The Motley Fool Previous Page

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

Brian Nichols
July 22, 2014

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