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There are few situations where a public offering in biotechnology is positive. It dilutes shares, creates uncertainty, and might suggest no near-term acquisition or partnership. For Celldex Therapeutics (NASDAQ: CLDX ) these points hit home, but does the company's 7 million share offering mean that you should be worried?
What is Celldex?
Celldex Therapeutics currently has 81.11 million shares outstanding. After its offering, though, that number will increase by 7 million shares. Celldex is introducing a significant number of shares to the market, while raising more than $162 million in the process.
Celldex is a multi-product clinical stage biotechnology company, one with two late-stage products and a slew of early-stage candidates. Since January 2012, Celldex's stock has soared more than 700%; this is mostly related to the strong data from its breast cancer product CDX-011.
CDX-011 treats patients at the greatest risk, those who no longer respond to other treatments. In a phase 2 trial, it both increased survival and slowed the progression of the disease. Celldex has soared with an imminent FDA approval and optimism for the rest of its pipeline.
What's next for rindopepimut?
In the next few months, Celldex will announce data on both its brain cancer treatment rindopepimut and its orphan product CDX-1135 for dense deposit disease, or DDD.
Prior to last year, rindopepimut was considered a coin flip. Strong CDX-011 data made investors more confident in the outcome of other Celldex programs, however. Rindopepimut treats glioblastoma multiforme, a very aggressive form of brain cancer, and is currently being tested in a late-stage trial.
Back in August, Celldex announced that it would enroll an additional 75 patients in the rindopepimut study, for 170 patients total. The reason for this was early evidence of anti-tumor activity, which also created investor optimism.
A couple of weeks ago, Celldex reported interim data on rindopepimut. The data showed an overall survival of 12 months for the treated group and just 7.9 months for the control group. This was very strong data, but the company's stock ticked lower by 9% as the total outcome was less exciting than what many analysts expected. Still, current data would likely earn an FDA approval. The big question, though, is whether or not this data is sustainable as more patients are assessed.
Fortunately, we'll know the answer to this question soon. Unfortunately, the large offering leads many to ask speculative questions regarding this data.
The opportunity to become orphan
Celldex's CDX-1135 is many years from an FDA approval. If trials on DDD are effective, however, Celldex would be transformed from a cancer-focused company to a cancer and orphan drug biotechnology company. Essentially, it would leave the company well-diversified with promising potential for many billions in annual revenue.
Many are highly anticipating data on CDX-1135, which is a complement modulator that binds to components called C3 and C5; these components prevent the destruction of invading particles created by the immune system. No human data has been presented as yet, but CDX-1135 did demonstrate control of C3 in mice with damaged kidneys.
This fact is important because no other complement modulator has controlled C3 in damaged kidneys. The most widely discussed and covered complement modulator is Soliris, which is marketed by Alexion Pharmaceuticals (NASDAQ: ALXN ) .
Soliris is Alexion's only product, which effectively binds to C5. However, if CDX-1135 binds to C5 and C3, it could treat many of the same indications as Soliris as well as additional indications like DDD. To put this in perspective, Soliris has annual revenue of $1.43 billion and Alexion has a market cap of $23 billion with just this one product. If complement modulators have such high potential and are so cherished by Wall Street, then why would Celldex raise money now? Why not wait until after data is released, if the data is positive?
The partnership/acquisition rumors fade
The final element that comes with Celldex raising money now is that it puts a hold on speculation of a buyout or large partnership. For months, many have speculated that Celldex was a best available option for big pharma. After raising so much cash, though, one has to believe that there are no such deals in the works.
Amgen recently acquired Onyx for more than $9 billion. Prior to the acquisition, Amgen's growth prospects were dim as the majority of its pipeline was in early stages. Onyx's pipeline is fully developed, however, with three marketed products in oncology. Celldex would give Amgen a clinical pipeline worth billions if successful.
Roche's Avastin, Rituxan, and Herceptin account for nearly 40% of the company's $52 billion in annual sales. Rituxan and Avastin both face generic drug risk, while Herceptin faces new and upcoming drugs such as Puma Biotechnology's neratinib that are simply more effective. With Roche being the world leader in cancer drugs, Celldex makes sense as an acquisition or partnership target.
Lastly, if CDX-1135 works, one has to believe that Alexion would do everything in its power to acquire Celldex. The acquisition would also make Alexion better diversified with an oncology pipeline.
The moral of the story is that both big pharma and investors are still in waiting mode. Everyone is waiting to see whether Celldex is going to be a multiproduct drug company. If it is, then it's presenting great investment value.
Investors often use every sign from a company to try and gain an edge on the broader market. A large public offering is not a sign of overwhelming confidence when released this close to significant data. The offering only adds more confusion, uncertainty, and questions as the data approaches. The best way for you to view Celldex at this time is not as a can't-miss stock or a future flop, but rather as a company that is worthy of your eye until there is proof of long-term longevity.
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