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What happened

Celldex Therapeutics (NASDAQ:CLDX) is up 18.8% at 12:21 p.m. EST on Tuesday after releasing earnings yesterday after the market closed.

So what

Earnings don't typically move development-stage biotechs by double-digit percentages. After all, Celldex Therapeutics had only $2.2 million in revenue during the quarter, which was primarily from a clinical trial collaboration with Bristol-Myers Squibb and a research and development agreement with Rockefeller University -- nothing to get too excited about.

Nor was there anything too exciting about Celldex Therapeutics' earnings conference call -- because there wasn't one.

Perhaps investors are warming up to Celldex's announcement last week that it's buying privately held Kolltan Pharmaceuticals. The transaction gives Celldex two additional shots on goal, as well as a discovery program to develop additional drugs. Of course Kolltan's two clinical-stage programs are in phase 1, so Celldex's current drugs, glembatumumab vedotin and varlilumab, which have both started phase 2 development, are more important than the new molecules.

Or maybe it's the decent cash position that Celldex is in, with $203.2 million in the bank after using $24 million for operating activities during the third quarter. The acquisition of Kolltan is an all-stock deal, so it won't hurt Celldex's nest egg.

Now what

Celldex is on the hook for $172.5 million in potential development, regulatory, and commercial milestone payments to Kolltan. But those would only be owed if the drugs work, which would presumably make Celldex worth more, lowering the dilution to shareholders caused by a future secondary offering to raise additional capital to cover the milestone payments.

That's the ironic part of biotech valuation. Strong development-stage companies are able to get stronger because they can raise capital more cheaply, while struggling drugmakers, even if they eventually make it to market, often dilute their shareholders' value so much that investors own a much-smaller portion of a slightly larger pie, limiting share-price appreciation.

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