4 Reasons This Biotech Went up by 400 Percent
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Celldex (NASDAQ: CLDX), the first antibody-based immunotherapy company, has been a strong buy recommended by several analysts for some time now. Obviously analysts were bang on target as the stock has gone up more than 51% in a matter of five days and gained an astounding 400% in 52 weeks. The stock is currently trading at around $20 a pop, up from about $4 a year ago.What is moving the stock like that?
Reason 1: Excellent financial position for a small biotech
Total shareholder equity of the company is $194.94 million, out of which $122.6 million was raised between January 2012 and March 2013. A milestone payment of $10 million was paid way back in 2008 from an affiliate of Paul Capital Healthcare, which came from the market launch of Rotarix, a rotavirus vaccine now marketed worldwide by GlaxoSmithKline.
As of March 31, 2013, the company had $182.38 million in cash and cash equivalents plus marketable securities. Out of total operating expenses of $58 million in 2012, $47.4 million was on R&D activities. The company registered a loss of $59.12 million in 2012 and $17.33 million in the quarter ended March 2013.
Reason 2: Rindopepimut for brain cancer
Rindopepimut, the most promising among its pipeline, is an experimental immunotherapy for treatment of glioblastoma (GB), a highly invasive tumor in the brain. The therapy targets EGFRv3, a specific oncogene that makes normal cells change into cancerous tumor cells. The therapy, which is in Phase III trials, has been designated as an orphan drug by both the FDA and EMA for treatment of GB. It also has a fast track designation from the FDA, which means the FDA understands its importance towards meeting an urgent need.
Reason 3: CDX-011 for breast cancer
However, Celldex’s candidate for breast cancer, CDX-011, may hold as much, if not more, promise than Rindopepimut. CDX-011 is an antibody drug conjugate comprising of a human monoclonal antibody linked to a potent cell-killing drug called MMAE. It targets GPNMB, the protein which causes breast cancer as well as melanoma and brain tumors. Phase II study of CDX-011 was completed in late 2012.
Data presented by the company supported significant benefit in overall survival as well as progression free survival in patients with triple negative breast cancer with high GPNMB. Advanced triple negative breast cancer normally does not respond well to treatment and response rates are very poor; generally 15% or less. The lead investigator in the study, Denise A. Yardley, said that “GPNMB is emerging as a potentially important marker in breast cancer and CDX-011 holds significant potential as a possible targeted therapy for triple negative patients, a patient population that currently has no targeted interventions”.
By the end of 2013 the company expects to begin enrollment for future clinical development of CDX-011. The study will compare CDX-011 with Xeloda from Genentech or Roche (NASDAQOTH: RHHBY). Xeloda is used to treat metastatic breast cancer, breast cancer that has not improved after treatment with other medications and colorectal cancer. Roche Holding, a member of the Roche Group, a Swiss pharmaceutical and holding company, is valued at $215.23 billion and has annual revenue of more than $51 billion and net income of $10.68 billion. Last year, Xeloda reported sales of $647 million in the US. This year, though, Xeloda's patent will expire, and it is already facing generic competition in some countries.
Reason 4: CDX-1135 – orphan drug for orphan disease
The current upsurge in Celldex stock may not only be because of the two pipeline products discussed above but may also be due to CDX-1135, which is in early stage study for dense deposit disease, a rare kidney disease whose prevalence is estimated to be 2-3 people in one million. Orphan drugs carry an ultra high price, and the recent upsurge in Celldex is partly due to an announcement last week of the first the dosing of a patient in a pilot study of the drug.
That investors love companies making drugs for orphan disease is evident from the example of Alexion Pharmaceuticals (NASDAQ: ALXN), a stock that gained more than 150% in the run up to and after approval of Soliris in September 2011. Soliris is a first-in-class drug approved for treatment of PNH, an ultra-rare, life-threatening blood disorder. It is also approved for aHUS, another ultra-rare, life-threatening genetic disease that can progressively damage vital organs, leading to stroke, heart attack, kidney failure and death. Launch of Soliris resulted in net income of the company jumping from $97 million in FY 2010 to $175 million in FY 2011 to $255 million in 2012. That story can be repeated for Celldex.
Celldex also has candidate drugs for lymphoma and multiple solid tumors, and a clinical program for stem cell transplantation, all of which are in early stage trials. However, the company should be able to come up with Phase I data and move these to Phase II within a short period of time.
With development stage biotech companies, growth potential matters more than revenues. However, it is difficult to estimate the value of a biotech company, particularly when bulls and bears are playing the market aggressively. All signs point to an overbought situation for Celldex.
On growth, while there are a lot of catalysts down the road, the current market price of Celldex stock assumes extremely high revenue from the three pipeline products discussed above. At the same time, the company presents promising assets in oncology which could be of interest to a large pharmaceutical company wanting to boost its oncology portfolio.
Dr. Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!