Expert Financial Analysis and Reporting

Investment Thesis

Celldex held a conference call after the close on Friday, November 14, 2014 to discuss the interim results of the phase 2 trial of rindopepimut in recurrent glioblastoma multiforme (also referred to as GBM). The results were quite positive-much better than I expected- and I believe that they can be the basis for approval in this disease state, probably in late 2015 or early 2016. I also think that the strong immune response seen in these patients bodes well for success in the phase 3 ACT IV trial in newly diagnosed GBM whose results are due in mid-2015.

Rindopepimut addresses somewhere between 20% and 30% of the glioblastoma multiforme market, patients who have the EGFRvIII mutation. Celldex estimates that the prevalence of GBM in the US is about 12,000 patients. This is an orphan drug indication and the price will likely be $100,000 or more. This means that the addressable market for rindopepimut at this price could be $240 to $360 million. The Company will probably market this product with its own sales force in the US and license it abroad.

This news will certainly excite investors, but hopefully not too much. There has been significant shorting of the stock and there is likely to be pushback by bears and shorts. They will argue that these are interim results of a small phase 2 trial involving just 37 patients on rindopepimut and 35 in a control arm and may suggest that a confirmatory larger trial in recurrent GBM will be needed. They will also point to potential imbalances in enrollment of patients in the two arms and raise questions about the trial. There are always questions like this in every trial. I hope this will constrain the increase in the stock price on Monday and allow us to get into the stock at a reasonable price. I expect a sharp increase in the price tomorrow.

I know that investors will ask about the importance of this to Northwest Biotherapeutics and its DCVax-L. I think the most important point is that this demonstrates that a cancer vaccine can cross the blood brain barrier in immunocompromised brain cancer patients and create a strong enough imune response to have a therapeutic effect on very advanced GBM patients. Investors have been very skeptical that any cancer vaccine could do this.

DCVax-L has the same biological effect as ridopepimut but it is achieved with a different technology. Rindopepimut creates an immune response through a peptide that mimics the cancer antigen EGFRvIII while DCVax-L loads the patient’s tumor antigens into a dendritic cell. Both aim to increase the immune response and the success of rindopepimut bodes well for the success of DCVax-L in its phase 3 trial.

The rindopepimut results replicate those seen in earlier open label trials and there is reason to hope that the strong phase 1/2 results of DCVax-L will also be replicated in phase 3. I would also note that DCVax-L addresses the entirety of the GBM market and not just those with the EGFVIII mutation who account for 20% to 30% of the GBM market that is addressed by rindopepimut. We can’t really predict the efficacy of DCVax-L in comparison to rindopepimut in EGFRvIII patients. However, it addresses the 70% to 80% of the GBM market not addressed by rindopepimut.

I am not going to discuss the pipeline for Celldex beyond rindopepimut in this report, but it is extensive. The Company has another interesting drug, glembatumamab in late stage development for the treatment of triple negative triple negative, GNMPB positive, breast cancer patients. In a small phase 2 trial it demonstrated 10.0 month median overall survival versus 5.5 months for comparator drugs. Patients with high GPNMB-expressing tumors have significantly shorter metastases free periods and overall survival. The company is enrolling patients in a trial that could lead to registration and it could report data in 1H, 2016. Celldex also has an extensive development program in checkpoint modulators; the lead product is virilumab, an agonist for CD27, which is in phase 1. Much of the current value of the stock is attributable to these and other pipeline prospects. This is not just about rindopepimut.

For those of you who would like an in-depth analysis of rindopepimut, glembatumamab and other pipeline products, I would refer you my extensive initiation report on Celldex of October 21, 2013.

Design of Phase 2 ReACT Trial

Celldex just reported very encouraging results with their cancer vaccine, rindopepimut in the phase 2 ReACT trial in recurrent glioblastoma multiforme or GBM; this is the most aggressive form of primary brain cancer. The standard of care for newly diagnosed GBM patients is surgical resection followed by treatment with radiation and the chemotherapy drug temozolomide. When patients no longer respond to this treatment regimen and their cancer begins to recur (progress) the standard of care is Avastin (bevacizumab). The trial was in this recurrent GBM population, not newly diagnosed GBM.

There were 72 recurrent GBM patients enrolled in a randomized trial. There were 35 patients who received rindopepimut combined with Avastin and 37 in the control who were give Avastin plus the immune stimulant KLH (also a component of rindopepimut). The primary end point of the trial was the percentage of patients whose disease progressed at six months. Overall survival and response rates were secondary endpoints.

Results

This was an interim analysis because there were 33 of 35 patients in the rindopepimut arm had reached the primary endpoint at the time of analysis and 35 of 37 patients in the control group. The other 4 patients should reach the primary endpoint in a matter of a few months and this will allow for the final data analysis of the trial. These results will almost certainly stand up at the final analysis. Here is how the Company summarized the interim results.

• Progression free survival as six months: While the data continue to mature, the primary endpoint of the study, progression-free survival at 6 months, is currently positive with 27% of patients treated with rindopepimut still progression free compared to 11% of control patients (p=0.048).
• Survival: The Overall Survival Kaplan Meyer analysis currently demonstrates a statistically significant benefit (p=0.0208) with a hazard ratio of 0.47 (0.25, 0.91) in favor of the rindopepimut treated patients with early and consistent separation of the curves providing a median difference of 12.0 versus 8.8 months.
• Response Rate: 7 out of 29 patients (24%) evaluable for response on the rindopepimut arm experienced a confirmed objective response versus 5 out of 30 patients (17%) evaluable for response on the control arm. Assessments of response were conducted by study investigators according to RANO criteria.
• Stable Disease: 74% of patients in the rindopepimut arm had stable disease or better for greater than 2 months versus 57% in the control arm.
• Steroid Use: Further emphasizing the level of disease control, 55% of patients on the rindopepimut arm, who were on steroids at the start of treatment, were able to stop steroids during treatment versus 26% on the control arm and 50% of patients on the rindopepimut arm were able to stop steroids for greater than 2 months during treatment versus only 11% on the control arm.
• Immune Response: Improved survival was greatest among patients with rapid generation of anti-EGFRvIII humoral response, though even those with slower development of immune responses appear to benefit.
• Other: All subgroup analyses, including performance status, steroid use and recent resection, show a hazard ratio in favor of rindopepimut treatment.

These are very impressive results, particularly on overall survival. In highly aggressive cancers, the general rule of thumb is that a 4.0 month improvement in overall survival is a very meaningful improvement. For example, Xytiga (abiraterone) showed a 4.6 improvement in median overall survival (15.8 months for abiraterone versus 11.2 months for control) in metastatic, castrate resistant prostate cancer in a trial reported on two years ago. Since then, Xytiga has been broadly accepted and is projected to reach $2.2 billion of sales in 2014. However, recurrent GBM is much more aggressive than metastatic prostate cancer. I consider the rindopepimut as more impressive. It is important to note that the market addressed by Zytiga is about 75,000 patients in the US and that addressed by rindopepimut is about 12,000.

Could This Be The Basis for a Regulatory Filing?

Celldex plans to take the ReACT phase II data to the FDA. The immediate question is whether these results could be the basis of a regulatory filing. I think the answer is a resounding yes. Avastin is the only drug approved for recurrent glioblastoma. However, in its clinical trials, Avastin did not show any improvement in either overall survival or progression free survival. It only was able to show shrinkage in tumor size. Hence this data is much better that that which gained Avastin approval in recurrent glioblastoma. Rindopepimut is the only drug that has been able to provide a survival benefit in recurrent GBM.

The results of this trial are very powerful even if the number of patients involved was small. The survival benefit with a low hazard ration is the key result that regulators look for, but all other endpoints of the trial also showed positive results or trends. One would be concerned if there were only a survival benefit that was not supported by other endpoints, but every single endpoint is in favor of rindopepimut. There is a clear benefit in the PFS at six months, response rate, stable disease and steroid use.

It is also important that results are consistent with earlier open label studiesThe immune response against was strong which validates the mechanism of action. And to top everything off, the side effects of rindopepimut combined with Avastin did not increase the side effect burden. It has almost placebo like side effects. It is also important to note that rindopepimut would be approved as an addition to Avastin which is the current standard of care as opposed to replacing Avastin.

What Does This Mean for ACT IV?

The next question to ask is what does this mean to the potential success of rindopepimut in the phase 3 ACT IV trial that is now underway in newly diagnosed GBM? This is a worldwide trial with a target enrollment of 700 patients. I think that it suggests that there is a very high probability for success.

There is a remarkable frequency and strength of EGFRvIII responses in the recurrent GBM patients who were heavily pre-treated with radiation and chemotherapy. Their immune systems were much more compromised than is the case for newly diagnosed GBM patients in ACT IV. The consensus view of key opinion leaders is that immune therapy should work better in patients with a more intact immune system. If this is so, we should expect an even better performance in newly diagnosed GBM patients. I think that the chances for success in the phase 3 trial are excellent.

Results for Second Group Studied in ReACT Were Not As Good

There was a second group of 48 patients who were enrolled in ReACT who had progressed after receiving Avastin; this was an even more difficult group to treat than those just discussed. Median overall survival in this group was about five months which compared well to historical data. They saw rare but meaningful anti-tumor activity, but this was not adequate to justify continued accrual to the study.