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The headline on Celldex Therapeutics' (Nasdaq: CLDX  ) press release sounds rather promising: "Celldex Therapeutics Regains Worldwide Rights to Rindopepimut." Full rights to its brain cancer drug that was licensed to Pfizer (NYSE: PFE  ) , including all the potential revenue, sounds better than the royalties Celldex was due.

But the stock price tells the whole story: down 25%, and as much as 40%! Breakups are never easy.

Part of the decline is due to potential reasons Pfizer would send back a drug it's been working on with Celldex for over two years. Except for saying that the "rindopepimut program is no longer a strategic priority of Pfizer," Celldex management wasn't very forthcoming.

If Pfizer is worried that the risk of taking rindopepimut into phase 3 development isn't worth the rewards, then that's a major problem. Pfizer likely knows more about the drug than most investors and analysts.

But it could just be an issue of Pfizer's having limited funds to take drugs into the last stage of drug review. Perhaps the company thinks the risk-reward ratio is OK, but is just looking for something a little less risky. Rindopepimut is an immunotherapy that works in a way similar to Dendreon's (Nasdaq: DNDN  ) Provenge. The immunotherapy waters have been tested, but there are still a lot of unknowns about using the body's immune system to attack a tumor, which makes it hard to predict successes.

Keep in mind that companies don't always make perfect decisions about these things. Eli Lilly (NYSE: LLY  ) gave up rights to Vertex Pharmaceuticals' (Nasdaq: VRTX  ) hepatitis C drug telaprevir, which, if approved, will probably become a multibillion-dollar drug.

At some point, investors just have to trust management will be able to find another partner or make the right decision and go it alone. Exelixis' (Nasdaq: EXEL  ) shareholders were in a similar situation earlier this year when Bristol-Myers Squibb (NYSE: BMY  ) handed back rights to Exelixis' cancer drug.

It's those decisions that are contributing to Celldex's decline today. The company has only $65 million in the bank and plans to take rindopepimut into phase 3 trials on its own, so it'll probably have to raise additional cash. The most likely source, equity financing, would dilute shareholders' piece of the pie.

Celldex is fairly high risk, but with a market cap of just over $100 million now, the company isn't particularly expensive. An investment in Pfizer's castoff could pay off, just be careful not to make it a large percentage of your portfolio.

Joe Magyer delivers today's 11 O'Clock Stock. Hint: delivers.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Pfizer is a Motley Fool Inside Value recommendation. Exelixis and Vertex Pharmaceuticals are Rule Breakers picks. Try any of our Foolish newsletter services free for 30 days

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Exelixis and has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 04, 2010, at 10:59 AM, drax009 wrote:

    Wishy-washy. Are you recommending people to buy it or not? You know exactly as much as the reader of this piece so just give it up already. Typical Motley Fool drivel.

  • Report this Comment On September 04, 2010, at 6:15 PM, jabel5 wrote:

    Hmmm... interesting examples of cases where big pharma turned back drugs from little pharma/biotech.

    I wouldn't say that rindopepimut (stupid name) is that much like DNDN's provenge (good name). Because of the differences, I would rate this vaccine's chance of success as low to moderate... but that's just my educated opinion. It might work. That's what clinical trials are for. Predicting the results of such trials is what a successful biotech investor might try to do.

    Pfizer does have access to more info than you or I, don't forget that. Also, consider that most big pharma are desperate for new blockbuster products to fill their pipelines. That suggests Pfizer considers this one to be a dog. I would be cautious here. Certainly there's no need to rush your can afford to wait at least until the plans and funding for the phase III are announced, unless they hook up with another big pharma. Then you would want to get in relatively soon.

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