Down 47%: Why the Market is Wrong About Celldex Stock

Celldex Therapeutics Inc (NASDAQ: CLDX  )  stock is down about 47% so far year-to-date. This decline was jump-started after the company's decision to close its early stage study on CDX-1135 back in March, a potential competitor to Alexion Pharmaceuticals (NASDAQ: ALXN  ) . While this was a big blow, was it really worth what Celldex has lost?

What's the story on CDX-1135?
In early 2014, Celldex announced that it was stopping the investigation of a small pilot study on CDX-1135 in treating dense deposit disease, or DDD. The company had aimed to test 15 patients, but had only enrolled one in a disease that effects just 300 to 500 people in the U.S.

Treating DDD was unlikely to be a huge fundamental catalyst, but the drug's structure was exciting to investors. CDX-1135 was a complement modulator that worked by binding to certain components linked to rare diseases. Alexion Pharmaceuticals's Soliris is the same kind of drug, binding to C5; the only difference is that CDX-1135 also binds to C3.

With Soliris being the priciest drug in the U.S., having multiple uses, and being expected to generate sales over $2 billion this year, investors were excited about CDX-1135's developmental possibilities. Theoretically, if CDX-1135 was successful, many believed it could one day challenge Alexion in treating many of the same diseases. This would consequently potentially effect Soliris' pricing and Alexion's $30 billion market capitalization. It was a big blow for Celldex to close the program, but it was possibly a big win for Alexion.

A deep value-driving pipeline
The fortunate fact surrounding Celldex is that it's not just a one-candidate company, but instead has a deep pipeline of promising drugs. In fact, CDX-1135 was deep in its pipeline, and much of the company's stock price run from $2.6 in 2012 to nearly $40 in 2013 was in connection to data from its breast cancer drug Glembatumumab vedotin and its brain cancer drug Rindopepimut.

In a difficult-to-treat breast cancer population who have failed three prior treatments, more than 30% of patients responded to Glembatumumab vedotin. As for Rindopepimut, it's being studied in a Phase 3 trial as well. Moreover, Celldex doubled the size of the trial last year after identifying strong anti-tumor activity.

Going deeper in the pipeline
The company also has several promising early stage products like Varlilumab, a monoclonal antibody immunotherapy.

Essentially, Varlilumab binds to cancer cells while activating certain cancer-killing proteins; it also prevents the growth of cancer-causing cells. While a maximum dose is yet to be found, Celldex found that eight of 15 patients saw their cancer stabilize with three seeing significant tumor shrinkage partway through an early-stage trial -- although it's important to note that this drug is very early in its development.

Why dwell on CDX-1135?
With all things considered, Celldex has a solid pipeline around it, meaning that the market's reaction to its stock may be overdone. Specifically, its breast cancer drug Glembatumumab is being tested against Xeloda, and if the data is good could see uptake upon approval. Seeing as how Xeloda had global sales of $1.7 billion in 2013, Glembatumumab could very well be a blockbuster product. Rindopepimut has the potential to earn $500 million or more in peak sales.

Foolish thoughts
Last year, Celldex was considered one of the most promising companies in immuno-oncology development. Looking at the company now, I think optimism is still warranted. Sure, it flunked on the development of CDX-1135. In retrospect, though, it was a very small indication, and even Alexion had avoided developing Soliris to treat DDD. Now, while there was more potential upside in the drug given the potential to take on Alexion in other indications, I think there's still plenty of opportunity with the stock.

While biotech is an inherently risky space and investors should be particularly careful when looking at clinical-stage biotechs like Celldex, I still think that is more than enough upside in treating cancer, and Celldex's pipeline and late-stage candidates make it a company with many potential opportunities.

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