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Is This Risky Biotech Stock About to Jump Higher?

By Todd Campbell – Updated Oct 18, 2016 at 10:56AM

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A promising brain cancer drug could make Celldex Therapeutics an intriguing clinical-stage biotech to buy.

Image source: Getty Images.

Celldex Therapeutics (CLDX 4.16%) investors got crushed earlier this year when the company's lead drug candidate fell short in late-stage studies, but a wave of news in the coming year could reignite investor interest and send shares soaring again.

Digging around the bargain bin

Celldex Therapeutics was a high-flyer in 2015 when positive mid-stage study results for Rintega, a drug targeting a tough-to-treat brain cancer known as glioblastoma, kick-started optimism that an eventual approval could reshape treatment. 

However, optimism quickly turned to pessimism when an interim look at phase 3 trial data earlier this year led independent monitors to recommend that Celldex Therapeutics halt the trial because the placebo was outperforming Rintega.

The company followed the monitors' advice and shuttered the trial, casting significant doubt on Celldex's future. In the wake of the end of Rintega's development, shares crashed more than 50%.

Rintega's failure is undeniably discouraging; however, the steep drop in shares may be offering an opportunity to buy the rest of Celldex's pipeline on the cheap.

Earlier this week, Celldex reported encouraging results from a mid-stage trial evaluating glembatumumab vedotin, or glemba, in heavily pretreated melanoma patients. In the study, the median duration of response to glemba was six months, and the objective response rate was 11%. Fifty-two percent of patients either responded to treatment or had stable disease for at least three months, and progression-free survival was 4.4 months. 

Patients participating in the study had been previously treated with a median three therapies. Glemba's efficacy in those patients suggests that Celldex may be onto something, especially if glemba's efficacy is enhanced by pairing it up with other cancer-fighting drugs, such as its own varililumab and/or a checkpoint inhibitor. 

Glemba may also have potential as a therapy for triple-negative breast cancer, which occurs in about 15% of breast cancer patients. Following positive results in a previous phase 2 trial, a phase 2b head-to-head study of glemba versus Xeloda is currently enrolling patients. 

Investors willing to take on the risk of buying Celldex also gain exposure to varililumab, which in addition to being paired up with glemba in breast cancer is being studied in non-small cell lung cancer, colorectal cancer, and kidney cancer.

Financial footing

Celldex's pipeline would be markedly less interesting to me if the company's financial footing was questionable. Fortunately, the company appears to have plenty of financial firepower.

Exiting Q2, Celldex's management said it believes its cash and future proceeds from a $60 million share agreement with Cantor Fitzgerald gives it enough money to last it through 2018. The company had $220 million in cash as of June 30, and its operating expenses were $34 million in Q2.

Those deep pockets will become even more attractive if the company can deliver some wins that allow it to apply for approval of glemba in triple-negative breast cancer. Unfortunately, research into triple-negative breast cancer is competitive, and it's taking longer than hoped to fully enroll the trial. The company has expanded its trial to include new sites in Europe, and once enrollment is complete, it expects to have progression-free survival data in hand roughly six months later. If that data is good, management thinks it can file for FDA approval. 

Looking forward

While the Rintega trial in glioblastoma was shut down, the door may not be fully closed on the drug. The company has continued to allow access to glemba to about 100 patients via a compassionate use program, and the company is reviewing trial data to determine why the placebo group performed so well. Full results from its study will be reported at a conference in November.

In the next year, Celldex's shares could benefit if early stage varililumab studies lead to mid-stage studies and if enrollment in the triple-negative breast cancer trial improves.

Overall, this is an intriguing company that's working on a few moonshots. With a market cap of only $421 million, risk-tolerant investors don't have to pay a lot for the potential upside that could come from some wins. Because of that, I think Celldex's shares could be worth tucking away in growth portfolios. 

Todd Campbell owns shares of Celldex Therapeutics. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. 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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