August 12th seems to have been in expectation of extremely positive data. The actual data, as detailed in this note, was encouraging but perhaps not to the extent that some investors had hoped for.

I believe that the interim data on ReACT in recurrent glioblastoma is encouraging. There is a significant hint of meaningful biological activity and of a possible increase in median overall survival. The data did not reach statistical significance at this interim look, but I would not necessarily expect that. Management guidance is that final results on ReACT will be available in 2H, 2014. Perhaps the SNO meeting from November 13 to 16, 2014 will be the forum for presentation of the data. There may be some additional data presented during the May 30 to June 3, 2014 ASCO meeting.

The key event for the stock in 2014 is likely to be the release of final topline data on ReACT, which as I just suggested could be in November 2014. There will also be an interim look by the Data Monitoring Committee (DMC) on the ACT-IV trial of rindopepimut in newly diagnosed glioblastoma patients probably in 4Q, 2014. The most likely outcome is that the DMC will recommend that the trial continue; if the data is trending positively, it won't be released at that time. Investors will probably see the results of the ACT IV trial in late 2015 or early 2016 although management has not given guidance.

Although there could be some meaningful data on rindopepimut in May at ASCO, it is probable that important stock moving information is about 11 months away.

In regard to CDX-011, which is now known as glembatumamab vedotin, the METRIC Phase II trial in triple negative breast cancer began on December 2, 2013. It is expected to enroll 300 patients at up to 100 sites in the US, Canada and Australia. Celldex is guiding toward an enrollment timeline of 12 to 18 months, but they are hopeful that they can accrue in 14 months as was the case in EMERGE. This would result in completion of enrollment in 4Q, 2014 to 1Q, 2015. Topline results would likely be available in late 2015 or early 2016. Success in the trial could result in accelerated approval so that the drug could come to market in late 2016 or early 2017.

The action on the stock in the first three calendar quarters of 2014 is likely to be driven by Phase I results on CDX-1127; this drug works in a complementary way to the checkpoint inhibitors: BMY's $1+ billion blockbuster drug Yervoy and the highly touted anti-PD1 inhibitors that are in late stage development. The stock could also be driven by Phase I results for CDX-1135 which has a mode of action comparable to Alexion's (NASDAQ:ALXN) $1 billion blockbuster drug Solaris. There is hope that CDX-1135 could have significant potential in ultra-rare orphan diseases.

Data on the solid tumor cohort of the Phase I trial of CDX-1127 is likely to be presented at the May 30 to June 3, 2014 ASCO meeting. Data on the hematological cohort could be presented at the December 6 to 9, 2014 American Society of Hematology (ASH). The company has said that it would update investors on plans for CDX-1135 in dense deposit disease in February 2014 at the year-end conference call for 2013. Management has not given much of an indication of what to expect other than to say that it is very difficult recruiting patients for this disease.

Celldex has just completed a financing in which the company issued 7.0 million shares and will receive net proceeds of $163 million. If the Green Shoe is exercised, as seems likely, shares issued and net proceeds would be 8.05 million and about $187 million, respectively. The company had $136 million of cash as of the end of 3Q, 2013. On a pro forma basis, it has raised the cash position to $323 million. The recent operating cash burn has been $17.5 million per quarter so that at that rate the company can fund 18.5 quarters of operations as opposed to 7.8 quarters pre-offering.

The number of shares outstanding is increased from 81.0 to 89.1. At the recent price of $24.20 the market capitalization is now $2.2 billion. This removes the financing overhang for the company, which was emerging as an issue, and this is a positive for the stock. I think that it is inappropriate to use the term fortress balance sheet for a company burning through $70 million a year. However, this is an exceptionally strong balance sheet for an emerging biotechnology company.

Investment Thinking

I like the fundamental story very much and the removal of the financing overhang is a positive. However, it looks to me like the next six to eleven months may not have that many significant catalysts. Phase I data on the effects of CDX-1127 at ASCO in late May or early June may be the earliest that we could see something that could move the stock. I am still reluctant to buy the stock at current levels as the valuation at a market capitalization of $2.2 billion has a lot of expectation for success built into it. Also, the action of the stock in 2013 has been outstanding as the stock has quadrupled from $7.46 at the beginning of the year. This may have attracted some momentum players who will be inclined to take profits.

Perhaps I am too cautious and the stock will run away from me or perhaps some big pharma will swoop in and acquire Celldex. However, my best judgment is that there will be a better entry point on the stock.

The ReACT Trial of Rindopepimut in Recurrent Glioblastoma

Recurrent glioblastoma patients have failed standard of care which is surgery followed by radiation and temozolomide. In this setting, Avastin is the main drug that is used even though its efficacy is at issue. It was approved on the basis of two trials, which showed objective responses of about 20% and with duration of response of about four months; there was no demonstrated effect on survival. In approving Avastin in this indication, I understand that the FDA looked at results in every single patient and reached the conclusion that it enhanced quality of life through reducing neurological symptoms.

ReACT is divided into two groups: Group 1 will be about 70 patients who have not previously received Avastin. Patients in group 1 are randomized to receive Avastin plus rindopepimut or Avastin plus KLH (an immunostimulant used in constructing rindopepimut). Group 2 was initially comprised of about 25 patients who had failed Avastin and were next given Avastin in combination with rindopepimut; there was no control arm. This group was expanded in August 2013, when Celldex announced that encouraging early results in the 25 patients in Group 2 led to a decision to expand the group by 73 new patients.

The primary endpoint for both group 1 and 2 is progression free survival (PFS) at six months. The treatment regimen is identical in both groups with patients receiving Avastin every two weeks in addition to monthly rindopepimut or a control vaccination until they progress. The key secondary endpoint is median overall survival (OS).

The action in expanding Group 2 indicated that investigators were seeing promising results from the trial. The first data from this group was published in an abstract on November 11. On November 25, Celldex released more extensive and mature data on Group 2 that was presented in an oral presentation on November 24 at SNO. This oral presentation also presented data on Group 1 patients for the first time.

Preliminary Conclusions on Rindopepimut

The just released data was from an interim analysis and the final topline results won't be known until late 2014. While interim results can offer a meaningful indication of final results, they are subject to change as the data matures and more patients are enrolled. Group 2 did not reach the primary endpoint of the trial, which is progression free survival at six months. For group 1, there was no data on progression free survival at six months.

It may not be that surprising that Group 2 did not reach its primary endpoint at this interim look and it is quite possible that it will not be reached at final analysis. There is a growing body of evidence that immunotherapies often may not be that effective in slowing progression of the disease but can have a favorable effect on survival. One explanation for this is that they may not be as effective as chemotherapy or targeted therapy in shrinking the size of the primary tumor, but are more effective against metastases, which may be more responsible for patient deaths.

I think that the data on OS was encouraging in Group 1. The rindopepimut plus Avastin arm showed median overall survival of 12.0 months versus 7.9 months in the control arm of Avastin plus KLH; this was a 4.1 month improvement. These results were not statistically significant as the hazard ratio was 0.43 within a confidence interval of 0.13 to 1.44 and resulted in a p value of 0.16. However, this represents a strong trend and there is reason to hope that with the addition of more patients and maturing of the data, that statistical significance ultimately will be achieved. The plan is to enroll about 70 patients in Group 1 and this data was on the first 40.

If the data holds up, a 4.0 month increase in median overall survival for an aggressive cancer like recurrent glioblastoma would be considered a significant clinical advance. Avastin was approved in recurrent glioblastoma on the basis of an improvement in progression survival and with no increase in median overall survival. In terms of regulatory review, OS trumps PFS even though it is a secondary endpoint in the trial.

In Group 2, there was no control arm as this was an open label trial. Avastin plus rindopepimut showed that median overall survival was 5.6 months within a 95% confidence interval range of 3.2 to 6.7 months. There are no drugs approved for the treatment of recurrent glioblastoma patients who have failed Avastin and hence no clinical trial data on OS. Data from eight physician led trials suggests that a variety of drug regimens can produce OS of 2.6 to 5.8 months. However, these physician led trials were performed in patients who expressed EGFRvIII (perhaps 30% of the patients) plus those who did not. There is strong evidence that EGFRvIII expression causes a more aggressive disease course and shorter OS. Because Group 2 patients were all EGFRvIII expressors, the comparison with historical data may understate the effect of rindopepimut plus Avastin.

The data can only be taken as encouraging and suggestive that rindopepimut has meaningful clinical activity in recurrent glioblastoma in both patients who have received Avastin and those who no longer respond to Avastin. Avastin is the only widely used drug approved in this setting even though in clinical trials, it did not show an improvement on median overall survival and was approved on the basis of an improvement in progression free survival. The data just released suggests that rindopepimut combined with Avastin may improve median overall survival in the Group 1 and Group 2 patient groups, but this has not yet been shown in a statistically significant manner.

Future Data Points for Rindopepimut

Final data on the ReACT trial should be available in 2H, 2014 according to management guidance. There could be some more interim data presented at ASCO. There will be an interim analysis on ACT IV in 4Q, 2014, but this will just be for safety reasons. The most likely outcome is a recommendation to continue the trial with no other information being provided. Final topline data on ACT IV could be available in late 2015 or early 2016.

For Additional Information

This report is an update of a more extensive report that I have written and is published on my website that is available only to my paid subscribers. If you think this is a blatant attempt to get people to subscribe to my website, you are right. These reports take days and weeks to research and write and I think that I am entitled to compensation if you find my reports of value; this of course differs from reader to reader and it is to my followers that I am addressing this message.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Celldex: Some Thoughts On Rindopepimut