3 Things to Watch With Celldex Therapeutics

While headlines blared the spectacular successes and failures of some biotech companies over the last couple of months, Massachusetts-based Celldex Therapeutics (Nasdaq: CLDX) plugged along in relative quietness.

Will the quietness last for long? Here are three things to watch that should determine whether Celldex will soon make a splash with a win or a wash-out.

1. Pipeline progression
One key product to watch in Celldex's pipeline is rindopepimut. The immunotherapeutic vaccine targets glioblastoma, an aggressive type of brain cancer. Both the Food and Drug Administration and the European Medicines Agency have granted orphan-drug status to rindopepimut.

Celldex initiated a phase 3 trial for the vaccine in treating front-line glioblastoma in late 2011. The company expects to progress with the study throughout 2012. Phase 2 results showed two-year survival rates topping 50%, significantly higher than historical levels.

A phase 2 trial for rindopepimut in treating recurrent glioblastoma is also under way. This study started in January 2012 and is running concurrently with the front-line glioblastoma trial.

Celldex also announced promising news in May from another product in its pipeline. CDX-011 (glembatumumab vedotin) is an antibody-drug conjugate targeting treatment of metastatic breast cancer. Preliminary results from the phase 2b study of CDX-011 found higher response rates in patients using the drug compared with available therapies.

The company's pipeline includes several other drugs for potential treatment of various forms of cancer. However, success or failure for Celldex within the next few years relies primarily on rindopepimut and CDX-011.

2. Money milestones
On one hand, money might not appear to be a pressing concern for Celldex. The company stated that its cash and equivalents of $78.7 million as of June 30, 2012, would be sufficient to carry it into 2014. On the other hand, some upcoming milestones inject uncertainty into Celldex's financial outlook.

The company's revenues currently stem largely from royalties received from sales of the Rotarix rotavirus vaccine by GlaxoSmithKline. The agreement with Glaxo ends with the expiration of the last patent for Rotarix, which will come this December. Celldex expects the revenue from Rotarix to end sometime in 2013.

In 2005, Celldex sold a 70% interest in its Rotarix royalties to PRF to raise cash. This agreement is also scheduled to end in December. Because of this agreement, loss of Rotarix revenue won't have as big an impact on net income. However, less money coming in isn't good news.

What these milestones mean in practical terms is that Celldex appears likely to go to the well again in 2013 with another share offering. Current investors can expect further share dilution on the horizon.

3. Collaboration chase
The pipeline progression and money milestones lead inevitably to a chase for collaboration partners. Celldex readily admits that it needs a partner to help commercialize rindopepimut globally. And gaining access to the deep pockets of a large pharma could help alleviate some of its financial worries.

One collaboration has already fizzled. Pfizer (NYSE: PFE) initially signed up to license rindopepimut in 2008. Celldex banked $40 million upfront and could count on funding for continued development of the vaccine. However, Pfizer terminated the agreement in late 2010.

Celldex does work with a few larger companies in ways that don't bring any money into the fold. The company licensed CDX-301 and CD-40L from Amgen (Nasdaq: AMGN) in 2009. With its Curagen acquisition, Celldex also assumed a license agreement for antibody-drug conjugate technology used in CDX-011 from Seattle Genetics (Nasdaq: SGEN) .

The company traces its roots back to Medarex, which is now owned by Bristol-Myers Squibb (NYSE: BMY) . Perhaps an alternative for Celldex is to leverage its family ties by seeking a deal with Bristol. One way or another, this collaboration chase weighs heavily on Celldex's future prospects.

Watching and waiting
Investors probably should watch for these three story lines to unfold and wait before buying Celldex.

An announcement on phase 3 results for rindopepimut is probably still several months away. Celldex's strategy on how to overcome challenges with the loss of Rotarix revenue likely won't be known until 2013.

One catalyst that would warrant coming off the sidelines is if Celldex lines up a major partner. News on this front would address financial concerns plus indicate a higher probability of success for the company's pipeline. In the meantime, when it comes to Celldex, investors should play the quiet game.

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