Is there a light at the end of the tunnel for Celldex Therapeutics (NASDAQ:CLDX)? The biotech has lost three-quarters of its value in 2016 after a stunning phase 3 flop for once-promising cancer therapy Rintega. While Celldex still has plenty of potential, there are also plenty of risks. Here are three reasons Celldex's stock could possibly drop even more in the months ahead.
1. Stock dilution
Secondary stock offerings can be both blessings and curses for publicly traded companies. These offerings raise the cash needed to fund operations, but they also dilute the value of existing shares and usually cause the stock price to fall.
Celldex reported cash, cash equivalents, and marketable securities totaling $220.1 million at the end of the second quarter. That's not a huge decrease from the $254 million on hand at the end of the first quarter, so you might think the biotech is a long way off from needing to sell more stock.
In its first-quarter results, Celldex seemed to confirm that perspective. The company stated that its cash position was sufficient to fund operations through the first half of 2018. However, Celldex changed its tune in its second-quarter results, saying that the cash stockpile "combined with the anticipated proceeds from future sales of our common stock under our $60 million sales agreement with Cantor Fitzgerald & Co." would allow the company to fund operations through 2018.
A sale of $60 million of stock would dilute Celldex's existing shares by roughly 16%. For investors who have already endured massive losses, that's not a happy thought.
2. Another clinical failure
Rintega could serve as the poster child for why clinical-stage biotech stocks can be risky. Phase 2 results for the experimental brain cancer drug were encouraging. Some analysts were projecting Rintega could eventually rake in over $1 billion per year. But the pivotal phase 3 study for the drug was halted because findings showed that Rintega wouldn't be effective.
Celldex currently has six phase 2 clinical studies in progress with another six early stage studies under way. What's the most important clinical trial for Celldex right now? The phase 2 METRIC study of glembatumumab vedotin, also known as glemba, in treating triple-negative breast cancer. Celldex hopes to submit for regulatory approval based on the results of this study.
The biotech can ill afford another setback. However, Rintega proved that even promising candidates don't always succeed.
3. Clinical trial delays
Celldex doesn't have to run into a wall with one of its pipeline candidates for the stock to be affected. Speed bumps could negatively impact share prices, too (although to a lesser extent).
The company hinted in its second-quarter earnings conference call that there could possibly be some delays. Celldex CEO Anthony Marucci mentioned that enrollment in glemba's METRIC study is going slower than initially planned. Marucci cited the high number of other clinical trials for triple-negative breast cancer as a challenge in finding enough patients to enroll. Celldex is expanding enrollment in Europe to help address this issue, but it's too soon to know how the METRIC timeline might be affected.
Another promising pipeline candidate for the biotech is varlilumab, also called varli. Celldex is working with Bristol-Myers Squibb on testing varli in conjunction with Bristol's Opdivo to treat various solid tumors. Celldex has previously estimated that preliminary data from the phase 2 study of the varli/Opdivo combo would be announced by end of 2017.
However, in the biotech's second-quarter earnings call, Chief Medical Officer Thomas Davis hedged a bit. Davis said that while the company hoped to have data by that time, it depended on Bristol. Because of this, he couldn't make any firm commitment on timing of announcement of preliminary results.
Against the odds?
I'd say the likelihood of future dilution of Celldex's shares is a virtual certainty. It's just a matter of when.
What are the prospects of another clinical failure? That's hard to say. Glemba should have a decent shot at success in its pivotal phase 2 study. However, failure is a real possibility. Clinical study delays could also easily occur because of so many uncontrollable variables at play.
Celldex shareholders need to be aware of the risks. On the other hand, the potential rewards can be huge. The biotech's pipeline just might bring the light at the end of the tunnel that investors want to see.