Expert Financial Analysis and Reporting

Note: Comprehensive reports are now available to paid subscribers and can be found in the Reports section.

Investment Background and Thesis
This post is the summary of a much more extensive report that is available to paid subscribers. In that report, I discuss rindopepimut and other cancer vaccines for GBM in more detail.

In my initial report on Celldex, I highlighted four interesting products that the Company has in development. Two of these are in randomized phase II or III trials that could be the basis for regulatory filings: rindopepimut for glioblastoma (GBM) and CDX-011 or glembatumab for triple negative GPNMB positive breast cancer. I am actually more intrigued by two earlier stage products, CDX-1127 and CDX-1135, from the perspective of mechanism of action, but I need to see more data on them before incorporating their prospects into my investment thinking.

I am intrigued by the pipeline but cautious on the stock because of the sharp run-up that has seen the stock increase from $2.78 on January 3, 2012 to $37.83 on October 1, 2013. At the current price of $23.06 it has a market capitalization of $1.9 billion which compares to $121 million back on January 3, 2012. In my view, this is one of the most interesting pipelines in the emerging biotechnology universe. However, I am concerned that momentum investors are controlling the stock. At a more palatable valuation, I likely would be a buyer.

In this report, I have tried to give a basic overview of the technology underlying rindopepimut, clinical data seen so far, current clinical trials and some thoughts on its medical and commercial potential. This report focuses on rindopepimut because of a potentially important data release that is imminent. Rindopepimut is a cancer vaccine that addresses about 30% of GBM patients who express the EGFRvIII mutation (this will be discussed later).

There are estimated to be 8,000 newly diagnosed GBM patients each year in the US and 2,000 recurrent GBM patients. Based on the 30% figure, rindopepimut might be used in 2,400 newly diagnosed and 600 recurrent GBM patients. I am estimating that it will be priced at $100,000 per course of therapy so that in dollar terms these US addressable markets are $240 million and $60 million respectively. The worldwide addressable market would be double the US or approximately $600 million.

Celldex announced on August 12, 2013 that it had completed enrollment in an initial cohort of 25 patients who were refractory to Avastin. Based on preliminary evidence of stable disease, tumor shrinkage and investigator-reported response, the Company decided to add an expansion cohort of approximately 75 patients to better characterize the potential activity of rindopepimut in this refractory patient population.

The results in the 25 initial patients will be reported at the Society for Neuro-Oncology Annual Meeting of November 21 through 24 in San Francisco. The embargo on the abstract will be lifted on Monday, November 11 and available on the SNO website. It has been accepted as an oral presentation and is entitled "ReACT: a Phase 2 Study of Rindopepimut Vaccine (CDX-110) Plus Bevacizumab in Relapsed Glioblastoma." The oral presentation will be made in a session lasting from 10:20 AM to 12:00 PM on Sunday November 24. On Monday, November 25 at 8:30 am EST, management will also hold a conference call to review the data.

The data release relates to 25 patients enrolled in one arm of the phase II ReACT trial in recurrent GBM. Patients with recurrent GBM have the expectation of six to nine months of median overall survival. They can be treated with Avastin, Gliadel Wafer as an adjunct to surgery (seldom used), surgery or just supportive care. These particular 25 patients were part of an arm of ReACT that enrolled patients who did not respond to Avastin. The August 12th announcement of the trial expansion obviously raised the expectation that rindopepimut had produced a clinically meaningful improvement.

The question is what constitutes a clinically meaningful improvement in recurrent GBM patients who are resistant to Avastin. I note that Avastin was approved in recurrent GBM on the basis that it produced tumor shrinkage in about 28% of patients, increased progression free survival by about 4.2 months but had no effect on median overall survival. Could it be the case that rindopepimut also might be approved on the basis of improvement only in progression free survival without an increase in median survival? Remember that these patients have very short survival expectations and have no viable drug option. Because of these factors, it is possible that this narrow indication could be a quick route to approval for rindopepimut.

Of the 600 recurrent glioblastoma patients, we don’t know how many patients would be Avastin resistant. Hence, the addressable patient population is some fraction of 600. While this is a very small patient population, the approval for this narrow indication could be very important commercially. Once approved, it could lead to off-label use in newly diagnosed patients as well. And a s previously noted, I am also expecting that rindopepimut could be priced at $100,000 per course of therapy so that 600 patients represents an addressable market of as much as $60 million in the US and $120 million worldwide.

Celldex has not given much guidance on what to expect from this data release so that the previous reasoning is just a hypothesis. If I am correct in this reasoning, it could lead to an upward move in the stock even though expectations are already high. After, Celldex announced that the data was positive and led them to expand the trial arm by 75 patients, the stock price increased from $20.36 to $37.83 on October 1, an increase of 85% in less than a month. I recognize the potential for a trading move if the data release excites investors as seems likely, but this doesn’t change my cautious stance on the stock.