Celldex Therapeutics, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Unaudited financial statements; amounts below are in U.S. dollars unless noted.
Business context
Celldex is a clinical-stage biopharmaceutical company developing immunotherapies and antibody-drug conjugates. Its lead programs were rindopepimut for glioblastoma and CDX-011 for advanced breast cancer. Product royalties, principally from GlaxoSmithKline’s Rotarix vaccine, were a small source of revenue; Celldex continued to depend on financing and collaborations to support development.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $1.952 million | $2.951 million | $4.468 million | $6.664 million |
| Research and development expense | $7.169 million | $7.256 million | $14.021 million | $13.694 million |
| Operating loss | $9.881 million | $9.286 million | $19.538 million | $18.693 million |
| Net loss | $10.236 million | $9.525 million | $20.295 million | $16.107 million |
| Basic and diluted loss per share | $(0.27) | $(0.30) | $(0.58) | $(0.51) |
| Net cash used in operating activities | — | $18.229 million | $16.615 million |
- At June 30, cash and cash equivalents were $10.830 million and marketable securities were $60.406 million, totaling approximately $71.2 million. Working capital was $62.9 million; total assets were $118.5 million.
- Term-loan carrying value was approximately $15.1 million. The loan bears interest at the greater of LIBOR plus 6.25% or 9.50% minimum; principal installments were scheduled to start October 1, 2011, with an option to defer them six months. Substantially all assets other than intellectual property secure the loan.
- Financing activities provided $28.328 million in the first half, including $35.9 million net proceeds from equity sales, partly offset by repayment of CuraGen convertible debt. Operating cash use was $18.229 million; investing cash use was $20.551 million, largely reflecting net purchases of marketable securities.
- Rotarix royalty revenue was matched by royalty expense payable to Cincinnati Children’s Hospital for the retained royalty interests; therefore, these royalties did not contribute equivalent operating earnings.
Changes versus prior comparable periods
- Q2 revenue declined 34%, mainly because Pfizer had terminated its rindopepimut agreement and associated deferred revenue had been recognized in 2010. Higher Rotarix royalties partly offset the decline.
- First-half revenue declined 33%. Product development and licensing revenue fell $2.721 million and contract/grant revenue fell $0.220 million; product royalties increased $0.745 million.
- First-half net loss widened by $4.188 million. The principal factors were the absence of $3.0 million of TopoTarget-related other income recorded in 2010 and lower licensing revenue. Lower general and administrative and acquired-intangible amortization expenses partly offset these effects.
- First-half R&D expense increased 2%, with higher spending on rindopepimut and CDX-1127 among program-level changes. The company raised $35.9 million net from stock sales, and shares outstanding rose from 32.055 million at December 31, 2010 to 44.147 million at June 30, 2011.
Outlook, risks and unusual items
- Management stated that June 30 liquidity, investment income and its ability to control selected costs were expected to fund planned operations for at least the next 12 months. It also anticipated seeking additional capital for longer-term needs through collaborations, licensing, business combinations, debt or further equity. Availability and terms were uncertain; equity could dilute shareholders, while debt or licensing could constrain operations or reduce product economics.
- Management expected operating cash use to increase over the next 12 months as pipeline development advanced. The filing gave no quantified revenue, earnings or cash-flow guidance.
- Celldex planned to start a pivotal Phase 3 rindopepimut study and a randomized Phase 2 study in recurrent or refractory glioblastoma in Q4 2011. It expected to complete CDX-011 Phase 2b enrollment in 2011, with preliminary data expected in 2012; these were plans, not assured outcomes.
- Celldex discontinued its CDX-1307 Phase 2 bladder-cancer study in June 2011 as it prioritized resources, with further development planned through investigator-sponsored studies. It planned Phase 1 trials for CDX-301 in the second half of 2011 and CDX-1127 in Q4 2011.
- Clinical development, trial outcomes, regulatory approval, manufacturing supply, partner decisions, intellectual-property matters and access to capital were key risks. The company warned that failure to obtain financing could force trial delays or cancellations, unfavorable fundraising, earlier licensing or a sale of the company.
- Celldex reported that GlaxoSmithKline had elected to pay a lower Rotarix royalty rate based on its position that certain sales were not covered by licensed patents; Celldex was evaluating its basis and potential remedies. The royalty arrangement and PRF participation affect the company’s retained economics. The last relevant patent was scheduled to expire in December 2012.
- The company had Massachusetts sales/use tax and IRS examinations underway. It reported no legal proceedings, no material changes to previously disclosed risk factors, effective disclosure controls, and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the planned rindopepimut trials began on schedule and whether clinical data support continued development.
- CDX-011 Phase 2b enrollment and the timing and results of the preliminary data expected in 2012.
- Actual quarterly cash burn and remaining liquidity against the company’s stated at-least-12-month operating runway, including subsequent financing needs and dilution.
- Term-loan repayment timing, interest burden, covenant compliance and the effect of the secured borrowing on financial flexibility.
- Resolution and financial impact of GlaxoSmithKline’s disputed Rotarix royalty rate, along with royalty and patent-related changes as the 2012 patent expiry approaches.
- Whether discontinued or reprioritized programs and planned collaborations alter development costs, milestones or expected funding requirements.