Celldex Therapeutics, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 8, 2012. Quarterly figures below include fourth-quarter 2011. Celldex is a clinical-stage biopharmaceutical company developing immunotherapies, principally for cancer. It had no sales revenue from its own human therapeutic or vaccine products; reported royalties primarily relate to GlaxoSmithKline’s marketed Rotarix vaccine.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $9.3 million | $46.8 million |
| Research and development expense | $32.4 million | $27.7 million |
| Total operating expense | $52.7 million | $53.2 million |
| Operating loss | $43.4 million | $6.5 million |
| Net loss | $44.8 million | $2.5 million |
| Basic and diluted loss per share | $1.13 | $0.08 |
| Net cash used in operating activities | $35.7 million | $30.4 million |
Amounts are rounded. Fourth-quarter 2011 revenue was $2.4 million, net loss was $12.7 million, and loss per share was $0.29. In fourth-quarter 2010, revenue was $37.7 million and net income was $22.7 million, or $0.71 per diluted share.
At December 31, 2011, cash, cash equivalents and marketable securities totaled $53.3 million; working capital was $40.4 million; total assets were $98.0 million; and total liabilities were $29.3 million. The term loan balance was $15.1 million, and stockholders’ equity was $68.7 million. The filing does not present a meaningful operating margin for this development-stage business; it reported operating and net losses.
Material changes and unusual items
- Revenue fell 80% year over year, mainly because the 2010 results included recognition of $35.6 million of deferred revenue after termination of the Pfizer rindopepimut agreement. Pfizer no longer funds the program.
- 2011 product royalties increased 43% to $9.1 million, reflecting Celldex’s retained Rotarix royalty interest. Corresponding royalty expense was also $9.1 million, so these royalties did not offset research and development costs. The Glaxo agreement’s last relevant patent was scheduled to expire in December 2012, and Celldex expected related royalty revenue to end during 2013.
- Research and development expense increased 17%, to $32.4 million, with product-development costs up $4.2 million, primarily from rindopepimut and CDX-011 clinical activity.
- Cash and cash equivalents declined to $11.9 million from $21.3 million, while marketable securities increased to $41.4 million from $39.8 million. Net cash from financing was $28.4 million, including proceeds from the May 2011 share offering; Celldex also repaid $12.5 million of CuraGen debt in 2011.
- The company reported a $44.8 million loss in 2011 versus a $2.5 million loss in 2010. The comparative 2010 result included the one-time deferred Pfizer revenue recognition and other income; it is not a like-for-like indicator of operating improvement.
Outlook, risks and contingencies
- Management expected operating losses to continue beyond 2012 as clinical development and manufacturing costs rise. It estimated ACT IV, the pivotal rindopepimut Phase 3 trial, would cost more than $50 million, with targeted patient accrual of 24 months and a further 18–24 months of follow-up.
- Celldex initiated ACT IV and the ReACT Phase 2 rindopepimut trial in December 2011. It completed enrollment in the CDX-011 EMERGE Phase 2b trial in December and expected results in the first half of 2012. CDX-1127 entered Phase 1 in November 2011.
- As of December 31, 2011, management believed available cash and investments would fund planned operations for at least 12 months when combined with subsequent financing. After year-end, Celldex raised $8.5 million net from Cantor sales in January 2012 and $37.7 million net in a February 2012 public offering. The filing cautions that longer-term capital may still be required and may not be available on acceptable terms.
- In January 2012, the FDA placed the CDX-011 Phase 2b study on partial clinical hold after identifying significant GMP violations at contract manufacturer Formatech. No new patients could receive CDX-011; use of alternative or reprocessed supply required FDA acceptance. The company said the hold was not expected to materially affect analysis of the trial, but a subsequent study could be delayed if acceptable supply is unavailable.
- The $15 million term loan bears interest at the greater of LIBOR plus 6.25% or 9.50%, is secured by substantially all assets other than intellectual property, and is subject to restrictive covenants. In March 2012, its maturity was extended to December 2014; principal installments were scheduled to begin April 2012. Celldex reported compliance with the loan agreement at year-end.
- Principal risks include clinical-trial failure or delay, patient enrollment, regulatory approval, manufacturing quality and supply, the need for additional financing and potential dilution, dependence on collaborators, competition, and patent or reimbursement uncertainty. Celldex reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- ACT IV trial enrollment, follow-up, spending and eventual overall-survival results; prior rindopepimut comparisons cited in the filing were from small, non-randomized studies or historical controls.
- FDA resolution of the CDX-011 partial hold, acceptance of replacement or reprocessed drug supply, and implications for trial analysis and future development.
- Actual cash burn and runway against the company’s stated 12-month funding outlook, including subsequent financing proceeds, dilution and debt-service requirements.
- Rotarix royalty receipts and the effects of the scheduled patent and agreement expirations.
- Whether CDX-011, CDX-1127 and other pipeline programs produce trial results and partnerships sufficient to support continued development.