Celldex Therapeutics, Inc. - Quarter Report: 2014 September (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 September 30, 2014

 

OR

 

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

 

Commission File Number: 000-15006

 

CELLDEX THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Perryville III Building, 53 Frontage Road, Suite 220, Hampton, New Jersey 08827

 (Address of principal executive offices) (Zip Code)

 

(908) 200-7500

(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 October 31, 2014, 89,589,105 shares of common stock, $.001 par value per share, were outstanding.

 

 

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CELLDEX THERAPEUTICS, INC.

 

FORM 10-Q

 

Quarter Ended September 30, 2014

 

Table of Contents

 

	Page
Part I—Financial Information
Item 1. Unaudited Financial Statements	3
Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2014 and 2013	4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
Item 4. Controls and Procedures	26
Part II — Other Information
Item 1A. Risk Factors	26
Item 6. Exhibits	27
Signatures	28
Exhibit Index	29

 

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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)

 

		September 30, 2014			December 31, 2013
ASSETS
Current Assets:
Cash and Cash Equivalents		$	32,525		$	169,402
Marketable Securities		191,553			133,581
Accounts and Other Receivables		2,905			489
Prepaid and Other Current Assets		2,842			1,717
Total Current Assets		229,825			305,189
Property and Equipment, Net		10,716			9,973
Intangible Assets, Net		22,060			22,820
Other Assets		99			148
Goodwill		8,965			8,965
Total Assets		$	271,665		$	347,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	1,720		$	2,243
Accrued Expenses		17,703			17,179
Current Portion of Long-Term Liabilities		2,191			928
Total Current Liabilities		21,614			20,350
Other Long-Term Liabilities		10,679			6,950
Total Liabilities		32,293			27,300
Commitments and Contingent Liabilities
Stockholders’ Equity:
Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; No Shares Issued and Outstanding at September 30, 2014 and December 31, 2013		—			—
Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 89,436,933 and 89,246,832 Shares Issued and Outstanding at September 30, 2014 and December 31, 2013, respectively		89			89
Additional Paid-In Capital		668,596			662,717
Accumulated Other Comprehensive Income		2,624			2,668
Accumulated Deficit		(431,937		)	(345,679		)
Total Stockholders’ Equity		239,372			319,795
Total Liabilities and Stockholders’ Equity		$	271,665		$	347,095

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPRENHENSIVE LOSS

(Unaudited)

 

(In thousands, except per share amounts)

 

		Three Months Ended						Nine Months Ended
		September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
REVENUE:
Product Development and Licensing Agreements		$	284		$	40		$	518		$	117
Contracts and Grants		817			940			1,591			1,040
Product Royalties		—			—			—			2,334
Total Revenue		1,101			980			2,109			3,491
OPERATING EXPENSE:
Research and Development		26,185			20,417			77,355			49,597
Royalty		—			—			—			2,334
General and Administrative		5,004			3,578			14,373			10,128
Amortization of Acquired Intangible Assets		254			254			760			760
Total Operating Expense		31,443			24,249			92,488			62,819
Operating Loss		(30,342		)	(23,269		)	(90,379		)	(59,328		)
Investment and Other Income, Net		2,260			142			4,121			682
Interest Expense		—			(13		)	—			(842		)
Net Loss		$	(28,082	)	$	(23,140	)	$	(86,258	)	$	(59,488	)
Basic and Diluted Net Loss Per Common Share (Note 3)		$	(0.31	)	$	(0.29	)	$	(0.97	)	$	(0.76	)
Shares Used in Calculating Basic and Diluted Net Loss per Share (Note 3)		89,404			81,015			89,346			78,676
COMPREHENSIVE LOSS:
Net Loss		$	(28,082	)	$	(23,140	)	$	(86,258	)	$	(59,488	)
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments		(3		)	—			(4		)	(3		)
Unrealized Gain (Loss) on Marketable Securities		(121		)	138			(40		)	(56		)
Comprehensive Loss		$	(28,206	)	$	(23,002	)	$	(86,302	)	$	(59,547	)

 

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)

 

		Nine Months Ended
		September 30, 2014			September 30, 2013
Cash Flows from Operating Activities:
Net Loss		$	(86,258	)	$	(59,488	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		1,764			1,422
Amortization of Intangible Assets		760			760
Amortization and Premium of Marketable Securities		(754		)	(1,232		)
Realized Gain on Sales and Maturities of Marketable Securities		(11		)	—
Gain on Sale or Disposal of Assets		—			(21		)
Stock-Based Compensation Expense		4,719			3,400
Non-Cash Interest Expense		—			97
Changes in Operating Assets and Liabilities:
Accounts and Other Receivables		(2,416		)	(846		)
Prepaid and Other Current Assets		(1,428		)	(1,457		)
Other Assets		49			267
Accounts Payable and Accrued Expenses		(740		)	2,954
Other Liabilities		4,992			1,432
Net Cash Used in Operating Activities		(79,323		)	(52,712		)
Cash Flows from Investing Activities:
Sales and Maturities of Marketable Securities		89,215			30,679
Purchases of Marketable Securities		(146,159		)	(92,400		)
Acquisition of Property and Equipment		(1,766		)	(1,901		)
Proceeds from Sale or Disposal of Assets		—			21
Net Cash Used in Investing Activities		(58,710		)	(63,601		)
Cash Flows from Financing Activities:
Net Proceeds from Stock Issuances		—			114,187
Proceeds from Issuance of Stock from Employee Benefit Plans		1,160			2,931
Payments of Term Loan		—			(11,029		)
Payments of Other Liabilities		—			(44		)
Net Cash Provided by Financing Activities		1,160			106,045
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(4		)	(3		)
Net Decrease in Cash and Cash Equivalents		(136,877		)	(10,271		)
Cash and Cash Equivalents at Beginning of Period		169,402			24,897
Cash and Cash Equivalents at End of Period		$	32,525		$	14,626

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2014

 

(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, 2013, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 3, 2014.  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 condensed 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, 2014.

 

At September 30, 2014, the Company had cash, cash equivalents and marketable securities of $224.1 million.  The Company incurred a loss of $86.3 million for the nine months ended September 30, 2014.  Net cash used in operations for the nine months ended September 30, 2014 was $79.3 million. The Company believes that the cash, cash equivalents and marketable securities at September 30, 2014 will be sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

During the next twelve months, the Company may take further steps to raise additional capital to meet its long-term liquidity needs.  These capital raising activities may include, but may not be 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.

 

(2)  Significant Accounting Policies

 

The significant accounting policies used in preparation of these condensed consolidated financial statements for the nine months ended September 30, 2014 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, 2013.

 

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 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 May 2014, the FASB issued a new U.S. GAAP accounting standard that creates modifications to various other revenue accounting standards for specialized transactions and industries. The new U.S. GAAP accounting standard is intended to conform revenue accounting principles with a concurrently issued new standard under International Financial Reporting Standards, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Early adoption is not permitted. The Company will further study the implications of this standard in order to evaluate the expected impact on the consolidated financial statements.

 

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In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The new accounting standard requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

 

(3)  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:

 

		Three and Nine Months Ended September 30,
		2014		2013
Stock options		6,999,421		6,077,377
Restricted stock		9,000		9,000
		7,008,421		6,086,377

 

(4)  Comprehensive Loss

 

The changes in Accumulated Other Comprehensive Income by component for the three and nine months ended September 30, 2014 are summarized below. No amounts were reclassified out of accumulated other comprehensive income during the three or nine months ended September 30, 2014.

 

		Unrealized Gain (Loss) on Marketable Securities, net of tax			Foreign Currency Items			Total
		(In thousands)
Balance at June 30, 2014		$	163		$	2,585		$	2,748
Other comprehensive income (loss) before reclassifications		(121		)	(3		)	(124		)
Amounts reclassified from other comprehensive income		—			—			—
Net current-period other comprehensive income		(121		)	(3		)	(124		)
Balance at September 30, 2014		$	42		$	2,582		$	2,624
Balance at December 31, 2013		$	82		$	2,586		$	2,668
Other comprehensive income (loss) before reclassifications		(40		)	(4		)	(44		)
Amounts reclassified from other comprehensive income		—			—			—
Net current-period other comprehensive income		(40		)	(4		)	(44		)
Balance at September 30, 2014		$	42		$	2,582		$	2,624

 

(5)  Fair Value Measurements

 

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

 

		As of September 30, 2014			Level 1			Level 2			Level 3
		(In thousands)
Money market funds and cash equivalents		$	27,995		$	—		$	27,995		$	—
Marketable securities		191,553			—			191,553			—
		$	219,548		$	—		$	219,548		$	—

 

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		As of December 31, 2013			Level 1			Level 2			Level 3
		(In thousands)
Money market funds and cash equivalents		$	148,549		$	—		$	148,549		$	—
Marketable securities		133,581			—			133,581			—
		$	282,130		$	—		$	282,130		$	—

 

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 and accounts payable. The Company values its marketable securities utilizing independent pricing services which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based on significant observable transactions. At each balance sheet date, observable market inputs 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.

 

(6)  Marketable Securities

 

A summary of marketable securities is shown below:

 

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
September 30, 2014
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	40,198		$	43		$	(5	)	$	40,236
Maturing after one year through three years		30,293			67			(9		)	30,351
Total U.S. government and municipal obligations		$	70,491		$	110		$	(14	)	$	70,587
Corporate debt securities
Maturing in one year or less		$	92,510		$	20		$	(34	)	$	92,496
Maturing after one year through three years		28,510			2			(42		)	28,470
Total corporate debt securities		$	121,020		$	22		$	(76	)	$	120,966
Total marketable securities		$	191,511		$	132		$	(90	)	$	191,553
December 31, 2013
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	55,531		$	27		$	(4	)	$	55,554
Maturing after one year through three years		18,234			56			(4		)	18,286
Total U.S. government and municipal obligations		$	73,765		$	83		$	(8	)	$	73,840
Corporate debt securities
Maturing in one year or less		$	38,973		$	9		$	(9	)	$	38,973
Maturing after one year through three years		20,761			12			(5		)	20,768
Total corporate debt securities		$	59,734		$	21		$	(14	)	$	59,741
Total marketable securities		$	133,499		$	104		$	(22	)	$	133,581

 

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 September 30, 2014. Marketable securities include $1.2 million and $0.9 million in accrued interest at September 30, 2014 and December 31, 2013, respectively.

 

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(7)  Intangible Assets and Goodwill

 

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

 

				September 30, 2014									December 31, 2013
		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			$	(4,484	)	10,016			14,500			$	(3,812	)	10,688
Core Technology		11 years		1,296			(1,052		)	244			1,296			(964		)	332
Total Intangible Assets				$	27,596		$	(5,536	)	$	22,060		$	27,596		$	(4,776	)	$	22,820
Goodwill		Indefinite		$	8,965		—			$	8,965		$	8,965		—			$	8,965

 

The IPR&D intangible asset was recorded in connection with the acquisition of CuraGen and relates to the development of glembatumumab vedotin.  At the date of acquisition and at September 30, 2014, glembatumumab vedotin had not yet reached technological feasibility nor did it have any alternative future use.  Glembatumumab vedotin is in a randomized study for the treatment of triple negative breast cancer.

 

The Company performed an annual impairment test of the IPR&D and goodwill assets as of July 1, 2014 and concluded that the IPR&D and goodwill assets were not impaired.

 

(8) Other Long-Term Liabilities

 

Other long-term liabilities include the following:

 

		September 30, 2014			December 31, 2013
		(In thousands)
Deferred Rent		$	499		$	419
Net Deferred Tax Liability related to IPR&D		4,661			4,661
Deferred Income from Sale of Tax Benefits		2,253			1,630
Deferred Revenue		5,457			1,168
Total		12,870			7,878
Less Current Portion		(2,191		)	(928		)
Long-Term Portion		$	10,679		$	6,950

 

In January 2014, 2013, 2012 and 2011, the Company received approval from the New Jersey Economic Development Authority and agreed to sell New Jersey tax benefits worth $1.1 million, $0.8 million, $0.8 million and $0.6 million to an independent third party for $1.0 million, $0.8 million, $0.7 million and $0.5 million, respectively.  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.  During the nine months ended September 30, 2014 and 2013, the Company recorded $0.4 million and $0.2 million to other income related to the sale of these tax benefits, respectively.

 

In September 2013, the Company entered into an agreement with Rockefeller University pursuant to which the Company will perform research and development services for Rockefeller.  The agreement includes an approved project plan for the development services of $4.8 million and a term of three years.  The agreement included an upfront payment of $1.3 million which is being recognized as revenue over the term of the agreement.  The Company will bill Rockefeller quarterly for actual time and direct costs incurred and record those amounts to revenue in the quarter the services are performed.  The Company recorded revenue related to the Rockefeller agreement of $0.8 million and $0.9 million during the three months ended September 30, 2014 and 2013 and $1.5 million and $0.9 million during the nine months ended September 30, 2014 and 2013, respectively.

 

In May 2014, the Company entered into a clinical trial collaboration with Bristol-Myers Squibb Company (“BMS”) to evaluate the safety, tolerability and preliminary efficacy of varlilumab and nivolumab, BMS’s PD-1 immune checkpoint inhibitor, in a Phase 1/2 study.  Under the terms of this clinical trial collaboration, BMS made a one-time payment to the Company of $5.0 million and the companies amended the terms of the Company’s existing license agreement with Medarex (a subsidiary of BMS) related to the Company’s CD27 program whereby certain future milestone payments were waived and future royalty rates were reduced that may have been due from the Company to Medarex.  In return, BMS was granted a time-limited right of first negotiation if the Company wishes to out-license varlilumab. The companies also agreed to work exclusively with each other to explore anti-PD-1 antagonist

 

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antibody and anti-CD27 agonist antibody combination regimens. The clinical trial collaboration provides that the companies will share development costs and that the Company will be responsible for conducting the Phase 1/2 study, which is expected to begin in the fourth quarter of 2014.

 

The Company has determined that its performance obligations under the BMS agreement, which primarily include performing research and development, supplying varlilumab and participating in the joint development committee, should be accounted for as a single unit of accounting and estimated that its performance period under the BMS agreement would be 5 years.  Accordingly, the $5 million up-front payment was initially recorded as deferred revenue and is being recognized as revenue on a straight-line basis over the estimated 5-year performance period using the Contingency Adjusted Performance Model (“CAPM”).  The BMS agreement also provides for BMS to reimburse the Company for 50% of the external costs incurred by the Company in connection with the clinical trial.  These BMS payments will be recognized as revenue under the CAPM.  The Company recorded $0.3 million and $0.4 million in revenue related to the BMS agreement during the three and nine months ended September 30, 2014, respectively.

 

(9) Stockholders’ Equity

 

During the nine months ended September 30, 2013, the Company issued 2,433,608 shares of its common stock under its controlled equity offering sales agreement with Cantor Fitzgerald & Co., as amended, resulting in net proceeds to the Company of $17.1 million, after deducting commission and offering expenses.

 

During the nine months ended September 30, 2013, the Company issued 13,800,000 shares of its common stock in an underwritten public offering resulting in net proceeds to the Company of $97.0 million, after deducting underwriting fees and offering expenses.

 

In October 2014, the Company entered into an amended and restated supply agreement with Biosyn Corporation.  Under the supply agreement, Biosyn will manufacture and supply keyhole limpet hemocyanin (KLH) to the Company for use in connection with the development, manufacture or commercial sale of rindopepimut.  In connection with the supply agreement, the Company issued to Biosyn 152,172 shares of its common stock having a value of $2.0 million.

 

(10)  Stock-Based Compensation

 

A summary of stock option activity for the nine months ended September 30, 2014 is as follows:

 

		Shares		Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term (In Years)
Options Outstanding at December 31, 2013		5,770,544		$	8.17		7.0
Granted		1,405,350		$	13.65
Exercised		(167,303	)	$	6.04
Canceled		(9,170	)	$	10.70
Options Outstanding at September 30, 2014		6,999,421		$	9.32		7.0
Options Vested and Expected to Vest at September 30, 2014		6,937,665		$	9.28		7.0
Options Exercisable at September 30, 2014		3,878,159		$	6.92		5.4
Shares Available for Grant under the 2008 Plan		694,762

 

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2014 was $8.81 per share. Stock-based compensation expense for the three and nine months ended September 30, 2014 and 2013 was recorded as follows:

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2014			2013			2014			2013
		(In thousands)
Research and development		$	977		$	1,326		$	2,315		$	2,190
General and administrative		981			690			2,404			1,210
Total stock-based compensation expense		$	1,958		$	2,016		$	4,719		$	3,400

 

The fair values of employee and director stock options granted during the three and nine months ended September 30, 2014 and 2013 were valued using the Black-Scholes option-pricing model with the following assumptions:

 

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		Three Months Ended September 30,				Nine Months Ended September 30,
		2014		2013		2014		2013
Expected stock price volatility		72	%	72	%	71 - 72	%	72	%
Expected option term		6.0 years		6.0 years		6.0 years		6.0 years
Risk-free interest rate		2.1 - 2.2	%	1.9 - 2.0	%	2.1 - 2.2	%	1.2 - 2.0	%
Expected dividend yield		None		None		None		None

 

(11)  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 not currently under examination by any 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 federal and state deferred tax assets and, as a result, a full valuation allowance was maintained at September 30, 2014 and December 31, 2013 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 research and further development, including animal, preclinical and clinical studies, and, if we obtain regulatory approval, commercialization of rindopepimut (also referred to as CDX-110), glembatumumab vedotin (also referred to as CDX-011), and other drug candidates and the growth of the markets for those drug candidates;

 

·                  our ability to raise sufficient capital to fund our clinical studies and to meet our long-term liquidity needs, on terms acceptable to us, or at all. If we are unable to raise the funds necessary to meet our long-term liquidity needs, we 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, if at all, or sell all or part of our business;

 

·                  our ability to manage multiple clinical trials for a variety of drug candidates at different stages of development, including ACT IV and ReACT for rindopepimut and METRIC for glembatumumab vedotin;

 

·                  the cost, timing, scope and results of ongoing safety and efficacy trials of rindopepimut, glembatumumab vedotin, and other preclinical and clinical testing;

 

·                  our ability to fund and complete the development and, if we obtain regulatory approval, to commercialize rindopepimut in North America ourselves;

 

·                  our ability to negotiate strategic partnerships, where appropriate, for our programs, which may include rindopepimut outside of North America, glembatumumab vedotin and varlilumab (also referred to as CDX-1127);

 

·                  our ability to develop technological capabilities, including identification of novel and clinically important targets, exploiting our existing technology platforms to develop new product candidates and expand our focus to broader markets for our existing targeted immunotherapeutics;

 

·                  our ability to adapt our proprietary antibody-targeted technology, or APC Targeting Technology™, to develop new, safe and effective therapeutics for oncology and infectious disease indications;

 

·                  the availability, cost, delivery and quality of clinical and commercial grade materials produced by our own manufacturing facility or supplied by contract manufacturers, suppliers and partners, who may be the sole source of supply;

 

·                  the availability, cost, delivery and quality of clinical management services provided by our clinical research organization partners;

 

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

 

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

 

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·                  our ability to protect our intellectual property rights, including the ability to successfully defend patent oppositions filed against an European patent related to technology we use in varlilumab, and our ability to avoid intellectual property litigation, which can be costly and divert management time and attention; and

 

·                  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, 2013 and other reports that we file 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 focused on the development and commercialization of several immunotherapy technologies for the treatment of cancer and other difficult-to-treat diseases. Our drug candidates are derived from a broad set of complementary technologies which have the ability to utilize the human immune system and enable the creation of 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.

 

Our lead drug candidates include rindopepimut (also referred to as CDX-110) and glembatumumab vedotin (also referred to as CDX-011). Rindopepimut is a targeted immunotherapeutic in a pivotal Phase 3 study for the treatment of front-line glioblastoma and a Phase 2 study for the treatment of recurrent glioblastoma. Glembatumumab vedotin is a targeted antibody-drug conjugate in a randomized study for the treatment of triple negative breast cancer designed to obtain accelerated approval. We also have a number of earlier stage drug candidates in clinical development, including varlilumab (also referred to as CDX-1127), a fully human therapeutic monoclonal antibody for cancer indications, CDX-301, an immune cell mobilizing agent and dendritic cell growth factor and CDX-1401, a targeted immunotherapeutic aimed at antigen presenting cells, or APC, for cancer indications. Our drug candidates address market opportunities for which we believe current therapies are inadequate or non-existent.

 

We are building a fully integrated, commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medical needs. Our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorable economic terms through advantageous commercial 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.

 

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

 

Product (generic)		Indication/Field		Partner		Status
CLINICAL
Rindopepimut		Front-line glioblastoma		—		Phase 3
Glembatumumab vedotin		Metastatic breast cancer and melanoma		—		Phase 2b
Rindopepimut		Recurrent glioblastoma		—		Phase 2
Varlilumab		Lymphoma/leukemia and solid tumors		—		Phase 1
CDX-1401		Multiple solid tumors		—		Phase 1
CDX-301		Allogeneic Hematopoietic Stem Cell Transplantation		—		Pilot
PRECLINICAL
CDX-014		Ovarian and renal cancer		—		Preclinical

 

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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. We estimate 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 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 and biologics 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, it is difficult to accurately 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 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.

 

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During the past five years through December 31, 2013, we incurred an aggregate of $201.1 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 nine months ended September 30, 2014 and 2013. 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.

 

		Nine Months Ended September 30,
		2014			2013
		(In thousands)
Rindopepimut		$	39,846		$	28,144
Glembatumumab vedotin		20,948			7,695
Varlilumab		6,721			6,944
CDX-1401		3,379			497
CDX-301		910			344
CDX-014		2,220			706
Other Programs		3,331			5,267
Total R&D Expense		$	77,355		$	49,597

 

Clinical Development Programs

 

Rindopepimut

 

Rindopepimut is an immunotherapeutic that targets the tumor-specific molecule epidermal growth factor receptor variant III, or EGFRvIII. EGFRvIII is a mutated form of the epidermal growth factor receptor, or EGFR, that is only expressed in cancer cells and not in normal tissue and can directly contribute to cancer cell growth. EGFRvIII is expressed in approximately 30% of glioblastoma multiforme, or GBM, tumors, the most common and aggressive form of brain cancer. Rindopepimut is composed of the EGFRvIII peptide linked to a carrier protein called Keyhole Limpet Hemocyanin, or KLH, and administered together with the adjuvant GM-CSF. The Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA, have both granted orphan drug designation for rindopepimut for the treatment of EGFRvIII expressing GBM. The FDA has also granted Fast Track designation.

 

The Phase 2a study of rindopepimut referred to as ACTIVATE was 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 18 evaluable GBM patients. An extension of the Phase 2a study referred to as ACT II evaluated 22 additional GBM patients treated in combination with the current standard of care, maintenance temozolomide, or TMZ, at the same two institutions.

 

The Phase 2b study of rindopepimut referred to as ACT III combined rindopepimut with standard of care, TMZ, in patients with newly diagnosed GBM. The ACT III study provided for a multi-center, non-randomized dataset for rindopepimut in 65 patients at over 30 sites throughout the United States.

 

In November 2013, we announced the four- and five-year survival data from the 105 patients enrolled in the three Phase 2 rindopepimut clinical studies (ACTIVATE, ACT II and ACT III) in EGFRvIII-positive GBM. Across these three Phase 2 studies of rindopepimut, survival data remains consistent and suggests a continuing survival benefit in comparison to independent control datasets (see chart below) at the median and at all other time points evaluated.

 

Phase 2 Frontline Long-term Overall Survival Assessments

 

		Median, Years (95% CI)		2-year rate		3-year rate		4-year rate		5-year rate
Phase 2 rindopepimut studies (n=105)		2.1 (1.8, 2.4	)	51	%	30	%	18	%	14	%
Matched historical control (n=17)(1)		1.3 (0.9, 1.7	)	6	%	6	%	0	%	0	%

 

(1)                                 Patients treated at M.D. Anderson contemporaneously to ACTIVATE, matched for major eligibility requirements, including EGFRvIII-positive GBM, gross total resection and no disease progression through chemoradiation treatment.

 

The pooled overall long-term survival results continue to be consistent with the ACT III Phase 2 study (18% for 4-years and 14% for 5-years).

 

In December 2011, we initiated ACT IV, a pivotal, randomized, double-blind, controlled Phase 3 study of rindopepimut in patients with surgically resected, EGFRvIII-positive GBM. Patients are randomized after the completion of surgery and standard

 

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chemoradiation treatment. The treatment regimen includes a rindopepimut priming phase post-radiation followed by an adjuvant TMZ phase and a rindopepimut maintenance therapy phase. Patients are treated until disease progression or intolerance to therapy. The primary objective of the study is to determine whether rindopepimut plus adjuvant GM-CSF improves the overall survival of patients with newly diagnosed EGFRvIII-positive GBM with minimal residual disease post resection and traditional chemo-radiation when compared to treatment with TMZ and a control injection of KLH. KLH is a component of rindopepimut and was selected due to its ability to generate a similar injection site reaction to that observed with rindopepimut. ACT IV is enrolling patients at over 200 centers worldwide and is expected to accrue approximately 700 patients to reach the required 374 patients with minimal residual disease needed for analysis of the primary endpoint, overall survival. All patients, including patients with disease that exceed this threshold will be included in the analysis of secondary endpoints including progression-free survival, safety and tolerability, neurologic status and quality of life. In October 2014 target enrollment (n=700) was reached. Given the lack of treatment options for patients with GBM, additional patients with the EGFRvIII mutation remaining in screening will be allowed to enroll into the study before enrollment is formally completed by year end 2014.  Interim analyses will be conducted by an independent Data Safety and Monitoring Board at 50% and 75% of events (deaths). The first interim is expected in the mid-2015 and will provide insight into the event rate to inform estimates regarding timing for the second interim and final data read out.

 

In December 2011, we also initiated ReACT, a Phase 2 study of rindopepimut in combination with Avastin® in patients with recurrent EGFRvIII-positive GBM. ReACT was initially planned to enroll approximately 95 patients in a first or second relapse of GBM following receipt of standard therapy at approximately 25 sites across the United States. In August 2013, we announced the addition of an expansion cohort of approximately 75 patients (Group 2C) to better characterize the potential activity of rindopepimut in this refractory patient population. This decision was based on early evidence of anti-tumor activity, including stable disease, tumor shrinkage and investigator-reported response. As amended, the ReACT study will now enroll approximately 170 patients across three groups. Approximately 70 patients (Group 1) who have yet to receive Avastin will be randomized to receive either rindopepimut and Avastin or a control injection of KLH and Avastin in a blinded fashion. Another 100 patients, including the expansion cohort of 75 patients, who are refractory to Avastin having received Avastin in either the frontline or recurrent setting with subsequent progression will receive rindopepimut plus Avastin in a single treatment arm. Study endpoints include 6 month progression free survival rate, objective response rate, or ORR, overall survival and safety and tolerability.

 

In November 2013, we reported interim data from our ongoing Phase 2 ReACT study. Rindopepimut plus Avastin was very well tolerated (dosing up to 13+ months) and the results demonstrated promising signs of clinical activity in advanced patient populations, including evidence of anti-tumor activity (tumor shrinkage, objective response and stable disease). Strong immune response correlated with improved outcome. In Avastin-naïve patients treated with both rindopepimut and Avastin, a strong survival trend has also been seen to date versus the control group (see chart below).

 

Interim ReACT Overall Survival and Progression-free Survival in Avastin-Naïve Recurrent GBM

 

		Rindopepimut & Avastin (n=20)		Control & Avastin (n=20)		Hazard Ratio
Overall survival		12.0 months		7.9 months		0.43 (0.13, 1.44)
				p=0.16
Progression-free survival		3.7 months		2.0 months		0.74 (0.34, 1.61)
				P=0.47

 

In Avastin-refractory patients treated with both rindopepimut and Avastin, a median progression-free survival, or PFS, of 1.9 months and an overall survival, or OS, of 5.6 months was observed. The median overall survival of 5.6 months is noteworthy in these heavily pre-treated, refractory EGFRvIII-positive patients. A review of the literature assessing survival in recurrent patients who are Avastin-experienced across eight independent studies suggests a weighted-average survival of 3.6 months (range of 2.6 to 5.8 months) in all-comers. It is important to note that these eight studies do not necessarily meet the strict definition of refractory applied in the ReACT study and that these studies included EGFRvIII-negative patients who tend to perform better. Progression-free survival results in this refractory population may be more consistent with the profile of an immunotherapy candidate where progression-free survival does not always correlate directly with an overall survival benefit.

 

Enrollment to Group 1 (Avastin-naïve patients) and enrollment of the first 23 patients in Group 2C (Avastin-refractory patients) is complete. Group 2C is designed as a two-stage cohort; evidence of anti-tumor activity in the first 23 patients will trigger full completion of enrollment to this arm of the study. Updated data from the study will be presented at the 19th Annual Scientific Meeting and Education Day of the Society for Neuro-Oncology in November of 2014.

 

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Glembatumumab Vedotin

 

Glembatumumab vedotin is an antibody-drug conjugate, or ADC, that consists of a fully-human monoclonal antibody, CR011, linked to a potent cell-killing drug, monomethyl-auristatin E, or MMAE. The CR011 antibody specifically targets glycoprotein NMB, referred to as gpNMB, that is over-expressed in a variety of cancers including breast cancer and melanoma.  In September 2014, a U.S. patent covering the composition of matter of the CR011 antibody used in glembatumumab vedotin was issued.  The ADC technology, comprised of MMAE and a stable linker system for attaching it to CR011, was licensed from Seattle Genetics, Inc. and is the same as that used in the marketed product Adcetris®. The ADC is designed to be stable in the bloodstream. Following intravenous administration, glembatumumab vedotin targets and binds to gpNMB and upon internalization into the targeted cell, glembatumumab vedotin is designed to release MMAE from CR011 to produce a cell-killing effect. The FDA has granted Fast Track designation to glembatumumab vedotin for the treatment of advanced, refractory/resistant gpNMB-expressing breast cancer.

 

Treatment of Breast Cancer:  The Phase 1/2 study of glembatumumab vedotin administered intravenously once every three weeks evaluated patients with locally advanced or metastatic breast cancer who had received prior therapy (median of seven prior regimens). The study began with a bridging phase to confirm the maximum tolerated dose, or MTD, and then expanded into a Phase 2 open-label, multi-center study. The study confirmed the safety of glembatumumab vedotin at the pre-defined maximum dose level (1.88 mg/kg) in 6 patients. An additional 28 patients were enrolled in 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. 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 some 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.

 

In December 2012, we announced final results from the EMERGE study, a randomized, multi-center Phase 2b study of glembatumumab vedotin in 122 patients with heavily pre-treated, advanced, gpNMB positive breast cancer. Patients were randomized (2:1) to receive either glembatumumab vedotin or single-agent Investigator’s Choice, or IC, chemotherapy. Patients randomized to receive IC were allowed to cross over to receive glembatumumab vedotin following disease progression. Activity endpoints included response rate, PFS and OS. The final results, as shown below, suggested that glembatumumab vedotin induces significant response rates compared to currently available therapies in patient subsets with advanced, refractory breast cancers with gpNMB over-expression (expression in greater than 25% of tumor cells) and in patients with triple negative breast cancer. The OS and PFS of patients treated with glembatumumab vedotin was also observed to be greatest in patients with triple negative breast cancer who also over-express gpNMB and all patients with gpNMB over-expression.

 

EMERGE: Overall Response Rate and Disease Control Data

 

		gpNMB Over-Expression				Triple Negative and gpNMB Over-Expression
		glembatumumab vedotin		Investigator Choice		glembatumumab vedotin		Investigator Choice
		(n=25)		(n=8)		(n=12)		(n=4)
Response		32	%	13	%	33	%	0	%
Disease Control Rate		64	%	38	%	75	%	25	%

 

Responses per RECIST 1.1; IC = Investigator’s Choice; glembatumumab vedotin arm includes 15 patients who crossed over to receive glembatumumab vedotin treatment after progression on IC. Analysis of best response excludes patients who discontinued from study without evaluable post-baseline radiographic imaging (n=15 for glembatumumab vedotin arm; n=5 for IC arm).

 

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EMERGE: Progression Free Survival (PFS) and Overall Survival (OS) Data

 

		gpNMB Over-Expression				Triple Negative and gpNMB Over-Expression
		glembatumumab vedotin		Investigator Choice		glembatumumab vedotin		Investigator Choice
Median PFS (months)		2.7		1.5		3.0		1.5
		p=0.14				p=0.008
Median OS (months)		10.0		5.7		10.0		5.5
		p=0.18				p=0.003

 

When cross over patients are removed, median OS in patients with gpNMB over-expression is 10.0 months for glembatumumab vedotin vs 5.2 months for IC (p=0.05) and median OS in triple negative patients with gpNMB over- expression is 10.0 months for glembatumumab vedotin vs 5.2 months for IC (p=0.009).

 

In December 2013, we initiated METRIC, a randomized, controlled study of glembatumumab vedotin in patients with triple negative breast cancer that over-express gpNMB in the United States, Canada and Australia. The study was originally designed to obtain accelerated approval. Feedback from clinical investigators conducting the study indicated that the eligibility criteria for study entry were limiting their ability to enroll patients they felt were clinically appropriate on study. In addition, we have spoken to country-specific members of the European Medicines Agency, or EMA, and believe a significant opportunity exists to expand the study into the EU. Based on these factors, we have amended the METRIC study and expanded patient entry criteria to position it for full marketing approval with global regulators, including the EMA, and to support improved enrollment in the study. The primary endpoint will be PFS as PFS is an established endpoint for full approval registration studies in this patient population in both the US and the EU. The sample size (n=300) and the secondary endpoint of OS remain unchanged. The Company is implementing these changes in parallel to regulatory discussions to maintain momentum at open clinical trial sites. Based on current projections, we believe enrollment will likely extend into 2016.

 

Treatment of Metastatic Melanoma:  The Phase 1/2 open-label, multi-center, dose escalation study evaluated the safety, tolerability and pharmacokinetics of glembatumumab vedotin in 117 patients with un-resectable Stage III or Stage IV melanoma who had failed no more than one prior line of cytotoxic therapy. The MTD was determined to be 1.88 mg/kg administered intravenously 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. Glembatumumab vedotin was generally well tolerated, with the most frequent treatment-related adverse events being rash, fatigue, hair loss, pruritus, diarrhea and neuropathy. In the subset of patients with tumor biopsies, high levels of tumor expression of gpNMB appeared to correlate with favorable outcome. In the seven patients whose tumors were found to express high amounts of gpNMB, and who were treated at the maximum tolerated doses across all dosing schedules, median PFS was 4.9 months. The development of rash, which may be associated with the presence of gpNMB in the skin also seemed to correlate with greater PFS.

 

We are currently exploring conducting additional clinical studies in indications known to express gpNMB. A Phase 2 study in metastatic melanoma is expected to be initiated in the fourth quarter of 2014. Assay optimization and validation for a Phase 2 study in squamous cell lung cancer is expected to be completed by year-end and the study will commence soon after. We have also entered into a Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute, or NCI, under which NCI will sponsor two studies of glembatumumab vedotin—one in uveal melanoma and one in pediatric osteosarcoma. We will provide support for these studies.

 

Varlilumab

 

Varlilumab is a human monoclonal antibody that targets CD27, a potentially important target for immunotherapy of various cancers. We have entered into license agreements with the University of Southampton, UK for intellectual property related to uses of anti-CD27 antibodies and with Medarex (now a subsidiary of the Bristol-Myers Squibb Company, or BMS) for access to the UltiMab technology to develop and commercialize human antibodies to CD27. Our licensed rights from the University of Southampton include issued U.S. and European patents and pending patent applications in Japan and Canada relating to the technology used in varlilumab. If and where issued and maintained to full term in due course, these would have estimated patent expiry dates in 2027. We have filed further patent applications in the U.S. and major international territories which, if issued and maintained to full term in due course, would have estimated patent expiry dates in 2031. In July 2013, the United States Patent and Trademark Office issued a patent to the University of Southampton, that we have exclusive license to under our license agreement, which broadly supports varlilumab. The patent includes 18 claims covering various methods of treating cancer using agonistic anti-human CD27 antibodies and relates, among other things, directly to our CD27 antibody program and therapeutic uses of varlilumab. In September 2014, two European patent

 

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