Celldex Therapeutics, Inc. (CLDX 2.66%) entered 2018 with its lead drug in a fully enrolled pivotal trial. The situation echoes the clinical-stage biotech's position at the beginning of 2016; later, an unexpected failure left investors scarred

This year should be much different.

The one we've all been waiting for

Finding 327 advanced-stage, triple-negative breast cancer patients with tumors that express high levels of a specific surface protein that glembatumumab vedotin ("glemba") targets wasn't easy, but Celldex finally got it done. Investigators randomized the last patients into groups receiving the company's lead candidate or standard chemotherapy last August, but won't let anyone know which group they're in until 203 patients show signs of disease progression.

Man riding a rocket towards the number 2018.

Image source: Getty Images.

In early 2016, the company's former lead candidate, Rintega, performed as expected for brain cancer patients, but those randomized into groups receiving standard chemo outperformed historical expectations by a mile.

This time's different. During a previous trial, glemba extended progression-free survival 133% longer than standard chemo among a randomized group of patients similar to those in the ongoing pivotal trial. A repeat performance would likely lead to an approval. The patient population Celldex has aimed its therapy at is small and hard to find, but this group also lacks effective treatment options. Given the unmet need, an approval for this indication could eventually drive annual glemba sales above $300 million.

Beyond triple-negative

Glemba drops little chemo bombs inside cancer cells after shaking hands with its target protein on the surface of those cells. Its target, gpNMB, is associated with several aggressive forms of cancer, which means applications beyond breast cancer are possible.

Several ongoing studies are testing glemba's potential to treat various malignancies. In 2018, look for results from two National Cancer Institute-sponsored studies testing glemba as a treatment for rare forms of bone and eye cancer.

This year we can also expect news from a handful of additional candidates currently in mid-stage clinical trials. A mid-stage trial combining varlilumab, an experimental therapy intended to stimulate the immune system to attack cancer, with Opdivo from Bristol-Myers Squibb is slated to begin soon and could throw off interim data by the year's end.

The study I'm most interested in, though, is one slated to begin later in the year and involves CDX-3379. This candidate works to overcome resistance to Erbitux and other popular cancer treatments, which gives it an enormous potential patient population.

A $100 bill on fire.

Image source: Getty Images.

Cash burn

Having lots of candidates to develop is a blessing and a curse for Celldex Therapeutics. The company burned through $89 million in the first nine months of 2017, and increased clinical-trial activity will most likely raise operating expenses further in 2018.

The company finished last September with a $140.5 million in cash, cash equivalents, and marketable securities. Management thinks that's enough to get through the year without another dilutive offering, but there's a catch.  

In 2016, Celldex acquired CDX-3379 along with the rest of Kolltan Pharmaceuticals in a deal that includes up to $172.5 million in milestone payments that can be issued in the form of Celldex shares. Although Celldex probably won't raise equity this year to fund operations, it might dilute shareholder value somewhat in order to meet milestone-payment obligations. 

Time to buy?

At recent prices, Celldex Therapeutics sports a tiny $236 million enterprise value that hardly jives with its bulging stable of new drug candidates. This means you could theoretically purchase the entire company for a smaller sum than glemba is expected to generate for the top line on its own.

Biotech stocks generally trade at mid-single-digit multiples of total annual revenue, giving this stock multibagger potential. The same could be said for a lot of biotech stocks, but a burgeoning pipeline makes this one stand out from the crowd. 

There are no guarantees that glemba's pivotal trial will succeed, and a surprise failure would lead to swift losses. That said, it would also leave Celldex with three candidates in mid-stage clinical trials, plus two more in early-stage trials. With plenty of fallback candidates acting as a safety net, the stock looks like a buy right now.