Celldex Therapeutics, Inc. - Quarter Report: 2017 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, 2017

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)	Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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, 2017, 135,985,329 shares of common stock, $.001 par value per share, were outstanding.

 

 

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CELLDEX THERAPEUTICS, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended September 30, 2017

 

Table of Contents

 

	Page
Part I — Financial Information
Item 1. Unaudited Financial Statements	3
Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016	4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	32
Part II — Other Information
Item 1A. Risk Factors	33
Item 5. Other Information	33
Item 6. Exhibits	33
Signatures	35
Exhibit Index	34

 

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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, 2017			December 31, 2016
ASSETS
Current Assets:
Cash and Cash Equivalents		$	54,735		$	42,461
Marketable Securities		85,795			147,315
Accounts and Other Receivables		3,013			1,784
Prepaid and Other Current Assets		3,774			4,009
Total Current Assets		147,317			195,569
Property and Equipment, Net		11,308			13,192
Intangible Assets, Net		67,815			81,487
Other Assets		2,002			2,134
Goodwill		90,976			90,976
Total Assets		$	319,418		$	383,358
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	1,278		$	1,740
Accrued Expenses		17,845			28,657
Current Portion of Long-Term Liabilities		5,792			4,826
Total Current Liabilities		24,915			35,223
Other Long-Term Liabilities		75,351			82,704
Total Liabilities		100,266			117,927
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, 2017 and December 31, 2016		—			—
Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 132,108,478 and 120,516,654 Shares Issued and Outstanding at September 30, 2017 and December 31, 2016, respectively		132			121
Additional Paid-In Capital		1,025,108			982,255
Accumulated Other Comprehensive Income		2,588			2,541
Accumulated Deficit		(808,676		)	(719,486		)
Total Stockholders’ Equity		219,152			265,431
Total Liabilities and Stockholders’ Equity		$	319,418		$	383,358

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

(In thousands, except per share amounts)

 

		Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
REVENUES:
Product Development and Licensing Agreements		$	1,238		$	493		$	2,488		$	1,551
Contracts and Grants		2,686			1,727			6,799			3,362
Total Revenues		3,924			2,220			9,287			4,913
OPERATING EXPENSES:
Research and Development		21,915			25,009			72,707			78,168
General and Administrative		5,346			6,950			19,109			24,049
In-Process Research and Development Impairment		13,000			—			13,000			—
Gain on Fair Value Remeasurement of Contingent Consideration		(4,600		)	—			(200		)	—
Amortization of Acquired Intangible Assets		224			254			672			760
Total Operating Expenses		35,885			32,213			105,288			102,977
Operating Loss		(31,961		)	(29,993		)	(96,001		)	(98,064		)
Investment and Other Income, Net		398			395			1,611			1,841
Net Loss Before Income Tax Benefit		(31,563		)	(29,598		)	(94,390		)	(96,223		)
Income Tax Benefit		5,200			—			5,200			—
Net Loss		$	(26,363	)	$	(29,598	)	$	(89,190	)	$	(96,223	)
Basic and Diluted Net Loss Per Common Share		$	(0.20	)	$	(0.29	)	$	(0.71	)	$	(0.97	)
Shares Used in Calculating Basic and Diluted Net Loss per Share		129,640			100,672			125,856			99,398
COMPREHENSIVE LOSS:
Net Loss		$	(26,363	)	$	(29,598	)	$	(89,190	)	$	(96,223	)
Other Comprehensive Income:
Unrealized Gain (Loss) on Marketable Securities		11			(113		)	47			303
Comprehensive Loss		$	(26,352	)	$	(29,711	)	$	(89,143	)	$	(95,920	)

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

(In thousands)

 

		Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
Cash Flows from Operating Activities:
Net Loss		$	(89,190	)	$	(96,223	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		3,392			2,135
Amortization of Intangible Assets		672			760
Amortization and Premium of Marketable Securities, Net		(171		)	768
Loss on Sale or Disposal of Assets		6			74
In-Process Research and Development Impairment		13,000			—
Gain on Fair Value Remeasurement of Contingent Consideration		(200		)	—
Income Tax Benefit		(5,200		)	—
Stock-Based Compensation Expense		9,728			11,709
Non-Cash Expense		—			1,638
Changes in Operating Assets and Liabilities:
Accounts and Other Receivables		(1,229		)	(609		)
Prepaid and Other Current Assets		525			(325		)
Other Assets		132			—
Accounts Payable and Accrued Expenses		(10,888		)	(11,560		)
Other Liabilities		(987		)	(1,054		)
Net Cash Used in Operating Activities		(80,410		)	(92,687		)
Cash Flows from Investing Activities:
Sales and Maturities of Marketable Securities		183,683			194,915
Purchases of Marketable Securities		(122,235		)	(149,877		)
Investment in Other		—			(1,801		)
Acquisition of Property and Equipment		(1,598		)	(2,113		)
Net Cash Provided by Investing Activities		59,850			41,124
Cash Flows from Financing Activities:
Net Proceeds from Stock Issuances		32,642			10,666
Proceeds from Issuance of Stock from Employee Benefit Plans		192			532
Net Cash Provided by Financing Activities		32,834			11,198
Net Increase (Decrease) in Cash and Cash Equivalents		12,274			(40,365		)
Cash and Cash Equivalents at Beginning of Period		42,461			72,108
Cash and Cash Equivalents at End of Period		$	54,735		$	31,743
Non-cash Investing Activities
Acquisition of Property and Equipment Included in Accounts Payable and Accrued Expenses		$	75		$	65
Non-cash Supplemental Disclosure
Shares Issued to Former Kolltan Executive for Settlement of Severance		$	302		$	—

 

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, 2017

 

(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. In June 2017, the Company liquidated its wholly-owned subsidiary, Celldex Therapeutics Europe GmbH. All intercompany balances and 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, 2016, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2017. 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 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, 2017.

 

At September 30, 2017, the Company had cash, cash equivalents and marketable securities of $140.5 million. The Company has had recurring losses and incurred a loss of $89.2 million for the nine months ended September 30, 2017. Net cash used in operations for the nine months ended September 30, 2017 was $80.4 million. The Company believes that the cash, cash equivalents and marketable securities at November 7, 2017 will be sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months from the date of issuance of these financial statements.

 

During the next twelve months and beyond, the Company will take further steps to raise additional capital to meet its liquidity needs. These capital raising activities may include, but may not be limited to, one or more of the following: the licensing of drug candidates 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 may 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 financings 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. The Company’s ability to continue funding its planned operations into and beyond twelve months from the issuance date is also dependent on the timing and manner of payment of future contingent milestones from the Kolltan acquisition, in the event that the Company achieves the drug candidate milestones related to those payments. The Company, at its option, may decide to pay those milestone payments in cash, shares of its common stock or a combination thereof. If the Company is unable to raise the funds necessary to meet its liquidity needs, it may have to delay or discontinue the development of one or more programs, discontinue or delay ongoing or anticipated clinical trials, license out programs earlier than expected, raise funds at a significant discount or on other unfavorable terms, if at all, or sell all or a part of the Company.

 

(2)  Significant Accounting Policies

 

The significant accounting policies used in preparation of these condensed consolidated financial statements on Form 10-Q for the quarterly period ended September 30, 2017 are consistent with those discussed in Note 2 to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016, except for the adoption of new accounting standards during the first nine months of 2017 as discussed below.

 

Newly-Adopted Accounting Pronouncements

 

On January 1, 2017, the Company adopted a new U.S. GAAP accounting standard which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company elected to continue to estimate forfeitures expected to occur to determine stock-based compensation expense. Upon adoption, the Company’s gross deferred tax assets and corresponding valuation allowance each increased by $17.7 million related to tax deductions from the exercise of stock options that previously would have been credited to additional paid-in-capital when realized.

 

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On January 1, 2017, the Company adopted a new U.S. GAAP accounting standard which simplifies how an entity is required to test goodwill for impairment. A goodwill impairment will be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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 consolidated financial statements upon adoption.

 

In May 2014, the FASB issued a new U.S GAAP accounting standard that updates guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-step model for recognizing revenue from contracts with customers. The core principle is that a company should recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard will be effective for the Company on January 1, 2018 and can be applied using one of two methods: retrospectively to each prior period presented or a modified retrospective application by recognizing a cumulative-effect adjustment as a component of equity as of the date of adoption. The Company expects to adopt the new revenue standard using the modified retrospective application method. During the fourth quarter of 2017, the Company plans to finalize its assessments over the impact that these standards may have on its consolidated financial statements and disclosures. As a result of adopting this standard, the Company plans to implement additional processes and controls, including additional disclosures, to comply with the new standard.

 

In February 2016, the FASB issued a new U.S. GAAP accounting standard which requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact that this standard may have on the Company’s consolidated financial statements.

 

In August 2016, the FASB issued new U.S. GAAP guidance which clarifies the classification of certain cash receipts and payments in the statement of cash flows. This standard is effective for the company on January 1, 2018. The adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

(3)  Fair Value Measurements

 

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

 

		As of September 30, 2017			Level 1			Level 2			Level 3
		(In thousands)
Assets:
Money market funds and cash equivalents		$	42,032		$	—		$	42,032		$	—
Marketable securities		85,795			—			85,795			—
		$	127,827		$	—		$	127,827		$	—
Liabilities:
Kolltan acquisition contingent consideration		$	44,000		$	—		$	—		$	44,000
		$	44,000		$	—		$	—		$	44,000

 

		As of December 31, 2016			Level 1			Level 2			Level 3
		(In thousands)
Assets:
Money market funds and cash equivalents		$	20,445		$	—		$	20,445		$	—
Marketable securities		147,315			—			147,315			—
		$	167,760		$	—		$	167,760		$	—
Liabilities:
Kolltan acquisition contingent consideration		$	44,200		$	—		$	—		$	44,200
		$	44,200		$	—		$	—		$	44,200

 

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The Company’s financial assets consist mainly of cash and cash equivalents and marketable securities and are classified as Level 2 within the valuation hierarchy. 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.

 

The following table reflects the activity for the Company’s contingent consideration liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2017 (in thousands):

 

		Other Long-Term Liabilities: Contingent Consideration
Balance at December 31, 2016		$	44,200
Fair value adjustments included in operating expenses		(200		)
Balance at September 30, 2017		$	44,000

 

The valuation technique used to measure fair value of the Company’s Level 3 liabilities, which consist of contingent consideration related to the acquisition of Kolltan in 2016 (Note 11), was primarily an income approach. The Company may be required to pay future consideration of up to $172.5 million that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. The significant unobservable inputs used in the fair value measurement of the contingent consideration are estimates including probability of success, discount rates and amount of time until the conditions of the milestone payments are met.

 

During the three and nine months ended September 30, 2017, the Company recorded a $4.6 million and a $0.2 million gain on fair value remeasurement of contingent consideration, respectively, primarily due to a reduction in fair value attributed to the milestones related to the Company’s anti-KIT program and partially offset by losses related to changes in discount rates and the passage of time affecting remaining milestones. The Company’s anti-KIT program includes CDX-0158 and CDX-0159, a variant of CDX-0158. CDX-0159 is being fully developed in-house with the intention of replacing CDX-0158 in clinical development. The Company expects manufacturing and IND-enabling efforts for CDX-0159 will be completed in 2018.

 

The Company did not have any transfers of assets or liabilities between the fair value measurement classifications during the nine months ended September 30, 2017.

 

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(4)  Marketable Securities

 

The following is a summary of marketable securities, classified as available-for-sale:

 

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(In thousands)
September 30, 2017
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	13,725		$	5		$	(3	)	$	13,727
Maturing after one year through three years		—			—			—			—
Total U.S. government and municipal obligations		$	13,725		$	5		$	(3	)	$	13,727
Corporate debt securities
Maturing in one year or less		$	72,078		$	3		$	(13	)	$	72,068
Maturing after one year through three years		—			—			—			—
Total corporate debt securities		$	72,078		$	3		$	(13	)	$	72,068
Total marketable securities		$	85,803		$	8		$	(16	)	$	85,795
December 31, 2016
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less		$	52,754		$	5		$	(12	)	$	52,747
Maturing after one year through three years		296			8			—			304
Total U.S. government and municipal obligations		$	53,050		$	13		$	(12	)	$	53,051
Corporate debt securities
Maturing in one year or less		$	94,320		$	—		$	(56	)	$	94,264
Maturing after one year through three years		—			—			—			—
Total corporate debt securities		$	94,320		$	—		$	(56	)	$	94,264
Total marketable securities		$	147,370		$	13		$	(68	)	$	147,315

 

The Company holds investment grade marketable securities and none were considered to be other-than-temporarily impaired as of September 30, 2017. Marketable securities include $0.3 million and $0.6 million in accrued interest at September 30, 2017 and December 31, 2016, respectively.

 

(5)  Intangible Assets and Goodwill

 

Intangible Assets, Net

 

The table below presents information for the Company’s finite-lived intangible assets that are subject to amortization and indefinite-lived intangible assets:

 

				September 30, 2017									December 31, 2016
		Estimated Life		Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
		(In thousands)
Finite-lived Intangible Assets:
License Rights		16 years		$	14,500		$	(7,175	)	$	7,325		$	14,500		$	(6,503	)	$	7,997
Indefinite-lived Intangible Assets:
IPR&D		Indefinite		60,490			—			60,490			73,490			—			73,490
Total Intangible Assets, Net				$	74,990		$	(7,175	)	$	67,815		$	87,990		$	(6,503	)	$	81,487

 

Indefinite-lived intangible assets consist of acquired in-process research and development (“IPR&D”) related to the development of glembatumumab vedotin acquired in connection with the CuraGen acquisition and the development of the anti-KIT program, CDX-3379 and the TAM programs acquired in connection with the Kolltan acquisition. As of September 30, 2017, no IPR&D asset had reached technological feasibility nor did any have alternative future uses.

 

The Company performs an impairment test on IPR&D assets at least annually, or more frequently if events or changes in circumstances indicate that IPR&D assets may be impaired. During the three and nine months ended September 30, 2017, the

 

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Company recorded a non-cash partial impairment charge of $13.0 million on the anti-KIT program IPR&D assets acquired from Kolltan. The Company determined that changes in projected development and regulatory timelines related to the anti-KIT program taken together constituted a triggering event that required the Company to evaluate the intangible asset for impairment. As part of this evaluation, the present value of probability adjusted estimated net future cash flows was used to determine the fair value of the program and compared to the carrying value of the program. As a result of this impairment assessment, the Company concluded that a non-cash partial impairment charge of $13.0 million on the anti-KIT program IPR&D asset acquired from Kolltan be recorded for the three and nine months ended September 30, 2017 for the amount the fair value of the anti-KIT program exceeded its carrying amount.

 

Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of such clinical trials or other failures to achieve a commercially viable product, and as a result, may recognize further impairment losses in the future.

 

Goodwill

 

There have been no changes to the carrying amount of goodwill during the nine months ended September 30, 2017. The Company performs an annual impairment test of goodwill as of July 1 each year. The Company tested goodwill for impairment as of July 1, 2017 and concluded that goodwill was not impaired.

 

(6) Other Long-Term Liabilities

 

Other long-term liabilities include the following:

 

		September 30, 2017			December 31, 2016
		(In thousands)
Deferred Rent		$	669		$	398
Net Deferred Tax Liabilities related to IPR&D		22,854			28,054
Deferred Income from Sale of Tax Benefits		8,940			9,436
Accrued Lease Restructuring		854			1,154
Long-Term Severance		100			539
Contingent Milestones		44,000			44,200
Deferred Revenue		3,726			3,749
Total		81,143			87,530
Less Current Portion		(5,792		)	(4,826		)
Long-Term Portion		$	75,351		$	82,704

 

In November 2015, December 2014, January 2014 and January 2013, the Company received approval from the New Jersey Economic Development Authority and agreed to sell New Jersey tax benefits of $9.8 million, $1.9 million, $1.1 million and $0.8 million to an independent third party for $9.2 million, $1.8 million, $1.0 million and $0.8 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. The Company recognized $0.0 million and $0.5 million in other income related to the sale of these tax benefits for the three and nine months ended September 30, 2017, respectively, and $0.0 million and $0.6 million during the three and nine months ended September 30, 2016, respectively.

 

In December 2016, the Company decided not to occupy the 11,500 square feet of expansion space (“Needham Expansion”) at its Needham, Massachusetts facility. The Company agreed to lease the Needham Expansion in August 2015 and the term of the lease expires in July 2020. In October 2017, the Company entered into a sublease agreement for the Needham Expansion. In March 2017, the Company terminated its lease in Branford, CT and consolidated its Connecticut operations in its New Haven, CT facility. The Company recorded restructuring expense of $0.2 million to general and administrative expense related to the Branford, CT lease termination. The activity related to accrued lease restructuring for the nine months ended September 30, 2017 is presented below (in thousands):

 

		Accrued Lease Restructuring
Balance at December 31, 2016		$	1,154
Expense		170
Payments		(470		)
Balance at September 30, 2017		$	854

 

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(7) Stockholders’ Equity

 

In May 2016, the Company and Cantor Fitzgerald & Co. (“Cantor”) entered into a controlled equity offering sales agreement (“2016 Cantor Agreement”) to allow the Company to issue and sell shares of its common stock having an aggregate offering price of up to $60.0 million from time to time through Cantor, acting as agent. During the nine months ended September 30, 2017, the Company issued 11,326,363 shares of its common stock under the 2016 Cantor Agreement resulting in net proceeds to the Company of $32.6 million, after deducting commission and offering expenses. At September 30, 2017, the Company had $11.7 million remaining in aggregate gross offering price available under the 2016 Cantor Agreement. In October 2017, the Company completed sales under the 2016 Cantor Agreement and issued 3,871,709 shares of its common stock resulting in net proceeds to the Company of $11.3 million.

 

(8)  Stock-Based Compensation

 

A summary of stock option activity for the nine months ended September 30, 2017 is as follows:

 

		Shares		Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term (In Years)
Options Outstanding at December 31, 2016		10,218,710		$	11.14		6.5
Granted		2,309,900		$	2.34
Exercised		—		$	—
Canceled		(945,792	)	$	9.21
Options Outstanding at September 30, 2017		11,582,818		$	9.54		5.9
Options Vested and Expected to Vest at September 30, 2017		11,460,583		$	9.59		5.8
Options Exercisable at September 30, 2017		7,360,799		$	11.05		4.1
Shares Available for Grant Under the 2008 Plan		7,780,663

 

The weighted average grant-date fair value of stock options granted during the nine month period ended September 30, 2017 was $1.57. Stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016 was recorded as follows:

 

		Three months ended September 30,						Nine months ended September 30,
		2017			2016			2017			2016
		(In thousands)
Research and development		$	1,546		$	2,042		$	5,310		$	5,866
General and administrative		1,193			1,754			4,418			5,843
Total stock-based compensation expense		$	2,739		$	3,796		$	9,728		$	11,709

 

The fair value of employee and director stock options granted during the three and nine month periods ended September 30, 2017 and 2016 were valued using the Black-Scholes option-pricing model with the following assumptions:

 

		Three months ended September 30,				Nine months ended September 30,
		2017		2016		2017		2016
Expected stock price volatility		76	%	76	%	76 — 77	%	70 — 77	%
Expected option term		6.0 years		6.0 years		6.0 years		6.0 years
Risk-free interest rate		2.0	%	1.4	%	2.0 — 2.3	%	1.4 — 1.6	%
Expected dividend yield		None		None		None		None

 

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(9) Accumulated Other Comprehensive Income

 

The changes in accumulated other comprehensive income, which is reported as a component of stockholders’ equity, for the nine months ended September 30, 2017 are summarized below:

 

		Unrealized (Loss) Gain on Marketable Securities			Foreign Currency Items			Total
		(In thousands)
Balance at December 31, 2016		$	(55	)	$	2,596		$	2,541
Other comprehensive gain		47			—			47
Balance at September 30, 2017		$	(8	)	$	2,596		$	2,588

 

No amounts were reclassified out of accumulated other comprehensive income during the nine months ended September 30, 2017.

 

(10)  Revenue

 

Rockefeller University (Rockefeller)

 

In 2013, the Company entered into an agreement, as amended, with Rockefeller pursuant to which the Company performs research and development services for Rockefeller. The Company bills Rockefeller quarterly for actual time and direct costs incurred and records those amounts to revenue in the quarter the services are performed. The Company recorded $0.3 million and $1.4 million in revenue related to the Rockefeller agreement during the three and nine months ended September 30, 2017, respectively, and $1.1 million and $1.8 million during the three and nine months ended September 30, 2016, respectively.

 

Bristol-Myers Squibb Company (BMS)

 

In 2014, the Company entered into a clinical trial collaboration with BMS to evaluate the safety, tolerability and preliminary efficacy of varlilumab and Opdivo®, 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 BMS and the Company amended the terms of the Company’s existing license agreement with Medarex, which was acquired by 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 antibody and anti-CD27 agonist antibody combination regimens. The clinical trial collaboration provides that the companies share development costs and that the Company will be responsible for conducting the ongoing Phase 1/2 study.

 

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 $5.0 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. The BMS payments are recognized as revenue under the CAPM. The Company recorded $0.9 million and $2.1 million in revenue related to the BMS agreement during the three and nine months ended September 30, 2017, respectively, and $0.5 million and $1.5 million during the three and nine months ended September 30, 2016, respectively.

 

International AIDS Vaccine Initiative (IAVI)

 

In 2017, the Company entered into an agreement with IAVI pursuant to which the Company performs research and development and manufacturing services for IAVI outlined under subsequently negotiated task orders. Revenue is recognized as services are performed under the negotiated task orders. The Company recorded $1.7 million and $4.0 million in revenue related to the IAVI agreement during the three and nine months ended September 30, 2017, respectively.

 

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Frontier Biotechnologies, Inc. (Frontier)

 

In 2017, the Company entered into an agreement with Frontier pursuant to which the Company performs research and development and manufacturing services for Frontier outlined under subsequently negotiated task orders. Revenue is recognized as services are performed under the negotiated task orders. The Company recorded $0.6 million in revenue related to the Frontier agreement during both the three and nine months ended September 30, 2017.

 

(11) Kolltan Acquisition

 

In connection with the Kolltan Acquisition, effective November 29, 2016, the Company issued 18,257,996 shares of common stock of the Company in exchange for all of the share and debt interests in Kolltan. The Company also agreed to issue an aggregate of 437,901 shares of its common stock, less tax withholdings, to certain former officers of Kolltan. During the nine months ended September 30, 2017, the Company issued 91,749 shares of its common stock and at September 30, 2017, the Company’s remaining obligation is to issue 125,123 shares of its common stock, less tax withholdings, related to this severance obligation. In addition, in the event that certain specified preclinical and clinical development milestones related to Kolltan’s development programs and/or Celldex’s development programs and certain commercial milestones related to Kolltan’s drug candidates are achieved, Celldex will be required to pay Kolltan’s stockholders milestone payments of up to $172.5 million, which milestone payments may be made, at Celldex’s sole election, in cash, in shares of Celldex’s common stock or a combination of both, subject to provisions of the Merger Agreement.

 

The transaction was accounted for as a business combination with Celldex treated as the accounting acquirer. All of the assets acquired and liabilities assumed in the transaction are recognized at their acquisition-date fair values, while transaction costs associated with the transaction are expensed as incurred.

 

Purchase Price

 

The purchase price for Kolltan was based on the acquisition-date fair value of the consideration transferred, which was calculated based on the closing price of the Company’s common stock of $4.02 per share on November 29, 2016. The acquisition-date fair value of the consideration transferred consisted of the following (in thousands):

 

Fair value of common stock issued for upfront payment		$	73,397
Fair value of contingent consideration		44,200
Kolltan transaction expenses paid in cash by the Company		3,768
Total consideration transferred		$	121,365

 

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Allocations of Assets and Liabilities

 

The Company has allocated the consideration transferred for Kolltan to net tangible assets, intangible assets, and goodwill. The difference between the aggregate consideration transferred and the fair value of assets acquired and liabilities assumed was allocated to goodwill. This goodwill relates to the potential synergies from the Kolltan Acquisition and deferred tax liabilities related to acquired IPR&D intangible assets. None of the goodwill is expected to be deductible for income tax purposes. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

 

Cash and cash equivalents		$	8,160
Other current and long-term assets		799
Property and equipment, net		2,072
In-process research and development (IPR&D)		61,690
Goodwill		82,011
Deferred tax liabilities, net		(23,393		)
Other assumed liabilities		(9,974		)
Total		$	121,365

 

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the acquired assets and liabilities. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.

 

Pro Forma Financial Information

 

If the operations of the Company and Kolltan were combined as of January 1, 2016, the unaudited pro forma net loss for the three and nine months ended September 30, 2016 would have been $35.5 million and $120.4 million, respectively, or $(0.30) and $(1.02) per share, respectively. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at that date or of the future operations of the combined entities.

 

(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’s wholly-owned subsidiary, Celldex Australia Pty Ltd, operates in Brisbane, Australia. 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, 2017 and December 31, 2016 against the Company’s net deferred tax assets.

 

As of September 30, 2017 and December 31, 2016, the Company had $22.9 million and $28.1 million of deferred tax liabilities, net recorded on the balance sheet primarily associated with temporary differences related to the Company’s IPR&D assets. The $5.2 million decrease in deferred tax liabilities, net during the three and nine months ended September 30, 2017 was due to the partial impairment of the anti-KIT program IPR&D assets.

 

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(13)  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:

 

		Nine months ended September 30,
		2017		2016
Stock options		11,582,818		10,150,598
Restricted stock		96,668		60,000
		11,679,486		10,210,598

 

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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 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 liquidity needs, on terms acceptable to us, or at all. If we are unable to raise the funds necessary to meet our liquidity needs, we may have to delay or discontinue the development of one or more programs, discontinue or delay ongoing 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 negotiate strategic partnerships, where appropriate, for our programs, which may include, glembatumumab vedotin;

 

·                  our ability to realize the anticipated benefits from the acquisition of Kolltan and to operate the combined business efficiently;

 

·                  our ability to manage multiple clinical trials for a variety of drug candidates at different stages of development;

 

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

 

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

 

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

 

·                  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;

 

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

 

·                  our ability to develop technological capabilities, including identification of novel and clinically important targets, exploiting our existing technology platforms to develop new drug 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;

 

·                  our ability to protect our intellectual property rights, including the ability to successfully defend patent oppositions filed against a 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, 2016 and other reports that we file with the Securities and Exchange Commission.

 

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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 and other cancer-targeting biologics. Our drug candidates, including antibodies, antibody-drug conjugates and other protein-based therapeutics, are derived from a broad set of complementary technologies which have the ability to engage the human immune system and/or directly inhibit tumors to treat specific types of cancer or other diseases.

 

Our latest stage drug candidate, glembatumumab vedotin (also referred to as CDX-011) is a targeted antibody-drug conjugate in a randomized, Phase 2b study for the treatment of triple negative breast cancer and a Phase 2 study for the treatment of metastatic melanoma. Varlilumab (also referred to as CDX-1127) is an immune modulating antibody that is designed to enhance a patient’s immune response against cancer. We established proof of principle in a Phase 1 study with varlilumab, which supported the initiation of combination studies in various indications. We also have a number of earlier stage drug candidates in clinical development, including CDX-3379, a human monoclonal antibody designed to block the activity of ErbB3 (HER3) in solid tumors; CDX-014, an antibody-drug conjugate targeting renal and ovarian cancers; CDX-1401, a targeted immunotherapeutic aimed at antigen presenting cells, or APCs, for cancer indications; and, CDX-301, an immune cell mobilizing agent and dendritic cell growth factor. 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 reflects Celldex-sponsored clinical studies that we are actively pursuing at this time. All programs are currently fully owned by Celldex.

 

Product (generic)		Indication/Field		Status		Sponsor
Glembatumumab vedotin		Triple negative breast cancer		Phase 2b		Celldex
Glembatumumab vedotin		Metastatic melanoma (with varlilumab or CPI1)		Phase 2		Celldex
Varlilumab		Multiple solid tumors (with nivolumab)		Phase 2		Celldex2
CDX-3379		Head and neck squamous cell cancer (with cetuximab)		Phase 23		Celldex
CDX-014		Renal cell carcinoma		Phase 1		Celldex
CDX-1140		Multiple solid tumors		Phase 13		Celldex

 

1checkpoint inhibitor; 2BMS collaboration; 3expected to initiate by year-end 2017

 

We also routinely work with external parties, such as government agencies, to collaboratively advance our drug candidates. The following pipeline reflects clinical trials of our drug candidates being actively pursued by outside organizations. In addition to the studies listed below, we also have an Investigator Initiated Research (IIR) program with seven studies ongoing with our drug candidates and additional studies currently under consideration.

 

Product (generic)		Indication/Field		Status		Sponsor
Glembatumumab vedotin		Uveal melanoma		Phase 2		NCI (CRADA)
Glembatumumab vedotin		Squamous cell lung cancer		Phase 2		PrECOG, LLC
CDX-1401/CDX-301		Malignant melanoma		Phase 2		NCI (CRADA)
CDX-1401/atezolizumab/SGI-110		Ovarian cancer		Phase 1		NCI (CRADA)

 

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

 

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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. 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 are 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.

 

During the past five years through December 31, 2016, we incurred an aggregate of $422.1 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, 2017 and 2016. 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.

 

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		Nine Months Ended September 30,
		2017			2016
		(In thousands)
Glembatumumab vedotin		$	26,240		$	20,577
Varlilumab		11,956			22,777
Anti-KIT Program		3,223			—
CDX-3379		3,611			—
CDX-014		1,925			3,059
CDX-1401		617			3,804
CDX-301		1,058			3,402
CDX-1140		5,788			1,642
TAM Program		3,914			—
Rintega		1,429			14,624
Other Programs		12,946			8,283
Total R&D Expense		$	72,707		$	78,168

 

Clinical Development Programs

 

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, melanoma, non-small cell lung cancer, uveal melanoma and osteosarcoma, among others. 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. Glembatumumab vedotin is being studied across multiple indications in company-sponsored trials and in collaborative studies with external parties. The U.S. Food and Drug Administration, or FDA, has granted Fast Track designation to glembatumumab vedotin for the treatment of advanced, refractory/resistant gpNMB-expressing breast cancer. A companion diagnostic is in development for certain indications, and we expect that, if necessary, such a companion diagnostic must be approved by the FDA or certain other foreign regulatory agencies before glembatumumab vedotin may be commercialized in those indications.

 

Treatment of Metastatic 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 (MBC) who had received prior therapy (median of seven prior regimens). Results were published in the Journal of Clinical Oncology in September 2014. 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 supported an acceptable safety profile of glembatumumab vedotin at the pre-defined maximum dose level (1.88 mg/kg) in 6 patients. An additional 28 patients with MBC 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 progression-free survival (PFS) rate at 12 weeks. The 1.88 mg/kg dose exhibited an acceptable safety profile in this patient population with the most common adverse events being rash, neuropathy and fatigue. The primary anti-cancer 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 27 (33%) evaluable patients were progression-free at 12 weeks. For all patients treated at the Phase 2 dose, median PFS was 9.1 weeks.

 

A subset of 10 patients had “triple negative disease,” a more aggressive metastatic breast cancer subtype that carries a high risk of relapse and reduced survival as well as limited therapeutic options. In these patients, the 12-week PFS rate was 60% (6/10), 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.

 

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The subsequent EMERGE study was a randomized, multi-center Phase 2b study of glembatumumab vedotin in 124 patients with heavily pre-treated, advanced, gpNMB-positive breast cancer. Results from EMERGE were published in the Journal of Clinical Oncology in April 2015. Patients were randomized (2:1) to receive either glembatumumab vedotin or single-agent Investigator’s Choice chemotherapy. Patients randomized to receive Investigator’s Choice were allowed to cross over to receive glembatumumab vedotin following disease progression. Activity endpoints included response rate, PFS and overall survival (OS). The final study results, as shown below, suggested that glembatumumab vedotin induced significant response rates compared to currently available therapies in patient subsets with advanced, refractory breast cancers with high gpNMB expression (expression in at least 25% of tumor cells) and in patients with triple negative breast cancer. The OS and PFS of patients treated with glembatumumab vedotin were also observed to be greatest in patients with high gpNMB expression and, in particular, in patients with triple negative breast cancer who also had high gpNMB expression.

 

EMERGE: Overall Response Rate and Disease Control Data (Intent-to-Treat Population)

 

		High gpNMB Expression				Triple Negative and gpNMB Over-Expression
		Glembatumumab Vedotin		Investigator’s Choice		Glembatumumab Vedotin		Investigator’s Choice
		(n=23)		(n=11)		(n=10)		(n=6)
Response Rate		30	%	9	%	40	%	0	%
Disease Control Rate		65	%	27	%	90	%	17	%

 

Tumor response assessed by RECIST 1.1, inclusive of response observed at a single time point.

 

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

 

		High gpNMB Expression				Triple Negative and gpNMB Over-Expression
		Glembatumumab Vedotin		Investigator’s Choice		Glembatumumab Vedotin		Investigator’s Choice
Median PFS (months)		2.8		1.5		3.5		1.5
		p=0.18				p=0.0017
Median OS (months)		10.0		5.7		10.0		5.5
		p=0.31				p=0.003

 

In December 2013, we initiated METRIC, a randomized, controlled Phase 2b study of glembatumumab vedotin in patients with triple negative breast cancer that over-expresses gpNMB. Clinical trial study sites were opened to enrollment across the U.S., Canada, Australia and the European Union. The METRIC protocol was amended in late 2014 based on feedback from clinical investigators conducting the study that the eligibility criteria for study entry were limiting their ability to enroll patients they felt were clinically appropriate. In addition, we had spoken to country-specific members of the European Medicines Agency, or EMA, and believed an opportunity existed to expand the study into the EU. The amendment expanded patient entry criteria to position it for the possibility of full marketing approval with global regulators, including the EMA, and to support improved enrollment in the study. The primary endpoint of the study is PFS, defined as the time from randomization to the earlier of disease progression or death due to any cause. PFS is an established endpoint for full approval registration studies in this patient population in both the U.S. and the EU. The sample size (n=300) and the secondary endpoint of OS remained unchanged. Since implementation of these changes, both the FDA and central European regulatory authorities have reviewed the protocol design, and we believe the METRIC study could potentially support marketing approval in both the U.S. and Europe dependent upon data results and review.

 

Enrollment (n=327) in METRIC was completed in August 2017. The study calls for 203 progression events for evaluation of the primary endpoint, which will be assessed based on an independent, central reading of patient scans. The sum of the data, including the secondary endpoints of response rate, overall survival, duration of response and safety, will be important in assessing clinical benefit. Based on the current rate of progression events in the study, the Company projects that topline primary endpoint data should be available in the second quarter of 2018.

 

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