Does This Biotech Make the Grade?


If biotech stocks were students, some would make the honors society. Others would just muddle along, while more than a few would flunk out. In which group does Celldex Therapeutics belong? Let's look at the company's report card to see if it makes the grade for investors in 2013.

Products and pipeline
Celldex really doesn't have any product on the market as of the beginning of 2013. The company licensed its oral rotovirus strain to GlaxoSmithKline in 1997. Glaxo later gained approval to commercialize its Rotarix vaccine. Royalties from Rotarix sales have made up most of Celldex's revenue over the past several years. The bad news, though, is that the agreement with Glaxo ended in December.

That leaves Celldex highly dependent upon its pipeline. The most promising candidate is rindopepimut. This vaccine targets specific types of brain cancer. A late-stage clinical study began in December 2011 for rindopepimut. Celldex expects this study to take nearly four years for completion, so it will be a while before results are known.

The only other product approaching late-stage study is CDX-011, an antibody-drug conjugate that Celldex licensed from Seattle Genetics . The company announced final results in December from a phase 2 study of CDX-011 in the treatment of breast cancer. Those results were encouraging, and Celldex is working with the Food and Drug Administration on a design for a phase 3 trial.

Celldex has three other experimental cancer drugs in phase 1 studies. Enrollment is under way for human monoclonal antibody CDX-1127. Positive early-stage results were announced in October for CDX-1401, a protein targeting the dendritic cell receptor linked to 20% to 30% of all melanoma, lung, esophageal, liver, gastric, prostate, ovarian and bladder cancers. Positive results for CDX-301, licensed from Amgen , were also announced in December.

None of these pipeline products are far enough along for Celldex to score high marks. However, enough potential exists to keep this biotech from failing. I give Celldex a "C" for its products.

As you might expect, the loss of its primary revenue source certainly doesn't help Celldex's grade on the financial front. The big challenge for the biotech centers squarely on cash. Will it have enough to keep moving clinical programs along?

Celldex says that it has sufficient liquid assets to make it into the fourth quarter of 2013. As of Sept. 30, 2012, the company reported $77.6 million in cash, cash equivalents, and short-term investments. Its operating expenses in the third quarter of last year totaled $17.9 million, and the company is servicing a total debt of $12.6 million. Celldex should be able to do as it says and fund operations through much of 2013. However, more money will be needed.

Celldex netted nearly $63 million from issuing additional shares of stock during the first three quarters of 2012. It seems likely that the company will need to go to the well yet again in 2013. More share dilution appears to be on the way.

We really don't have to delve much more deeply into Celldex's finances to give the company a grade in this category. It is losing money, with revenue drying up and no immediate replacement source on the horizon. Because Celldex isn't totally out of money and alternatives do exist, a failing grade isn't warranted. I give the company a "D" for its financials.

Making the grade
What is Celldex's overall grade? With individual category scores of "C" and "D," it depends on which area we weigh more heavily. My view is that its product pipeline deserves the benefit of the doubt. I like the potential for rindopepimut. A lot can go wrong in clinical studies, of course, but Celldex could have a winner there.

Celldex has demonstrated the ability in the past to find partners with deep pockets to move its products along. I think it just might be able to find another partner. That would go a long way to helping improve the company's financial picture. I don't harbor any illusions that Celldex won't have to issue another share offering, but the situation could improve financially.

Based on all these factors, my grade for Celldex is a "C-". That's not terrible, but it's not great, either. While Celldex doesn't fail, my view is to take a pass for now. There are plenty of "A" and "B" students in the biotech world.

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