Celldex Therapeutics, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Per-share amounts reflect the 1-for-15 reverse stock split effective February 8, 2019. Celldex is a clinical-stage biopharmaceutical company with no product sales; revenue comes from collaborations, contracts and grants.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $9.5 million | $12.7 million |
| Research and development expense | $66.4 million | $96.2 million |
| Operating loss | $156.4 million | $121.5 million |
| Net loss | $151.2 million | $93.0 million |
| Net loss per share | $14.48 | $10.86 |
| Cash, cash equivalents and marketable securities at year-end | $94.0 million | $139.4 million |
| Net cash used in operating activities | $75.2 million | $99.9 million |
| Working capital | $86.5 million | $117.0 million |
FY 2018 revenue fell 25%, mainly as contract and grant revenue declined; product-development and licensing revenue edged higher. The company reported no product revenue, so product gross margins are not applicable. Cash provided by investing activities was $29.8 million and cash provided by financing activities was $29.4 million, primarily from stock issuance. Year-end cash and cash equivalents alone were $24.3 million, with another $69.7 million in marketable securities.
At December 31, 2018, total liabilities were $31.7 million, including $13.8 million of Kolltan contingent consideration. The filing does not identify conventional borrowings as a material source of financing. Potential Kolltan milestone payments of up to $127.5 million are contingent and may be paid in cash, shares or both. The company had $8.9 million in listed contractual obligations, principally leases.
Fourth-quarter 2018 revenue was $1.8 million and net loss was $9.4 million, compared with revenue of $3.5 million and net loss of $3.8 million in fourth-quarter 2017.
Material changes and unusual items
- Net loss increased $58.2 million year over year. The principal drivers were a $91.0 million non-cash goodwill impairment and a substantially smaller income-tax benefit; lower R&D expense and a $29.6 million non-cash gain from remeasuring contingent consideration partly offset these effects.
- R&D expense decreased 31%, primarily reflecting lower personnel and product-development costs. Celldex said restructuring and pipeline prioritization should reduce operating cash use and certain expenses in the following year.
- After the Phase 2b METRIC study of glembatumumab vedotin failed its primary endpoint, Celldex discontinued that program, CDX-014 and CDX-1401. The discontinuations drove the 2018 goodwill and intangible-asset impairments and reduced estimated Kolltan milestone consideration.
- Revenue concentration was significant: BMS, Rockefeller University and the International AIDS Vaccine Initiative together accounted for 86% of 2018 revenue.
Pipeline, outlook and key risks
- Prioritized programs were CDX-1140, in Phase 1 as monotherapy and with CDX-301; CDX-3379, in Phase 2 with Erbitux for advanced head and neck cancer; CDX-301, being studied in combination; and varlilumab, with future development focused on combination studies. All programs were owned by Celldex at year-end.
- Interim CDX-1140 Phase 1 data showed immune-activation effects and no maximum tolerated dose had been reached; one grade 3 dose-limiting toxicity was reported. A confirmed complete response was reported in the first stage of the CDX-3379 Phase 2 study, but the company said it would review the complete dataset before deciding on further development.
- Management said year-end liquidity, $2.3 million of net proceeds from post-year-end Cantor stock sales through February 28, 2019, and anticipated future Cantor sales were expected to fund planned operations through 2020. The estimate depends in part on future stock sales and could be affected by cash payment of Kolltan milestones; additional capital will be needed, with no assurance of acceptable financing.
- Celldex expected continued operating losses in 2019 and beyond. The company depends on successful clinical development and regulatory approvals, external clinical and manufacturing providers, and access to additional capital. Trial failure, delays, adverse safety findings, competition, intellectual-property disputes and limited reimbursement prospects are material risks.
- The company completed a 1-for-15 reverse stock split in February 2019 and reported that NASDAQ confirmed restoration of minimum bid-price compliance on February 26, 2019. Further compliance and share-price volatility remain risks.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective internal controls at year-end. Celldex reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Current cash runway, subsequent financing and Cantor facility usage, including the effect of dilution from further equity sales.
- Updated clinical results and development decisions for CDX-1140 and CDX-3379, including safety, response durability and whether studies advance.
- The timing, probability and potential payment form of the up-to-$127.5 million Kolltan milestones, and any related changes in contingent-consideration estimates.
- Whether cost reductions and discontinued programs lower cash burn as management expected, while allowing prioritized trials to proceed.
- Revenue dependence on a small number of collaborators and service-contract customers, plus any changes to those agreements.