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Celldex Therapeutics Down, But Definitely Not Out

Summary

Celldex is approaching the release of its second interim analysis of the ACT IV study; success would accelerate approval and lay to rest any lingering questions about efficacy.

The Phase III METRIC study has been enrolling a little slower than expected, and Roche recently announced powerful results in a study of atezolizumab in triple-neg breast cancer.

Trading at less than half my estimated value of its two lead drugs, Celldex looks oversold, and additional data on varlilumab in 2016 could drive even more value.

Celldex Therapeutics

It's been a rough six months for biotech in general, but (NASDAQ:CLDX) has been hit worse than most. The shares are down almost 50% over the six months that have passed since I last wrote about the company. Given the large move down after the company announced it wouldn't be pursuing early approval for Rintega, it's clear that investors were disappointed they'd have to wait at least a year longer to see the drug hit the market. I also wonder if some investors starting feeling some "immuno-oncology fatigue" and began worrying that some of Celldex's approaches (including a cancer vaccine and an ADC) might be out of step with the hotter prospects in the developing IO field.

This plunge in the share price looks like an opportunity. It certainly may be true that the biotech boom is over, and that valuations across the sector are going to come under even more pressure. Outside of that, though, I believe Celldex has a solid, deep, and undervalued pipeline that could generate well over $1 billion in annual revenue down the road.

Will The Market Take Action On ACT IV?

With the turn of the calendar in 2016, we're nearing the point where Celldex should be reporting the results of an interim analysis of its pivotal ACT IV Phase III study of Rintega in EGFRviii-positive glioblastoma. This study was designed with two interim analyses - one at 50% of events that occurred back in 2015, and the next at 75% of events, which was supposed to have occurred near the end of 2015.

The trial obviously did not stop at the first interim analysis, and that was no surprise - the drug would have had to show a marked improvement in efficacy versus historical experience (most likely a hazard ratio around 0.55 versus 0.70 or so in past studies). This upcoming analysis is a different story, though, as a hazard ratio of around 0.65 would probably do the job.

There is certainly a risk that the control group is experiencing a different level of survival than in past studies, and that makes it harder to make statistical projections. I think a 0.65 hazard ratio would work out to around an eight-month survival advantage for Rintega over the control, and that's not out of the realm of possibility. That said, immuno-oncology agents have thus far not typically shown a major separation from the control arms until relatively later in the studies.

More Bad News?

An early halt would be a big positive for the company. In addition to earlier filing and approval, questions about the efficacy of the drug would be largely over. On the other hand, an announcement that the trial will continue to its scheduled end could very well be taken badly by the market - while I believe this second interim analysis requires the drug to perform better than it has in the past (and why would that be an especially fair assumption?), bears will most likely try to position a continuation past...


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