Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
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.