Expert Financial Analysis and Reporting

Key Points;

• The big news of the 2Q, 2015 conference call was that the FDA has discouraged Celldex from filing an NDA on Rintega based on results in the phase 2 ReACT trial in recurrent glioblastoma. It was widely expected that they could file for approval in mid to late 2016. This caused a nearly $5 decline in the stock.
• The timing of filing for Rintega will now be dependent on success in the ACT-IV trial in newly diagnosed glioblastoma which should release topline results in 1H, 2017. If successful this points to approval for both newly diagnosed and recurrent glioblastoma in mid-2018.
• The second leading drug glembatumumab could complete enrollment in triple negative breast cancer in mid-2016. Progression free survival data could be available in 1H, 2017
• Varilumab is CLDX’s third intriguing drug and is being tested in phase 1/2 trials in combination with PFE’s sunitinib, BMY’s ipilimumab and BMY’s nivolimumab. Some data could be released in late 2016 or 2017.
• Celldex has a voracious burn rate as the quarterly burn was $33 million in 1Q, 2015 and $24 million in 2Q, 2015. Cash at the end of 2Q, 2015 was $334 million. The Company believes that this will fund operations and capital expenditure requirements through 2017.

Investment Thesis

I downgraded Celldex from Buy to Hold in my report of April 13, 2015 at a price of $29. See Celldex Pipeline Update and Investment Thesis (CLDX, Moving from Buy to Hold, $28.56). At the time, I thought that Rintega would be approved in late 2016 on the basis on ReACT study so this delay only heightens my fundamental caution, but of course the stock has also come down. The decline in the stock to $16.99 seems excessive. After the dust settles, I will revisit this stock.

My concern in April about the stock was based on having to wait until late 2016 or early 2017 for critical data on Rintega in the ACT-IV study in newly diagnosed glioblastoma and 1H, 2017 for clinical data on glembatumumab in triple negative breast cancer. Given the lack of meaningful news and the sharp movement in the stock since I recommended it on November 16, 2014 at a price of $14, I couldn’t see buying the stock at $29. See Celldex, Moving to A Buy (CLDX, $14.16) for my report in which I recommended the stock.

I do not regard the trials of Rintega in newly diagnosed glioblastoma and glembatumumab as being highly certain of a positive outcome. I see some meaningful risk for failure in each. I do think that there is a strong likelihood that the Company will be acquired within a five year time span for its broad pipeline and technology base. However, this is much more likely to happen later than earlier in this time span.

Rintega (rindopepimut)

During the 2Q, 2015 conference call management said that based on discussions with the FDA it has concluded that the FDA will not approve Rintega on the basis of data from the ReACT phase 2 trial in recurrent glioblastoma. The agency is concerned with the small sample size and will require data from the larger ACT-IV trial of Rintega in newly diagnosed glioblastoma to consider approval. If that trial is successful, Celldex will file for approval in both recurrent and newly diagnosed glioblastoma.

There was the hope that the FDA would approve Rintega for recurrent glioblastoma in late 2016. There will be an interim look at the ACT-IV data in late 2015, but I would expect that the Data Safety and Monitoring Board will simple recommend that the trial continue. Celldex suggests that topline data will be available in late 2016. If this data is positive, Rintega could probably be launched in early 2018.

The data from ReACT on Rintega in recurrent glioblastoma was compelling and I thought the FDA would likely approve Rintega. This was discussed in depth in my December 13, 2013 report Celldex: I View the Recent Data on Rindopepimut as Encouraging (CLDX, Hold, $22.52). In the recent conference call, Celldex related some further encouraging data from React. Twice as many patients were alive on Rintega at 18 months as the control arm. This suggests a long term benefit for some patients. Also of interest is that glioblastoma patients usually experience swelling in a brain that can cause neurological problems. This swelling must be treated with steroids, but the steroids have a negative effect on quality of life. In the ReACT study, 44% of those patients on Rintega were able to stop steroids within two months, compared to 21% on the control arm. Some 33% of the patients on the Rintega arm were able to stop steroids in more than six months versus 0% for the control arm. .

Glembatumumab

There are approximately 100 sites open in the METRIC trial of glembatumumab in triple negative breast cancer; these sites are in the U.S., Australia and Canada. Another 50 sites could be opened in Europe in early 2016. Celldex expects enrollment to be completed in 2H, 2016. This is a slight delay for previous guidance and was attributed to slower than expected opening of sites in the EU. Initial PFS data are expected is expected about six months after the completion of which could be in 1H, 2017.

Signals of efficacy could be seen in additional indication in 2016 in additional indications are possible in 2016. There is a phase 2 study ongoing at 10 sites in metastatic melanoma. Additional trials are planned in small cell lung cancer, uveal melanoma and pediatric osteosarcoma.

Varilumab

Varilumab is the third in line drug for Celldex and is being watched closely by investors. The varilumab clinical trial program is based on combinations with established cancer drugs and four studies are actively recruiting patients. Two were just initiated in 2Q, 2015: a combination trial with sunitinib in metastatic clear cell renal cell carcinoma, and a combination with ipilimumab in metastatic melanoma. There is also a trial underway that combines varilumab with Bristol-Myers checkpoint inhibitor nivolumab. Also the combination Oncothyreon’s MUC1 vaccine ONT-10 in breast and ovarian cancer is fully enrolled. Additional trials are also being planned. There could be some data from the sunitinib and ipilimumab combination trials in late 2016. The data on nivolimumab is likely to be in early 2017.