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What happened 

Shares of Celldex Therapeutics, Inc. (NASDAQ:CLDX),  clinical-stage biopharmaceutical company developing targeted cancer therapies, fell 28.1% in August according to data from S&P Global Market Intelligence. Unexpected delays in its lead candidate's pivotal trial was the culprit.

CLDX Chart

CLDX data by YCharts.

So what 

Celldex Therapeutics finished the second quarter with $220.1 million in cash, cash equivalents, and marketable securities, which should be enough to see it through 2018. A combination of factors spooked the market:

  • Celldex Therapeutics is having difficulty enrolling triple-negative breast cancer patients into a trial designed to support an application for its lead candidate, Glemba. These patients' tumors lack three surface proteins that existing therapies target. With more than 330 ongoing studies in this population, finding 300 triple negative patients who also overexpress Glemba's target protein, gpNMB, is proving troublesome.
  • Celldex is actively enrolling seven clinical trials and anticipates adding new studies before the end of the year. With another six investigator-sponsored or collaborative studies under way, this might be the busiest company on the market without a product to sell. Its work ethic is commendable, but so much activity makes predicting near-term cash flows a guessing game.
  • In May, the company entered an agreement with Cantor Fitzgerald that requires the financial institution to purchase newly issued Celldex shares at the market price upon the company's request, up to a maximum of $60 million, in return for a modest 3% commission on each sale. Issuing new shares shrinks existing investors' slice of any potential profits. The severity of the dilution depends on the market price and the amount of capital Celldex might require.

Now what

Between the beginning of the deal and the end of July, Celldex issued about 1.70 million shares, raising $7.7 million in the process, and the company can request Cantor to purchase up to $52 million more. With 100.55 million shares outstanding, exhausting the remaining $52 million would lead to a 14% dilution at the company's recent stock price of $3.71 per share.

In addition to the pivotal trial in triple-negative breast cancer, Glemba is in four other studies, and Celldex plans on presenting results from a single-agent study in melanoma patients this October. Highly positive results would probably lift the stock -- and lower the potential dilutive effect of issuing shares to fund its extensive clinical-stage pipeline. Success isn't guaranteed, though, which makes the potential dilutive effect impossible to measure.

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