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Downgrades: 3 Things You Must Know About the Crash at Celldex Therapeutics

By Rich Smith – Mar 7, 2016 at 12:45PM

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Oppenheimer is dropping this stock like a hot rock.

Celldex Therapeutics (CLDX -2.18%) shareholders hate Mondays -- this Monday in particular.

The news
Early this morning, analysts at Oppenheimer dropped a bomb on Celldex. Celldex just confirmed that, pursuant to an independent Data Safety and Monitoring Board recommendation that it discontinue its phase 3 study of cancer vaccine Rintega (used for patients with EGFRvIII-positive glioblastoma, a form of brain tumor), it has ended the study.

This was Celldex's only phase 3 study in progress at the time -- its nearest chance at putting an actual drug on market and boosting its revenue out of the current $5.5 million-per-year range, and becoming a real business. Accordingly, Rintega's cancellation comes as a big blow to the stock. Oppenheimer reacted by downgrading Celldex stock from outperform to merely perform. StreetInsider.com confirms that the analyst also removed its price target from the stock -- leaving investors with no guidance as to how much Celldex might really be worth.

What's an investor to do now? Here are three things you need to know.


Image source: Celldex Therapeutics.

Thing No. 1: Oppenheimer got burned
On the face of it, Celldex's news was bad enough to give any analyst feelings of indigestion about owning the stock. But Oppenheimer suffered especially dearly.

You see, according to our data here at Motley Fool CAPS, Oppenheimer first recommended Celldex way back in 2011. And according to its published ratings at least, Oppy appears to have stuck with the stock ever since. Ultimately, all it's received for its trouble has been a 51% decline in the value of Celldex stock -- underperforming the stock market by more than 48 percentage points over roughly five years.

No wonder they've decided to throw in the towel.

Thing No. 2: Celldex is down, but not out
Actually, check that. While Oppenheimer has downgraded Celldex, it hasn't yet downgraded it all the way to sell. Nor does Rintega's failure put Celldex out of the cancer-hunting game just yet. In fact, the company still has five different products in the process of going through seven separate clinical trials (a few in phase 2), with new data from some of these studies coming out as early as 18 months from now.

So if Rintega was a miss, there are still seven more chances for Celldex to score a hit. Accordingly, despite its downgrade, Oppenheimer observes that "investors are likely to take a wait-and-see approach to the stock in the next 12-18 months."

Translation: The 50% drop in stock price we're seeing today might actually be the worst of it. There's still a chance for Celldex to rise from here...

Thing No. 3: ...if the cash holds out
Oppenheimer notes that Celldex appears to have about $2.94 per share in cash left to fund its drug development work -- $290 million total as of the end of last year. According to the analyst, that should be enough to fund the company's operations "through 2017." But in fact, the cash might hold out even longer than that.

And one more thing...
You see, after reviewing historical data from S&P Global Market Intelligence, it actually appears that Celldex has funds sufficient to carry it past 2017, and well into 2018 -- if not beyond. Although Celldex reported an accounting loss of more than $127 million last year, S&P Global data show that the company's rate of actual cash burn was below $104 million.

Divided into a $290 million cash trove, you'd expect that to be enough cash to keep Celldex operations humming for at least 11 more quarters, i.e. through Q3 2018. What's more, because it is discontinuing the Rintega study, Celldex says it "does not anticipate incurring substantial additional costs related to RINTEGA at this time." That opens up the possibility that cash burn could decelerate over the coming months and quarters, stretching out the cash supply even longer.

So long story short? Oppenheimer is justifiably disappointed in the stock. But Celldex may have longer legs than Oppenheimer gives it credit for. Shareholders anticipate a longer period of time to pass before Celldex needs to revert to investors for a new round of funding.

Meanwhile, thanks to this morning's sell-off, the stock is selling for a share price barely a dollar more than the size of its bank account. That's small consolation for investors smarting from today's sell-off, but for new buyers -- it's a tempting proposition.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 282 out of more than 75,000 rated members.

The Motley Fool recommends Celldex Therapeutics. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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