Celldex Therapeutics, Inc. - Quarter Report: 2011 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 0-15006

 

CELLDEX THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

119 Fourth Avenue, Needham, Massachusetts 02494

(Address of principal executive offices) (Zip Code)

 

(781) 433-0771

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No x

 

As of August 1, 2011, 44,147,214 shares of common stock, $.001 par value per share, were outstanding.

 

 

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CELLDEX THERAPEUTICS, INC.

 

FORM 10-Q

 

Quarterly Period Ended June 30, 2011

 

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		Page
Part I—Financial Information
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		29
Part II — Other Information
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 6. Exhibits		30
Signatures		31
Exhibit Index		32

 

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PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

 

CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands, except share and per share amounts)

 

		June 30, 2011			December 31, 2010
ASSETS
Current Assets:
Cash and Cash Equivalents		$	10,830		$	21,287
Marketable Securities		60,406			39,811
Accounts and Other Receivables		163			324
Prepaid and Other Current Assets		1,890			1,525
Total Current Assets		73,289			62,947
Property and Equipment, Net		9,985			10,832
Intangible Assets, Net		25,870			26,836
Other Assets		367			363
Goodwill		8,965			8,965
Total Assets		$	118,476		$	109,943
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	514		$	931
Accrued Expenses		4,416			4,936
Current Portion of Long-Term Liabilities		479			818
Current Portion of Term Loan		5,000			1,111
Convertible Subordinated Debt		—			12,412
Total Current Liabilities		10,409			20,208
Term Loan, less Current Portion		10,068			8,889
Other Long-Term Liabilities		5,994			5,591
Total Liabilities		26,471			34,688
Commitments and Contingent Liabilities
Stockholders’ Equity:
Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; No Shares Issued and Outstanding at June 30, 2011 and December 31, 2010		—			—
Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 44,147,214 and 32,055,382 Shares Issued and Outstanding at June 30, 2011 and December 31, 2010, respectively		44			32
Additional Paid-In Capital		269,689			232,679
Accumulated Other Comprehensive Income		2,774			2,751
Accumulated Deficit		(180,502		)	(160,207		)
Total Stockholders’ Equity		92,005			75,255
Total Liabilities and Stockholders’ Equity		$	118,476		$	109,943

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(In thousands, except per share amounts)

 

		Three Months Ended						Six Months Ended
		June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
REVENUE:
Product Development and Licensing Agreements		$	11		$	1,399		$	25		$	2,746
Contracts and Grants		—			—			—			220
Product Royalties		1,941			1,552			4,443			3,698
Total Revenue		1,952			2,951			4,468			6,664
OPERATING EXPENSE:
Research and Development		7,169			7,256			14,021			13,694
Royalty		1,941			1,732			4,443			4,059
General and Administrative		2,240			2,591			4,626			5,426
Gain on Sale of Assets		—			—			(50		)	—
Amortization of Acquired Intangible Assets		483			658			966			2,178
Total Operating Expense		11,833			12,237			24,006			25,357
Operating Loss		(9,881		)	(9,286		)	(19,538		)	(18,693		)
Investment and Other Income, Net		79			95			163			3,257
Interest Expense		(434		)	(334		)	(920		)	(671		)
Net Loss		$	(10,236	)	$	(9,525	)	$	(20,295	)	$	(16,107	)
Basic and Diluted Net Loss Per Common Share (Note 4)		$	(0.27	)	$	(0.30	)	$	(0.58	)	$	(0.51	)
Shares Used in Calculating Basic and Diluted Net Loss per Share (Note 4)		37,463			31,815			34,770			31,755

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

		Six Months Ended
		June 30, 2011			June 30, 2010
Cash Flows from Operating Activities:
Net Loss		$	(20,295	)	$	(16,107	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		1,130			1,608
Amortization of Intangible Assets		966			2,178
Amortization and Premium of Marketable Securities		(242		)	(520		)
Realized Loss on Sales and Maturities of Marketable Securities		8			31
(Gain) Loss on Sale or Disposal of Assets		(55		)	38
Stock-Based Compensation Expense		1,133			1,614
Non-Cash Interest Expense		192			364
Changes in Operating Assets and Liabilities:
Accounts and Other Receivables		161			(194		)
Prepaid and Other Current Assets		(408		)	(702		)
Other Assets		(4		)	373
Accounts Payable and Accrued Expenses		(937		)	(1,853		)
Deferred Revenue		—			(2,040		)
Other Long-Term Liabilities		122			(1,405		)
Net Cash Used in Operating Activities		(18,229		)	(16,615		)
Cash Flows from Investing Activities:
Sales and Maturities of Marketable Securities		18,394			19,252
Purchases of Marketable Securities		(38,727		)	(43,875		)
Acquisition of Property and Equipment		(282		)	(1,129		)
Proceeds from Sale or Disposal of Assets		64			—
Net Cash Used in Investing Activities		(20,551		)	(25,752		)
Cash Flows from Financing Activities:
Net Proceeds from Stock Issuances		35,889			616
Issuance of Term Loan		5,000			—
Payment of Convertible Subordinated Debt		(12,503		)	—
Payments of Other Long-Term Liabilities		(58		)	(94		)
Net Cash Provided by Financing Activities		28,328			522
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(5		)	1
Net Decrease in Cash and Cash Equivalents		(10,457		)	(41,844		)
Cash and Cash Equivalents at Beginning of Period		21,287			57,002
Cash and Cash Equivalents at End of Period		$	10,830		$	15,158

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2011

 

(1)  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Celldex Therapeutics, Inc. (the “Company” or “Celldex”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the operations of the Company and its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation.

 

These interim financial statements do not include all the information and footnotes required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2011.  In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary to fairly state the Company’s financial position and results of operations for the interim periods presented.  The year-end consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future interim period or the fiscal year ending December 31, 2011.

 

At June 30, 2011, the Company had cash, cash equivalents and marketable securities of $71.2 million; working capital of $62.9 million; and a Term Loan balance of $15.1 million. The Company incurred a loss of $20.3 million for the six months ended June 30, 2011.  Net cash used in operations for the six months ended June 30, 2011 was $18.2 million. The Company believes that the cash, cash equivalents and marketable securities at June 30, 2011 in addition to interest income on invested funds and the Company’s ability to control certain costs, including those related to clinical trials, manufacturing and preclinical activities, will be sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

The Company raised net proceeds of $35.9 million from the sale of its common stock during the three months ended June 30, 2011.  During the next twelve months, the Company expects to take further steps to raise additional capital to meet its long-term liquidity needs including, but not limited to, one or more of the following: the licensing of technology programs with existing or new collaborative partners, possible business combinations, issuance of debt, or the issuance of common stock or other securities via private placements or public offerings. While the Company continues to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and the Company’s negotiating position in capital-raising efforts may worsen as existing resources are used. There is also no assurance that the Company will be able to enter into further collaborative relationships. Additional equity financing may be dilutive to the Company’s stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate as a business; and licensing or strategic collaborations may result in royalties or other terms which reduce the Company’s economic potential from products under development. If the Company is unable to raise the funds necessary to meet its long-term liquidity needs, it may have to delay or discontinue the development of one or more programs, discontinue or delay on-going or anticipated clinical trials, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, or sell all or part of the Company.

 

(2)  Significant Accounting Policies

 

The significant accounting policies used in preparation of these condensed consolidated financial statements for the six months ended June 30, 2011 are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010, except for the adoption of new accounting standards during the first six months of 2011 as discussed below.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless

 

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otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

 

In January 2011, the Company adopted a new U.S. GAAP accounting standard which revises the accounting guidance for milestone revenue recognition. The new guidance allows for revenue recognition contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive.  The Company adopted this guidance beginning with agreements entered into on or after January 1, 2011. This standard may impact the Company in the event it completes future transactions or collaborative relationships that include milestone payments.

 

In June 2011, the FASB issued a new U.S. GAAP accounting standard which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements.  This new standard eliminates the option to present components of other comprehensive income as part of the statement of equity and will be effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new standard to have a material effect on its operating results or financial position.

 

(3)  Comprehensive Loss

 

For the three and six months ended June 30, 2011 and 2010, comprehensive loss was as follows:

 

		Three months ended June 30,						Six months ended June 30,
		2011			2010			2011			2010
		(In thousands)
Net loss		$	(10,236	)	$	(9,525	)	$	(20,295	)	$	(16,107	)
Other comprehensive loss:
Unrealized gain (loss) on marketable securities		15			(7		)	28			111
Unrealized foreign exchange translation (loss) gain		(1		)	2			(5		)	1
Total other comprehensive gain (loss)		14			(5		)	23			112
Total comprehensive loss		$	(10,222	)	$	(9,530	)	$	(20,272	)	$	(15,995	)

 

(4)  Net Loss Per Share

 

Basic net loss per common share is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock that has been issued but is not yet vested. Diluted net loss per common share is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average potentially dilutive common shares outstanding during the period when the effect is dilutive. The potentially dilutive common shares that have not been included in the net loss per common share calculations because the effect would have been anti-dilutive are as follows:

 

		Six months ended June 30,
		2011		2010
Stock options		3,716,282		4,176,328
Convertible debt		—		353,563
Restricted stock		12,000		8,000
		3,728,282		4,537,891

 

In connection with the acquisition of CuraGen Corporation (“CuraGen”), the Company assumed the $12.5 million in 4% convertible subordinated debt due February 15, 2011 (the “CuraGen Debt”).  Effective October 1, 2009, Celldex, CuraGen, and The Bank of New York Mellon (the “Trustee”) amended the CuraGen Debt to provide that the CuraGen Debt shall be convertible into 353,563 shares of Celldex common stock at the rate of 28.27823 shares of Celldex common stock per $1,000 principal amount of notes, or $35.36 per share. The initial carrying value of the CuraGen Debt was accreted ratably, over the term of the CuraGen Debt, to $12.5 million due at maturity.  In February 2011, the Company paid the Trustee $12.8 million to satisfy all outstanding principal and accrued interest related to the CuraGen Debt.

 

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(5)  Fair Value Measurements

 

The following tables set forth the Company’s financial assets subject to fair value measurements:

 

		As of June 30, 2011			Level 1			Level 2			Level 3
		(In thousands)
Money market funds and cash equivalents		$	4,564		$	4,564		—			—
Marketable securities		$	60,406		—			$	60,406		—
		$	64,970		$	4,564		$	60,406		—

 

		As of December 31, 2010			Level 1			Level 2			Level 3
		(In thousands)
Money market funds and cash equivalents		$	10,975		$	10,975		—			—
Marketable securities		$	39,811		—			$	39,811		—
		$	50,786		$	10,975		$	39,811		—

 

There have been no transfers of assets or liabilities between the fair value measurement classifications.  The Company’s financial instruments consist mainly of cash and cash equivalents, marketable securities, short-term accounts receivable, accounts payable and debt obligations. Marketable securities have been valued at each balance sheet date, using observable market inputs that may include trade information, broker or dealer quotes, bids, offers or a combination of these data sources. Short-term accounts receivable and accounts payable are reflected in the accompanying consolidated financial statements at cost, which approximates fair value due to the short-term nature of these instruments.  Based on current market interest rates available to the Company for long-term liabilities with similar terms and maturities, the Company believes the fair value approximates the carrying value of the principal portion of the Term Loan and note payable at June 30, 2011.

 

(6)  Marketable Securities

 

A summary of marketable securities is shown below:

 

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
June 30, 2011
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	14,196		$	114		$	—		$	14,310
Maturing after one year through two years		21,679			74			(8		)	21,745
Total U.S. government and municipal obligations		$	35,875		$	188		$	(8	)	$	36,055
Corporate debt securities
Maturing in one year or less		$	19,039		$	7		$	(1	)	$	19,045
Maturing after one year through two years		5,309			5			(8		)	5,306
Total corporate debt securities		$	24,348		$	12		$	(9	)	$	24,351
Total marketable securities		$	60,223		$	200		$	(17	)	$	60,406

 

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		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
December 31, 2010
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	14,836		$	35		$	—		$	14,871
Maturing after one year through two years		11,428			103			—			11,531
Total U.S. government and municipal obligations		$	26,264		$	138		$	—		$	26,402
Corporate debt securities
Maturing in one year or less		$	11,798		$	18		$	(2	)	$	11,814
Maturing after one year through two years		1,594			1			—			1,595
Total corporate debt securities		$	13,392		$	19		$	(2	)	$	13,409
Total marketable securities		$	39,656		$	157		$	(2	)	$	39,811

 

As of June 30, 2011, unrealized losses in the portfolio were primarily due to increases in interest rates. The marketable securities held by the Company were high investment grade and there were no marketable securities that the Company considered to be other-than-temporarily impaired as of June 30, 2011.

 

(7)  Intangible Assets and Goodwill

 

Intangible assets, net of accumulated amortization, and goodwill are as follows:

 

				June 30, 2011									December 31, 2010
		Estimated Life		Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net
				(In thousands)
Intangible Assets:
IPR&D		Indefinite		$	11,800		—			$	11,800		$	11,800		—			$	11,800
Amgen Amendment		16 years		14,500			$	(1,570	)	12,930			14,500			$	(1,121	)	13,379
TopoTarget Agreement		1.75 years		2,400			(2,400		)	—			2,400			(2,057		)	343
Core Technology		4.5 - 11 years		1,948			(1,174		)	774			1,948			(1,040		)	908
Strategic Partner Agreement		8 years		630			(264		)	366			630			(224		)	406
Total Intangible Assets				$	31,278		$	(5,408	)	$	25,870		$	31,278		$	(4,442	)	$	26,836
Goodwill		Indefinite		$	8,965		—			$	8,965		$	8,965		—			$	8,965

 

The estimated fair value attributed to the April 2008 agreement (“TopoTarget Agreement”) between the Company (as a successor to CuraGen) and TopoTarget A/S (“TopoTarget”) relates to the Company’s rights under the TopoTarget Agreement to receive up to $6 million in either potential commercial milestone payments related to future net sales of Belinostat or 10% of any sublicense income received by TopoTarget (“TopoTarget Payments”).  In February 2010, TopoTarget entered into a co-development and commercialization agreement for Belinostat with Spectrum Pharmaceuticals, Inc. which resulted in the Company’s receipt of $3 million of the TopoTarget Payments.  The Company recorded this cash receipt as Other Income for the six months ended June 30, 2010.

 

(8) Term Loan

 

In December 2010, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC (“MidCap”) pursuant to which the Company borrowed $10 million (the “Term Loan”) from MidCap.  In March 2011, as the Company had anticipated, the Company amended the Loan Agreement and borrowed an additional $5 million from General Electric Capital Corporation (“GECC”) (collectively with MidCap, the “Lenders”) to increase the amount owed under the Term Loan to $15 million. No additional advances are available under the Loan Agreement. The Term Loan accrues interest at a fixed annual interest rate equal to the greater of (i) the sum of (A) the LIBOR Rate (as defined in the Loan Agreement) plus (B) 6.25%; or (ii) a minimum rate of 9.50%.  Interest on the Term

 

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Loan is payable monthly and principal is due in 27 equal consecutive monthly installments commencing on October 1, 2011. The Company has an option exercisable through September 28, 2011 to extend the interest-only period by 6 months which, if exercised, would make the principal due in 21 equal consecutive monthly installments commencing on April 1, 2012.  Notwithstanding the foregoing, all unpaid principal and accrued interest with respect to the Term Loan is due and payable on the earlier of (A) December 30, 2013 or (B) the date that the Term Loan otherwise becomes due and payable under the terms of the Loan Agreement. The Company may prepay all, but not less than all, of the Term Loan subject to a prepayment premium of 1% in year three, 2% in year two, and 4% in year one of the original principal amount of the Term Loan.

 

The obligations of the Company under the Loan Agreement are secured by a first priority lien upon and security interest in substantially all of the Company’s existing and after-acquired assets, excluding its intellectual property assets. Under the Loan Agreement, the Company is subject to specified affirmative and negative covenants customary for financings of this type. The Loan Agreement provides that, upon the occurrence of certain specified events of default customary for financings of this type, the Company’s obligations under the Loan Agreement may be automatically accelerated, whereupon the Company’s obligations under the Loan Agreement shall be immediately due and payable. At June 30, 2011, the Company believes it is in compliance with the Loan Agreement.

 

Upon repayment of the Term Loan in full, the Company is also obligated to make a final payment fee of $0.5 million (“Final Payment”) which the Company is accreting ratably over the term of the Term Loan to interest expense.  At June 30, 2011 and December 31, 2010, the Company had $0.2 million in capitalized deferred financing costs incurred in connection with the Term Loan and is amortizing these costs over the term of the Term Loan to interest expense.  Interest expense on the Term Loan including the accretion of the Final Payment and amortization of the deferred financing costs was $0.4 million and $0.7 million for the three and six months ended June 30, 2011, respectively.

 

(9) Other Long-Term Liabilities

 

Other long-term liabilities include the following:

 

		June 30, 2011			December 31, 2010
		(In thousands)
Deferred Rent		$	443		$	450
Severance		282			685
Deferred Tax Liabilities		4,661			4,661
Deferred Income from Sale of Tax Benefits		510			—
Deferred Revenue		22			—
Loan Payable		555			581
Note Payable		—			32
Total		6,473			6,409
Less Current Portion		(479		)	(818		)
Long-Term Portion		$	5,994		$	5,591

 

In January 2011, the Company received approval from the New Jersey Economic Development Authority and agreed to sell New Jersey tax benefits worth $0.6 million (consisting of R&D tax credits) to an independent third party for $0.5 million.  Under the agreement, the Company must maintain a base of operations in New Jersey for five years or the tax benefits must be paid back on a pro-rata basis based on the number of years completed.

 

(10) Stockholders’ Equity

 

In January 2011, the Company entered into a controlled equity offering sales agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which the Company may issue and sell up to 5,000,000 shares of its common stock from time to time through Cantor, acting as agent. The Company agreed to pay Cantor a commission up to 5% of the gross proceeds from each sale and to reimburse Cantor for certain expenses incurred in connection with entering into the Cantor Agreement.  During the three months ended June 30, 2011, the Company sold 575,000 shares of common stock under the Cantor Agreement and raised $2.2 million in net proceeds, after deducting commission and offering expenses.  As of June 30, 2011, the Company had 4,425,000 shares available to be sold under the Cantor Agreement.

 

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In May 2011, the Company issued 11,500,000 shares of its common stock in an underwritten public offering, including the underwriter’s exercise of their full over-allotment option to purchase an additional 1,500,000 shares of common stock.  The net proceeds to the Company were $33.7 million, after deducting underwriting fees and offering expenses.

 

(11)  Stock-Based Compensation

 

The Company has the following stock-based compensation plans: the 2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”), the 2008 Stock Option and Incentive Plan (the “2008 Plan”), Celldex Research’s 2005 Equity Incentive Plan (the “Celldex Research 2005 Plan”) and the CuraGen 2007 Plan. The Company assumed the obligations under the Celldex Research 2005 Plan and CuraGen 2007 Plan in connection with the AVANT Merger and CuraGen Merger, respectively, and there are no shares available for future grant under either plan.

 

Employee Stock Purchase Plan

 

At June 30, 2011, a total of 62,500 shares of common stock are reserved for issuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, each participating employee may purchase up to 250 shares of common stock per year, through payroll deductions, at a purchase price equal to 85% of the lower of the fair market value of the common stock at either the beginning of the offering period or the applicable exercise date.  During the six months ended June 30, 2011 and 2010, the Company issued 4,832 and 4,753 shares under the 2004 ESPP Plan, respectively. At June 30, 2011, 46,177 shares were available for issuance under the 2004 ESPP Plan.

 

Employee Stock Option and Incentive Plan

 

The 2008 Plan permits the granting of incentive stock options (intended to qualify as such under Section 422A of the Internal Revenue Code of 1986, as amended), non-qualified stock options, stock appreciation rights, performance share units, restricted stock and other awards of restricted stock in lieu of cash bonuses to employees, consultants and outside directors.

 

At June 30, 2011, the 2008 Plan allowed for a maximum of 3,900,000 shares of common stock to be issued prior to October 19, 2017. The Company’s board of directors determines the term of each option, option price, and number of shares for which each option is granted and the rate at which each option vests. Options generally vest over a period not to exceed four years. The term of each option cannot exceed ten years (five years for options granted to holders of more than 10% of the voting stock of the Company) and the exercise price of stock options cannot be less than the fair market value of the common stock at the date of grant (110% of fair market value for incentive stock options granted to holders of more than 10% of the voting stock of the Company).  Vesting of all employee and non-employee director stock option awards is accelerated upon a change in control as defined in the 2008 Plan.

 

A summary of stock option activity for the six months ended June 30, 2011 is as follows:

 

		Shares		Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term (In Years)
Options Outstanding at December 31, 2010		4,019,982		$	6.93		6.6
Granted		20,250		$	4.04
Exercised		—		—
Canceled		(323,950	)	$	8.05
Options Outstanding at June 30, 2011		3,716,282		$	6.82		6.7
Options Vested and Expected to Vest at June 30, 2011		3,690,174		$	6.83
Options Exercisable at June 30, 2011		2,731,904		$	7.13
Shares Available for Grant under the 2008 Plan		1,779,615

 

The weighted average grant-date fair value of stock options granted during the six months ended June 30, 2011 and 2010 was $2.54 and $2.81, respectively. The total fair value of stock options that vested during the six months ended June 30, 2011 and 2010 was $1.6 million and $1.9 million, respectively.

 

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The aggregate intrinsic value of stock options outstanding at June 30, 2011 was $0.4 million. The aggregate intrinsic value of stock options vested and expected to vest at June 30, 2011 was $0.4 million. As of June 30, 2011, total compensation cost related to non-vested employee and non-employee director stock options not yet recognized was approximately $3.0 million, net of estimated forfeitures, which is expected to be recognized as expense over a weighted average period of 2.1 years.

 

Restricted Stock

 

A summary of restricted stock activity under the 2008 Plan for the six months ended June 30, 2011 is as follows:

 

		Shares		Weighted Average Grant Date Fair Value (per share)
Outstanding and unvested at December 31, 2010		9,338		$	3.96
Granted		12,000		3.24
Vested		(9,338	)	3.96
Canceled		—		—
Outstanding and unvested at June 30, 2011		12,000		$	3.24

 

Valuation and Expenses Information

 

Stock-based compensation expense related to employee and non-employee stock options, restricted stock and employee stock purchases for the three and six months ended June 30, 2011 and 2010 was recorded as follows:

 

		Three months ended June 30,						Six months ended June 30,
		2011			2010			2011			2010
		(In thousands)
Research and development		$	344		$	393		$	705		$	909
General and administrative		209			251			428			705
Total stock-based compensation expense		$	553		$	644		$	1,133		$	1,614

 

The fair values of employee and non-employee director stock options and employee stock purchases granted during the three and six months ended June 30, 2011 and 2010 were valued using the Black-Scholes option-pricing model with the following assumptions:

 

		Three months ended June 30,				Six months ended June 30,
		2011		2010		2011		2010
Expected stock price volatility (options)		68	%	66	%	68	%	65-66	%
Expected stock price volatility (2004 ESPP)		70	%	51	%	70	%	51	%
Expected option term (options)		6.0 years		6.2 years		6.0 years		6.2 years
Expected option term (2004 ESPP)		0.5 years		0.5 years		0.5 years		0.5 years
Risk-free interest rate (options)		2.5	%	2.9	%	2.5-2.9	%	2.9-3.2	%
Risk-free interest rate (2004 ESPP)		0.2	%	0.2	%	0.2	%	0.2	%
Expected dividend yield		None		None		None		None

 

(12)  Income Taxes

 

Massachusetts, New Jersey and Connecticut are the three states in which the Company primarily operates or has operated and has income tax nexus. The Company is currently under examination for sales and use taxes by the State of Massachusetts for the period December 2008 through March 2011 and by the Internal Revenue Service with respect to 2008.  The Company is not currently under examination by any other jurisdictions for any tax year.

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets, which are comprised principally of net operating loss carryforwards, capitalized R&D expenditures and R&D tax credit carryforwards. The Company has determined that it is more likely than not that it will not recognize the benefits of

 

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federal and state deferred tax assets and, as a result, a full valuation allowance was maintained at June 30, 2011 and December 31, 2010 against the Company’s net deferred tax assets.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

·      our ability to successfully complete product research and further development, including animal, preclinical and clinical studies, and commercialization of rindopepimut, CDX-011, CDX-1401, CDX-1135, CDX-1127 and other products and the growth of the markets for those product candidates;

 

·      our ability to raise sufficient capital to meet our long-term liquidity needs, on terms acceptable to us, or at all;

 

·      the cost, timing, scope and results of ongoing safety and efficacy trials of rindopepimut, CDX-011, CDX-1401, and other preclinical and clinical testing;

 

·      our ability to fund and complete the development and commercialization of rindopepimut internally or to find another strategic partner to fund the development and commercialization of rindopepimut;

 

·      our ability to adapt our APC Targeting Technology™ to develop new, safe and effective vaccines against oncology and infectious disease indications;

 

·      the ability to negotiate strategic partnerships or other disposition transactions for our non-core programs;

 

·      our ability to manage multiple clinical trials for a variety of product candidates at different stages of development, including our planned Phase 3 trial for rindopepimut;

 

·      the strategies and business plans of our partners, such as GlaxoSmithKline’s plans with respect to Rotarix® and Vaccine Technologies’ plans concerning the CholeraGarde® (Peru-15) and ETEC E. coli vaccines, which are not within our control, and our ability to maintain strong, mutually beneficial relationships with those partners;

 

·      our ability to develop technological capabilities and expand our focus to broader markets for vaccines;

 

·      the availability, cost, delivery and quality of clinical and commercial grade materials produced by our own manufacturing facility or supplied by contract manufacturers and partners;

 

·      the timing, cost and uncertainty of obtaining regulatory approvals for product candidates;

 

·      our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors;

 

·      the validity of our patents and our ability to avoid intellectual property litigation, which can be costly and divert management time and attention; and

 

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·      the factors listed under the headings “Business,” “Risk Factors” and Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for the year ended December 31, 2010 and other reports that Celldex files with the Securities and Exchange Commission.

 

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

 

OVERVIEW

 

We are a biopharmaceutical company currently focusing on the development of several immunotherapy technologies. Our lead programs include rindopepimut (CDX-110), a vaccine that is expected to enter into Phase 3 development for glioblastoma multiforme in the second half of 2011 and CDX-011, an antibody-drug conjugate currently in a randomized Phase 2b trial for treatment of advanced breast cancer. We have additional programs at various stages of clinical and preclinical development, including (i) CDX-1127, a therapeutic human antibody candidate for cancer indications, (ii) CDX-1307 and CDX-1401, APC Targeting Technology™ programs, and (iii) CDX-301, an immune cell mobilizing agent.  We are currently resourcing our priority programs and supplement the development of additional programs through external collaborations and funding.

 

Our strategy is to develop and demonstrate proof-of-concept for our product candidates before leveraging their value through partnerships or, in appropriate situations, continuing late stage development through commercialization ourselves. Demonstrating proof-of-concept for a product candidate generally involves bringing it through Phase 1 clinical trials and one or more Phase 2 clinical trials so that we are able to demonstrate, based on human trials, good safety data for the product candidate and some data indicating its effectiveness. We thus leverage the value of our technology portfolio through corporate, governmental and non-governmental partnerships. This approach allows us to maximize the overall value of our technology and product portfolio while best ensuring the expeditious development of each individual product. Our current collaborations include the commercialization of an oral human rotavirus vaccine by our partner GlaxoSmithKline. Our product candidates address market opportunities for which we believe current therapies are inadequate or non-existent.

 

Our products are derived from a broad set of complementary technologies which have the ability to utilize the human immune system and enable the creation of preventative and therapeutic agents. We are using these technologies to develop targeted immunotherapeutics comprised of antibodies, adjuvants and monotherapies and antibody-drug conjugates that prevent or treat cancer and other diseases that modify undesirable activity by the body’s own proteins or cells. A number of our immunotherapeutic and antibody-drug conjugate product candidates are in various stages of clinical trials. We expect that a large percentage of our research and development expenses will be incurred in support of our current and future clinical trial programs.

 

The following table includes the programs that we currently believe are material to our business:

 

Product (generic)		Indication/Field		Partner		Status
CLINICAL
CDX-110 (rindopepimut)		Glioblastoma multiforme		—		Phase 2b
CDX-011 (glembatumumab vedotin)		Metastatic breast cancer and melanoma		—		Phase 2b
CDX-1307		Muscle-invasive bladder cancer		—		Phase 2
CDX-1401		Multiple solid tumors		—		Phase 1/2
PRECLINICAL
CDX-301		Cancer, autoimmune disease and transplant		—		Preclinical
CDX-1127		Immuno-modulation, multiple tumors		—		Preclinical
CDX-014		Renal and ovarian cancer		—		Preclinical
MARKETED PRODUCTS
Rotarix®		Rotavirus infection		GlaxoSmithKline		Marketed

 

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The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate. It is not unusual for the clinical development of these types of product candidates to each take five years or more, and for total development costs to exceed $100 million for each product candidate. Our estimates that clinical trials of the type we generally conduct are typically completed over the following timelines:

 

Clinical Phase		Estimated Completion Period
Phase 1		1 - 2 Years
Phase 2		1 - 5 Years
Phase 3		1 - 5 Years

 

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

 

·      the number of patients that ultimately participate in the trial;

 

·      the duration of patient follow-up that seems appropriate in view of results;

 

·      the number of clinical sites included in the trials;

 

·      the length of time required to enroll suitable patient subjects; and

 

·      the efficacy and safety profile of the product candidate.

 

We test potential product candidates in numerous preclinical studies for safety, toxicology and immunogenicity. We may then conduct multiple clinical trials for each product candidate. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates.

 

An element of our business strategy is to pursue the research and development of a broad portfolio of product candidates. This is intended to allow us to diversify the risks associated with our research and development expenditures. As a result, we believe our future capital requirements and our future financial success are not substantially dependent on any one product candidate. To the extent we are unable to maintain a broad range of product candidates, our dependence on the success of one or a few product candidates increases.

 

Regulatory approval is required before we can market our product candidates as therapeutic or vaccine products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the regulatory agency must conclude that our clinical data is safe and effective. Historically, the results from preclinical testing and early clinical trials (through Phase 2) have often not been predictive of results obtained in later clinical trials. A number of new drugs, biologics and vaccines have shown promising results in early clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

 

Furthermore, our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our development plan or capital requirements. Our programs may also benefit from subsidies, grants, contracts or government or agency-sponsored studies that could reduce our development costs.

 

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our research and development projects in a

 

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timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

 

During the past five years through December 31, 2010, we incurred an aggregate of $96.4 million in research and development expenses. The following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the six months ended June 30, 2011 and 2010. The amounts disclosed in the following table reflect direct research and development costs, license fees associated with the underlying technology and an allocation of indirect research and development costs to each program.

 

		Six Months Ended June 30,
		2011			2010
		(In thousands)
CLINICAL
Rindopepimut		$	2,075		$	598
CDX-011		2,229			2,221
CDX-1307		1,027			2,285
CDX-1401		1,245			1,451
PRECLINICAL & OTHER
CDX-301		559			2,964
CDX-1127		3,124			1,357
CDX-014		208			24
CDX-1135		2,038			416
Other Programs		1,516			2,378
Total R&D Expense		$	14,021		$	13,694

 

Clinical Development Programs

 

Rindopepimut (CDX-110)

 

Our lead clinical development program, rindopepimut, is a peptide-based immunotherapy that targets the tumor specific molecule called EGFRvIII, a functional variant of the naturally expressed epidermal growth factor receptor (“EGFR”), a protein which has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not present in normal tissues, and has been shown to be a transforming oncogene that can directly contribute to the cancer cell growth. EGFRvIII is commonly present in glioblastoma multiforme, or GBM, the most common and aggressive form of brain cancer, and has also been observed in various other cancers such as lung, liver, and head and neck cancer. The Food and Drug Administration (“FDA”) has granted orphan drug designation for rindopepimut for the treatment of EGFRvIII expressing GBM as well as fast track designation.

 

In April 2008, we and Pfizer Inc. (“Pfizer”) entered into a License and Development Agreement (the “Pfizer Agreement”) under which Pfizer was granted an exclusive worldwide license to rindopepimut. The Pfizer Agreement also gave Pfizer exclusive rights to the use of EGFRvIII vaccines in other potential indications. The Pfizer Agreement also provided for reimbursement by Pfizer of all costs incurred by us in connection with the collaboration since the effective date.

 

On September 1, 2010, we received written notice (the “Pfizer Notice”) from Pfizer of termination with respect to the Pfizer Agreement. The Pfizer Notice was given under a provision of the Pfizer Agreement which permitted termination at any time and for any reason, upon 60-days’ written notice to us. The Pfizer Notice did not state a reason for termination. In November 2010, the Pfizer Agreement was terminated (the “Pfizer Termination”) and all rights to rindopepimut were returned to us. Effective with the Pfizer Termination, Pfizer is no longer funding the development of rindopepimut.

 

The Phase 1 (VICTORI) and Phase 2a (ACTIVATE) studies of EGFRvIII immunotherapy were led by collaborating investigators at the Brain Center at Duke Comprehensive Cancer Center in Durham, North Carolina and at M.D. Anderson Cancer Center in Houston, Texas and enrolled 14 and 18 evaluable patients, respectively. An extension of the Phase 2a study (ACT II) at the same two institutions evaluated 22 additional GBM patients treated in combination with maintenance temozolomide (TMZ) (the current standard of care).

 

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We initiated a Phase 2b/3 randomized study (ACT III) of rindopepimut combined with standard of care, TMZ, versus standard of care alone in patients with GBM in over 30 sites throughout the United States. In December 2008, we announced an amendment to convert the ACT III study to a single-arm Phase 2 clinical trial in which all patients were to receive rindopepimut in combination with temozolomide. The decision, which followed the recommendation of the Independent Data Monitoring Committee, was based on the observation that the majority of patients randomized to the control (standard of care) arm withdrew from this open-label study after being randomized to the control arm. Patients participating in the control arm of the study were offered the option to receive treatment with rindopepimut. Under this amendment, the ACT III study provided for a multi-center, non-randomized dataset for rindopepimut in patients with newly diagnosed GBM.

 

In November 2010, we announced complete data for the primary endpoint of the 65 patients enrolled to receive rindopepimut in combination with maintenance TMZ in the ACT III study. The data showed that 43 of 65 patients (66%) were progression-free at 5.5 months after entry into the study. Taking into account the 3 to 3.5 months required to complete pre-study chemoradiation and enter into the study, the 5.5 month time point in ACT III corresponds to approximately 8.5 months after diagnosis. The ACTIVATE and ACT II trials, which were conducted in two leading centers, reported progression-free rates at 8.5 months after diagnosis of 70% and 80%, respectively, and similar results were seen in the ACT III trial, which enrolled patients in over 25 centers in the United States.

 

The following table summarizes the progression free survival (“PFS”) and overall survival (“OS”) rates from clinical trials of rindopepimut as reported in November 2010 as compared to matched historical controls and the standard of care.

 

		Median PFS from diagnosis (months)		Median OS from diagnosis (months)		OS at 24 months
ACT III (n=65)		12.3	(1)	24.3	(2)	50	%(2)
ACT II (n=22)		15.3		24.4		50	%
ACTIVATE (n=18)		14.2		24.6		50	%
Matched historical control (n=17)(3)		6.4		15.2		6	%
Standard of care radiation/TMZ (n=287)(4)		6.9		14.6		27	%

 

(1)           Change in median PFS not statistically significant from ACTIVATE and ACT II.

 

(2)           Overall survival data for ACT III are estimated and not yet final.

 

(3)           Sampson, et al. J. Clin. Oncol. 2010 Nov 1, 28(31), 4722-9. Historical controls were treated at M.D. Anderson and matched for eligibility (EGFRvIII-positive, KPS greater-than or equal to 80%, complete resection, radiation/TMZ and without progression through ~ 3 months post-diagnosis).

 

(4)           Stupp, et al. N. Engl. J. Med. 2005, 352, 987-96.

 

Importantly, rindopepimut showed a similar benefit in patients whether or not they expressed an active DNA repair gene (MGMT) that has been shown to limit the benefit from TMZ treatment. In ACT III, the number of patients who were expected to be resistant to the TMZ chemotherapy appeared to do better with vaccination than the numbers observed in the historical data. Patients who have an active DNA repair gene, MGMT (unmethylated), generally have a worse outcome, presumably because they do not gain much benefit from TMZ as reported in the literature. Patients with a methylated MGMT promoter in their tumor do not express MGMT and have a more favorable outcome to TMZ treatment. Patients with methylated tumors (n=25) that were treated with the rindopepimut regimen experienced a median PFS of 17.2 months, which compares favorably with the published data from the SOC of radiation plus TMZ (R+TMZ) of 10.3 months. Those with unmethylated tumors (n=40) treated with the rindopepimut regimen experienced a PFS of 11.2 months, which compared favorably to the PFS with SOC of 5.3 months in this patient population. Thus, rindopepimut would appear to benefit both methylated and unmethylated MGMT patients.

 

We are currently planning to initiate a pivotal Phase 3 randomized, multi-national, controlled study of rindopepimut in patients with newly-diagnosed, resected GBM in the fourth quarter of 2011.  We also plan to initiate a Phase 2 randomized

 

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study of rindopepimut alone or in combination with Avastin® in recurrent or refractory GBM patients in the fourth quarter of 2011.  In addition, researchers at Stanford University are conducting a pilot trial of rindopepimut in pediatric patients with pontine glioma in an Investigator Sponsored Trial.  Patient screening is ongoing for this trial.

 

Glembatumumab Vedotin (CDX-011)

 

CDX-011 is an antibody-drug conjugate (ADC) that consists of a fully- human monoclonal antibody, CR011, linked to a potent cell-killing drug, monomethyl-auristatin E (MMAE). The CR011 antibody specifically targets glycoprotein NMB or (GPNMB) that is expressed in a variety of human cancers including breast cancer and melanoma. The ADC technology, comprised of MMAE and a stable linker system for attaching it to CR011, was licensed from Seattle Genetics, Inc. The ADC is designed to be stable in the bloodstream. Following intravenous administration, CDX-011 targets and binds to GPNMB and upon internalization into the targeted cell, CDX-011 is designed to release MMAE from CR011 to produce a cell-killing effect.

 

Treatment of Breast Cancer:  In June 2008, an open-label, multi-center Phase 1/2 study was initiated of CDX-011 administered intravenously once every three weeks to patients with locally advanced or metastatic breast cancer who have received prior therapy (median of seven prior regimens). The study began with a bridging phase to confirm the maximum tolerated dose (“MTD”) and then expanded into a Phase 2 open-label, multi-center study.

 

The study confirmed the safety of CDX-011 at the pre-defined maximum dose level (1.88 mg/kg) in 6 patients. An additional 28 patients were enrolled as an expanded Phase 2 cohort (for a total of 34 treated patients at 1.88 mg/kg, the Phase 2 dose) to evaluate the PFS rate at 12 weeks. As previously seen in melanoma patients, the 1.88 mg/kg dose was well tolerated in this patient population with the most common adverse events of rash, alopecia, and fatigue. The primary activity endpoint, which called for at least 5 of 25 (20%) patients in the Phase 2 study portion to be progression-free at 12 weeks, was met as 9 of 26 (35%) evaluable patients were progression-free at 12 weeks.

 

For all patients treated at the maximum dose level, tumor shrinkage was seen in 62% (16/26) and median PFS was 9.1 weeks. A subset of 10 patients had “triple negative disease,” a more aggressive breast cancer subtype that carries a high risk of relapse and reduced survival as well as limited therapeutic options due to lack of over-expression of HER2/neu, estrogen and progesterone receptors. In these patients, 78% (7/9) had any tumor shrinkage, 12-week PFS rate was 70% (7/10), and median PFS was 17.9 weeks. Tumor samples from a subset of patients across all dose groups were analyzed for GPNMB expression. The tumor samples from most patients showed evidence of stromal and/or tumor cell expression of GPNMB. The most common treatment-related toxicities were fatigue, rash, nausea, alopecia (hair loss), neutropenia and vomiting.

 

In May 2010, the FDA granted Fast Track designation to CDX-011 for the treatment of advanced, refractory/resistant GPNMB-expressing breast cancer.

 

In September 2010, we initiated a randomized Phase 2b controlled study in patients with heavily pre-treated, advanced breast cancer whose tumors are confirmed to express GPNMB via a validated, centralized diagnostic assay. We expect that a significant portion of the enrolled patients will have triple-negative disease, since GPNMB is frequently expressed in this patient population. Patients will be randomized (2:1) to receive either CDX-011 or single-agent “Investigator’s Choice” chemotherapy. Activity endpoints will include objective response rate (“ORR”), PFS and OS. We expect to complete enrollment of 120 patients at approximately 20-25 clinical sites in the United States in 2011 with preliminary data expected in 2012.

 

Treatment of Metastatic Melanoma:  In June 2006, a Phase 1/2 open-label, multi-center, dose escalation study was initiated to evaluate the safety, tolerability and pharmacokinetics of CDX-011 for patients with un-resectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. A total of 117 patients were enrolled in this trial. The trial initially evaluated doses of CDX-011 between 0.03 mg/kg to 2.63 mg/kg given once every three weeks. CDX-011 was generally well tolerated, with rash and neutropenia emerging at higher doses. The MTD was determined to be 1.88 mg/kg administered intravenously (IV) once every three weeks.

 

The study achieved its primary activity objective with an ORR in the Phase 2 cohort of 15% (5/34). Median PFS was 3.9 months. CDX-011 was found to be active in advanced melanoma patients in the study. The most frequent treatment-related adverse events included rash, fatigue, alopecia (hair loss), pruritus, diarrhea and neuropathy.

 

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