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Table of Contents

 

 

 

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 March 31, 2012

 

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)

 

Delaware

 

No. 13-3191702

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

119 Fourth Avenue, Needham, Massachusetts 02494

(Address of principal executive offices) (Zip Code)

 

(781) 433-0771

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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 April 26, 2012, 58,735,636 shares of common stock, $.001 par value per share, were outstanding.

 

 

 



Table of Contents

 

CELLDEX THERAPEUTICS, INC.

 

FORM 10-Q

 

Quarter Ended March 31, 2012

 

Table of Contents

 

 

Page

 

 

Part I—Financial Information

 

 

 

Item 1. Unaudited Financial Statements

3

 

 

Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2012 and 2011

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

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

24

 

 

Item 4. Controls and Procedures

24

 

 

Part II — Other Information

 

 

 

Item 1A. Risk Factors

24

 

 

Item 6. Exhibits

25

 

 

Signatures

26

 

 

Exhibit Index

27

 

2



Table of Contents

 

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)

 

 

 

March 31, 2012

 

December 31, 2011

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and Cash Equivalents

 

$

22,755

 

$

11,899

 

Marketable Securities

 

69,374

 

41,413

 

Accounts and Other Receivables

 

140

 

170

 

Prepaid and Other Current Assets

 

1,967

 

1,202

 

Total Current Assets

 

94,236

 

54,684

 

Property and Equipment, Net

 

8,447

 

9,093

 

Intangible Assets, Net

 

24,632

 

24,923

 

Other Assets

 

460

 

329

 

Goodwill

 

8,965

 

8,965

 

Total Assets

 

$

136,740

 

$

97,994

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts Payable

 

$

535

 

$

935

 

Accrued Expenses

 

6,359

 

7,008

 

Current Portion of Long-Term Liabilities

 

358

 

219

 

Current Portion of Term Loan

 

5,294

 

6,136

 

Total Current Liabilities

 

12,546

 

14,298

 

Term Loan, less Current Portion

 

9,890

 

9,008

 

Other Long-Term Liabilities

 

6,418

 

5,966

 

Total Liabilities

 

28,854

 

29,272

 

 

 

 

 

 

 

Commitments and Contingent Liabilities

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; No Shares Issued and Outstanding at March 31, 2012 and December 31, 2011

 

 

 

Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 58,735,636 and 44,210,636 Shares Issued and Outstanding at March 31, 2012 and December 31, 2011, respectively

 

59

 

44

 

Additional Paid-In Capital

 

323,587

 

271,032

 

Accumulated Other Comprehensive Income

 

2,762

 

2,652

 

Accumulated Deficit

 

(218,522

)

(205,006

)

Total Stockholders’ Equity

 

107,886

 

68,722

 

Total Liabilities and Stockholders’ Equity

 

$

136,740

 

$

97,994

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3



Table of Contents

 

CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31, 2012

 

March 31, 2011

 

REVENUE:

 

 

 

 

 

Product Development and Licensing Agreements

 

$

35

 

$

14

 

Contracts and Grants

 

54

 

 

Product Royalties

 

2,344

 

2,502

 

Total Revenue

 

2,433

 

2,516

 

 

 

 

 

 

 

OPERATING EXPENSE:

 

 

 

 

 

Research and Development

 

10,769

 

6,853

 

Royalty

 

2,344

 

2,502

 

General and Administrative

 

2,317

 

2,336

 

Amortization of Acquired Intangible Assets

 

291

 

483

 

Total Operating Expense

 

15,721

 

12,174

 

 

 

 

 

 

 

Operating Loss

 

(13,288

)

(9,658

)

Investment and Other Income, Net

 

205

 

84

 

Interest Expense

 

(433

)

(485

)

Net Loss

 

$

(13,516

)

$

(10,059

)

 

 

 

 

 

 

Basic and Diluted Net Loss Per Common Share (Note 3)

 

$

(0.27

)

$

(0.31

)

 

 

 

 

 

 

Shares Used in Calculating Basic and Diluted Net Loss per Share (Note 3)

 

50,145

 

32,047

 

 

 

 

 

 

 

COMPREHENSIVE LOSS:

 

 

 

 

 

Net Loss

 

$

(13,516

)

$

(10,059

)

Other Comprehensive (Loss) Income:

 

 

 

 

 

Foreign Currency Translation Adjustments

 

2

 

(4

)

Unrealized Gain on Marketable Securities

 

108

 

13

 

Comprehensive Loss

 

$

(13,406

)

$

(10,050

)

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4



Table of Contents

 

CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31, 2012

 

March 31, 2011

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net Loss

 

$

(13,516

)

$

(10,059

)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

 

 

 

 

 

Depreciation and Amortization

 

544

 

562

 

Amortization of Intangible Assets

 

291

 

483

 

Amortization and Premium of Marketable Securities

 

(373

)

244

 

Realized (Gain) Loss on Sales and Maturities of Marketable Securities

 

(4

)

5

 

Loss (Gain) on Sales or Disposal of Assets

 

23

 

(55

)

Stock-Based Compensation Expense

 

641

 

580

 

Non-Cash Interest Expense

 

57

 

135

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

Accounts and Other Receivables

 

30

 

81

 

Prepaid and Other Current Assets

 

(672

)

(162

)

Other Assets

 

(131

)

(37

)

Accounts Payable and Accrued Expenses

 

(1,049

)

(929

)

Other Liabilities

 

606

 

288

 

Net Cash Used in Operating Activities

 

(13,553

)

(8,864

)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Sales and Maturities of Marketable Securities

 

5,912

 

8,653

 

Purchases of Marketable Securities

 

(33,388

)

(3,245

)

Acquisition of Property and Equipment

 

(42

)

(202

)

Proceeds from Sales or Disposal of Assets

 

11

 

64

 

Net Cash (Used in) Provided by Investing Activities

 

(27,507

)

5,270

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Net Proceeds from Stock Issuances

 

51,929

 

 

Issuance of Term Loan

 

 

5,000

 

Payment of Convertible Subordinated Debt

 

 

(12,503

)

Payments of Other Liabilities

 

(15

)

(46

)

Net Cash Provided by (Used in) Financing Activities

 

51,914

 

(7,549

)

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

2

 

(4

)

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

10,856

 

(11,147

)

Cash and Cash Equivalents at Beginning of Period

 

11,899

 

21,287

 

Cash and Cash Equivalents at End of Period

 

$

22,755

 

$

10,140

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5



Table of Contents

 

CELLDEX THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2012

 

(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, 2011, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2012.  In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary to fairly state the Company’s financial position and results of operations for the interim periods presented.  The year-end consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future interim period or the fiscal year ending December 31, 2012.

 

At March 31, 2012, the Company had cash, cash equivalents and marketable securities of $92.1 million; working capital of $81.7 million; and a Term Loan balance of $15.2 million. The Company incurred a loss of $13.5 million for the three months ended March 31, 2012.  Net cash used in operations for the three months ended March 31, 2012 was $13.6 million.  The Company believes that the cash, cash equivalents and marketable securities at March 31, 2012 will be sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

The Company raised net proceeds of $51.9 million during the three months ended March 31, 2012 from the sale of its common stock.  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. If the Company is unable to raise the funds necessary to meet its long-term liquidity needs, it may have to delay or discontinue the development of one or more programs, discontinue or delay on-going or anticipated clinical trials, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, 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 for the three months ended March 31, 2012 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, 2011, except for the adoption of new accounting standards during the first three months of 2012 as discussed below.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

 

In January 2012, the Company adopted a new U.S. GAAP accounting standard which amended the guidance on the annual testing of goodwill for impairment. The amended guidance allows companies to assess qualitative factors to determine if it is more-

 

6



Table of Contents

 

likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under U.S. GAAP.  The Company’s adoption of this new standard did not have a material effect on its operating results or financial position.

 

In January 2012, the Company adopted a new U.S. GAAP accounting standard which clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs.  The Company’s adoption of this standard did not have a material impact on its operating results or financial position.

 

(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:

 

 

 

As of March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Stock options

 

4,311,999

 

3,727,434

 

Restricted stock

 

3,000

 

4,669

 

 

 

4,314,999

 

3,732,103

 

 

(4)  Fair Value Measurements

 

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

 

 

 

As of
March 31, 2012

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Money market funds and cash equivalents

 

$

21,723

 

$

21,723

 

 

 

Marketable securities

 

$

69,374

 

 

$

69,374

 

 

 

 

$

91,097

 

$

21,723

 

$

69,374

 

 

 

 

 

As of
December 31, 2011

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Money market funds and cash equivalents

 

$

11,038

 

$

11,038

 

 

 

Marketable securities

 

$

41,413

 

 

$

41,413

 

 

 

 

$

52,451

 

$

11,038

 

$

41,413

 

 

 

There have been no transfers of assets or liabilities between the fair value measurement classifications. The Company’s financial instruments consist mainly of cash and cash equivalents, marketable securities, short-term accounts receivable, accounts payable and debt obligations. 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.  Our Term Loan is valued based on level 2 inputs.  Based on these calculations, the fair value approximates the carrying value of the Term Loan and note payable at March 31, 2012.

 

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Table of Contents

 

(5) Marketable Securities

 

A summary of marketable securities is shown below:

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In thousands)

 

March 31, 2012

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government and municipal obligations

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

20,637

 

$

28

 

$

 

$

20,665

 

Maturing after one year through three years

 

21,837

 

117

 

4

 

21,950

 

Total U.S. government and municipal obligations

 

$

42,474

 

$

145

 

$

4

 

$

42,615

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

19,219

 

$

17

 

$

1

 

$

19,235

 

Maturing after one year through three years

 

7,508

 

24

 

8

 

7,524

 

Total corporate debt securities

 

$

26,727

 

$

41

 

$

9

 

$

26,759

 

Total marketable securities

 

$

69,201

 

$

186

 

$

13

 

$

69,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government and municipal obligations

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

19,993

 

$

20

 

$

 

$

20,013

 

Maturing after one year through three years

 

10,808

 

122

 

6

 

10,924

 

Total U.S. government and municipal obligations

 

$

30,801

 

$

142

 

$

6

 

$

30,937

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

5,817

 

$

3

 

$

4

 

$

5,816

 

Maturing after one year through three years

 

4,730

 

2

 

72

 

4,660

 

Total corporate debt securities

 

$

10,547

 

$

5

 

$

76

 

$

10,476

 

Total marketable securities

 

$

41,348

 

$

147

 

$

82

 

$

41,413

 

 

The Company classifies all of its marketable securities as current assets on the consolidated balance sheets because they are available-for-sale and available to fund current operations. 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 March 31, 2012.

 

(6)  Intangible Assets and Goodwill

 

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

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

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

 

$

(2,242

)

12,258

 

14,500

 

$

(2,018

)

12,482

 

Core Technology

 

4.5 - 11 years

 

1,948

 

(1,374

)

574

 

1,948

 

(1,307

)

641

 

Total Intangible Assets

 

 

 

$

28,248

 

$

(3,616

)

$

24,632

 

$

28,248

 

$

(3,325

)

$

24,923

 

Goodwill

 

Indefinite

 

$

8,965

 

 

$

8,965

 

$

8,965

 

 

$

8,965

 

 

The IPR&D and Amgen Amendment intangible assets relate to the CDX-011 program and were acquired in connection with the Company’s acquisition of CuraGen Corporation in 2009.  The Core Technology intangible asset primarily relates to the rindopepimut program and was acquired in connection with the Company’s acquisition of Alteris Therapeutics, Inc. in 2005.

 

8



Table of Contents

 

(7) Term Loan

 

In December 2010, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC (MidCap) pursuant to which the Company borrowed $10 million (the “Term Loan”) from MidCap. In March 2011, as the Company had anticipated, the Company amended the Loan Agreement and borrowed an additional $5 million from General Electric Capital Corporation (GECC) (collectively with MidCap, the “Lenders”) to increase the amount owed under the Term Loan to $15 million. No additional advances are available under the Loan Agreement. The Term Loan accrues interest at a fixed annual interest rate equal to the greater of (i) the sum of (A) the LIBOR Rate (as defined in the Loan Agreement) plus (B) 6.25%; or (ii) a minimum rate of 9.50%. In September 2011, the Company exercised an option to extend the interest-only period by 6 months from October 1, 2011 to April 1, 2012. In March 2012, the Company amended the Loan Agreement to extend the maturity date from December 2013 to December 2014 in return for an upfront fee of $25,000 and an additional fee of $37,500 (the “Final Payment Fee”) due upon repayment of the Term Loan in full.

 

Interest on the Term Loan is payable monthly and principal is due, as amended, in 34 equal consecutive monthly installments commencing on April 1, 2012. All unpaid principal and accrued interest with respect to the Term Loan is due and payable on the earlier of (A) December 30, 2014 or (B) the date that the Term Loan otherwise becomes due and payable under the terms of the Loan Agreement. The Company may prepay all, but not less than all, of the Term Loan subject to a prepayment premium of 1% in year three and 2% in year two of the original principal amount of the Term Loan. There is no prepayment premium if the loan is paid off early in year four. The Company is also obligated to make a payment fee of $0.5 million (the “Payment Fee”) upon the earlier of (A) December 30, 2013 or (B) upon repayment of the Term Loan in full prior to December 30, 2013. The Company is accreting the Payment Fee ratably over the original term of the Term Loan to interest expense.

 

The obligations of the Company under the Loan Agreement are secured by a first priority lien upon and security interest in substantially all of the Company’s existing and after-acquired assets, excluding its intellectual property assets. Under the Loan Agreement, the Company is subject to specified affirmative and negative covenants customary for financings of this type. The Loan Agreement provides that, upon the occurrence of certain specified events of default customary for financings of this type, the Company’s obligations under the Loan Agreement may be automatically accelerated, whereupon the Company’s obligations under the Loan Agreement shall be immediately due and payable. At March 31, 2012, the Company believes it is in compliance with the Loan Agreement.

 

Interest expense on the Term Loan including the accretion of the Payment Fee and Final Payment Fee and amortization of the deferred financing costs was $0.4 million and $0.3 million for the three months ended March 31, 2012 and 2011, respectively.

 

(8) Other Long-Term Liabilities

 

Other long-term liabilities include the following:

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

(In thousands)

 

Deferred Rent

 

$

434

 

$

435

 

Net Deferred Tax Liability

 

4,661

 

4,661

 

Deferred Income from Sale of Tax Benefits

 

1,119

 

510

 

Loan Payable

 

512

 

527

 

Other

 

50

 

52

 

Total

 

6,776

 

6,185

 

Less Current Portion

 

(358

)

(219

)

Long-Term Portion

 

$

6,418

 

$

5,966

 

 

In January 2012 and 2011, the Company received approval from the New Jersey Economic Development Authority and agreed to sell New Jersey tax benefits worth $0.8 million and $0.6 million to an independent third party for $0.7 million and $0.5 million, respectively.  Under the agreement, the Company must maintain a base of operations in NJ 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 three months ended March 31, 2012, the Company recorded $0.1 million to other income related to the sale of these tax benefits.

 

(9) Stockholders’ Equity

 

In January 2011, the Company entered into a controlled equity offering sales agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. (Cantor) pursuant to which the Company may issue and sell up to 5,000,000 shares of its common stock from time to time through Cantor, acting as agent. The Company agreed to pay Cantor a commission of up to 5% of the gross proceeds

 

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Table of Contents

 

from each sale and to reimburse Cantor for certain expenses incurred in connection with entering into the Cantor Agreement. The Cantor Agreement terminates upon the sale of all 5,000,000 shares or upon ten day notice by either Cantor or the Company. During the year ended December 31, 2011, the Company sold 575,000 shares of common stock under the Cantor Agreement and raised $2.2 million in net proceeds, after deducting commission and offering expenses. During the three months ended March 31, 2012, the Company sold 2,450,000 shares of common stock under the Cantor Agreement and raised $8.5 million in net proceeds. Under the terms of the Cantor Agreement, the Company has the ability to sell up to 1,975,000 shares of its common stock upon the expiration or earlier waiver of the 90-day lock-up with the underwriters of the Company’s recent offering in February 2012.

 

During the three months ended March 31, 2012, the Company issued 12,075,000 shares of its common stock in an underwritten public offering, including the underwriter’s exercise of their full over-allotment option to purchase an additional 1,575,000 shares of common stock. The net proceeds to the Company were $43.4 million, after deducting underwriting fees and offering expenses.

 

(10)  Stock-Based Compensation

 

A summary of stock option activity for the three months ended March 31, 2012 is as follows:

 

 

 

Shares

 

Weighted
Average
Exercise
Price
Per Share

 

Weighted
Average
Remaining
Contractual
Term (In Years)

 

Options Outstanding at December 31, 2011

 

4,459,034

 

$

6.08

 

6.9

 

Granted

 

3,750

 

$

3.89

 

 

 

Exercised

 

 

 

 

 

Canceled

 

(150,785

)

$

8.43

 

 

 

Options Outstanding at March 31, 2012

 

4,311,999

 

$

6.00

 

6.9

 

Options Vested and Expected to Vest at March 31, 2012

 

4,272,976

 

$

6.03

 

6.9

 

Options Exercisable at March 31, 2012

 

2,868,567

 

$

7.09

 

6.0

 

Shares Available for Grant under the 2008 Plan

 

972,423

 

 

 

 

 

 

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2012 was $2.44.

 

A summary of restricted stock activity under the 2008 Plan for the three months ended March 31, 2012 is as follows:

 

 

 

Shares

 

Weighted
Average
Grant Date
Fair Value
(per share)

 

Outstanding and unvested at December 31, 2011

 

6,000

 

$

3.24

 

Granted

 

 

 

Vested

 

(3,000

)

3.24

 

Canceled

 

 

 

Outstanding and unvested at March 31, 2012

 

3,000

 

$

3.24

 

 

Stock-based compensation expense for the three months ended March 31, 2012 and 2011 was recorded as follows:

 

 

 

Three months ended March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Research and development

 

$

396

 

$

361

 

General and administrative

 

245

 

219

 

Total stock-based compensation expense

 

$

641

 

$

580

 

 

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The fair values of employee stock options granted during the three months ended March 31, 2012 and 2011 were valued using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three months ended March 31,

 

 

 

2012

 

2011

 

Expected stock price volatility

 

70

%

68

%

Expected option term

 

6.0 Years

 

6.0 Years

 

Risk-free interest rate

 

1.4

%

2.9

%

Expected dividend yield

 

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 March 31, 2012 and December 31, 2011 against the Company’s net deferred tax assets.

 

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Table of Contents

 

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

 

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

 

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

 

·                  the cost, timing, scope and results of ongoing safety and efficacy trials of rindopepimut, CDX-011, CDX-1127 and other preclinical and clinical testing;

 

·                  our ability to fund and complete the development and commercialization of rindopepimut for North America internally and to find a strategic partner to commercialize rindopepimut outside of North America;

 

·                  the ability to negotiate strategic partnerships, where appropriate, for our lead programs, including CDX-011 and CDX-1127, as well as for our non-core programs;

 

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

 

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

 

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

 

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

 

·                  the 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;

 

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

 

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Table of Contents

 

·                  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, 2011 and other reports that Celldex files with the Securities and Exchange Commission.

 

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

 

OVERVIEW

 

We are a biopharmaceutical company focused on the development and commercialization of several immunotherapy technologies for the treatment of cancer and other difficult-to-treat diseases. Our lead drug candidates include rindopepimut (CDX-110), an immunotherapeutic vaccine in a pivotal Phase 3 study for the treatment of front-line glioblastoma and a Phase 2 study for the treatment of recurrent glioblastoma, CDX-011, an antibody-drug conjugate in a randomized Phase 2b study for the treatment of advanced breast cancer and CDX-1127, a therapeutic human antibody in a Phase 1 study for cancer indications. We have additional clinical and preclinical programs, including CDX-1401, an APC Targeting Technology™ program, CDX-301, an immune cell mobilizing agent and dendritic cell growth factor and CDX-1135, a molecule that inhibits a part of the immune system called the complement system.

 

Generally our strategy is to develop and demonstrate proof-of-concept for our drug candidates before leveraging their value through partnerships or, in appropriate situations, continuing late stage development through commercialization ourselves. Demonstrating proof-of-concept for a drug candidate generally involves bringing it through Phase 1 clinical trials and one or more Phase 2 clinical trials so that we are able to demonstrate, based on human trials, good safety data for the drug candidate and some data indicating its effectiveness. We thus leverage the value of our technology portfolio through corporate, governmental and non-governmental partnerships. This approach allows us to maximize the overall value of our technology and product portfolio while best ensuring the expeditious development of each individual product. Our current collaborations include the commercialization of an oral human rotavirus vaccine. We are exploring potential development and commercialization collaborations for certain drug candidates such as CDX-011 and CDX-1127. Furthermore, while we plan to retain the rights to develop and commercialize rindopepimut in North America, we are exploring potential partnership opportunities to commercialize rindopepimut outside of North America. Our drug candidates address market opportunities for which we believe current therapies are inadequate or non-existent.

 

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

 

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

 

Product (generic)

 

Indication/Field

 

Partner

 

Status

CLINICAL

 

 

 

 

 

 

CDX-110 (rindopepimut)

 

Front-line Glioblastoma

 

 

Phase 3

CDX-110 (rindopepimut)

 

Recurrent Glioblastoma

 

 

Phase 2

CDX-011 (glembatumumab vedotin)

 

Metastatic breast cancer and melanoma

 

 

Phase 2b

CDX-1127

 

Lymphoma/leukemia and solid tumors

 

 

Phase 1

CDX-1401

 

Multiple solid tumors

 

 

Phase 1/2

CDX-301

 

Cancer, autoimmune disease and transplant

 

 

Phase 1

PRECLINICAL

 

 

 

 

 

 

CDX-1135

 

Renal disease

 

 

Preclinical

CDX-014

 

Ovarian and renal cancer

 

 

Preclinical

MARKETED PRODUCTS

 

 

 

 

 

 

Rotarix®

 

Rotavirus infection

 

GlaxoSmithKline

 

Marketed

 

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Table of Contents

 

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

 

Clinical Phase

 

Estimated
Completion
Period

 

Phase 1

 

1 - 2 Years

 

Phase 2

 

1 - 5 Years

 

Phase 3

 

1 - 5 Years

 

 

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

 

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

 

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

 

·                  the number of clinical sites included in the trials;

 

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

 

·                  the efficacy and safety profile of the product candidate.

 

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

 

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

 

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

 

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

 

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent it 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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Table of Contents

 

During the past five years through December 31, 2011, we incurred an aggregate of $118.8 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 three months ended March 31, 2012 and 2011. 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.

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Rindopepimut

 

$

4,939

 

$

1,056

 

CDX-011

 

1,078

 

972

 

CDX-1127

 

936

 

1,836

 

CDX-1401

 

486

 

608

 

CDX-301

 

548

 

228

 

CDX-1135

 

2,330

 

810

 

CDX-014

 

133

 

72

 

Other Programs

 

319

 

1,271

 

Total R&D Expense

 

$

10,769

 

$

6,853

 

 

Clinical Development Programs

 

Rindopepimut (CDX-110)

 

Our lead clinical development program, rindopepimut, is an immunotherapeutic vaccine that targets the tumor-specific molecule, epidermal growth factor receptor variant III (EGFRvIII).  EGFRvIII is a mutated form of the epidermal growth factor receptor (EGFR) that is only expressed in cancer cells and not in normal tissue and can directly contribute to cancer cell growth. EGFRvIII has been shown by polymerase chain reaction (PCR) analysis to be expressed in approximately 31% of glioblastoma (GB) tumors, also referred to as glioblastoma multiforme (GBM), the most common and aggressive form of brain cancer.  The rindopepimut vaccine is composed of the EGFRvIII peptide linked to a carrier protein called Keyhole Limpet Hemocyanin (KLH) and administered together with the adjuvant GM-CSF. The Food and Drug Administration (FDA) and the European Medicines Agency (EMA) have both granted orphan drug designation for rindopepimut for the treatment of EGFRvIII expressing GB and the FDA has also granted Fast Track designation.

 

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

 

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

 

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

 

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

 

15



Table of Contents

 

 

 

Median PFS from
diagnosis (months)

 

Median OS from
diagnosis (months)

 

OS at 24 months

 

ACT III (n=65)

 

12.3

(1)

24.6

 

52

%

ACT II (n=22)

 

15.3

 

24.4

 

50

%

ACTIVATE (n=18)

 

14.2

 

24.6

 

50

%

Matched historical control (n=17)(2)

 

6.4

 

15.2

 

6

%

Standard of care radiation/TMZ (n=287)(3)

 

6.9

 

14.6

 

27

%

 


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

 

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

 

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

 

Importantly, rindopepimut showed a similar benefit in patients whether or not they expressed an active DNA repair gene (MGMT) that has been shown to limit the benefit from TMZ treatment. In ACT III, the number of patients who were expected to be resistant to the TMZ chemotherapy appeared to do better with vaccination than the numbers observed in the historical data. Patients who have an active DNA repair gene, MGMT (unmethylated), generally have a worse outcome, presumably because they do not gain much benefit from TMZ as reported in the literature. Patients with a methylated MGMT promoter in their tumor do not express MGMT and have a more favorable outcome to TMZ treatment. Patients with methylated tumors (n=25) that were treated with the rindopepimut regimen experienced a median PFS of 17.5 months, which compares favorably with the published data from the SOC of radiation plus TMZ (R+TMZ) of 10.3 months. Those with unmethylated tumors (n=40) treated with the rindopepimut regimen experienced a PFS of 11.2 months, which compared favorably to the PFS with SOC of 5.3 months in this patient population. Thus, rindopepimut would appear to benefit both methylated and unmethylated MGMT patients.

 

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 GB. Patients will be randomized after the completion of surgery and standard chemoradiation. The treatment regime includes a vaccine priming phase post-radiation followed by an adjuvant temozolomide phase and a vaccine maintenance therapy phase. Patients will be 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 GB after Gross Total Resection (GTR) 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 the rindopepimut vaccine. ACT IV will enroll up to 440 patients at over 150 centers worldwide to recruit approximately 374 patients with GTR to be included in the primary analysis. Our targeted patient accrual is 24 months and another 18 to 24 months of follow-up. We expect it will cost over $50 million to complete this Phase 3 study.

 

In December 2011, we also initiated ReACT, a Phase 2 study of rindopepimut in combination with Avastin® in patients with recurrent EGFRvIII-positive GB. ReACT will enroll approximately 95 patients in a first or second relapse of GB following receipt of standard therapy and will be conducted at approximately 20 sites across the United States. Approximately 70 patients 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 25 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. We expect preliminary data from this study to be available in mid-2013.

 

In addition, researchers at Stanford University are conducting a pilot trial of rindopepimut in pediatric patients with pontine glioma in an investigator sponsored trial. Patient screening is ongoing for this trial.

 

Glembatumumab Vedotin (CDX-011)

 

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

 

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Table of Contents

 

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

 

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

 

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

 

In December 2011, we completed enrollment of EMERGE, a randomized, multi-center Phase 2b study of CDX-011 in patients with heavily pre-treated, advanced, GPNMB-positive breast cancer. Patients were randomized (2:1) to receive either CDX-011 or single-agent “Investigator’s Choice” chemotherapy. Patients randomized to receive Investigator’s Choice are allowed to cross over to CDX-011 following disease progression. Activity endpoints include response rate (RR) and PFS. We expect that a significant portion of the enrolled patients will have triple-negative disease, since GPNMB is frequently expressed in this patient population. We expect to disclose topline results on a Company-sponsored webcast during the second quarter of 2012.  Mature data is expected to be presented at an appropriate scientific conference in the fourth quarter of 2012.

 

In 2009, Formatech, Inc., a third party contract manufacturer (“Formatech”) was engaged by us for the aseptic filling of one lot of our CDX-011 product candidate being used in our ongoing Phase 2b study. The CDX-011 lot from Formatech has passed all of the sterility testing performed during drug release and in subsequent stability studies. At the end of January 2012, we were notified by the FDA that because significant Good Manufacturing Practice (GMP) violations were uncovered during inspection of Formatech, our Phase 2b study for CDX-011 was being placed on partial clinical hold. The FDA uncovered these findings during their inspections of the Formatech facility between August to October 2010 and July to August 2011. These inspections began approximately one year after the CDX-011 drug product was filled at Formatech. Specifically, the FDA requested that no new patients be treated with CDX-011. However, patients already undergoing treatment with CDX-011 could continue treatment using vials of CDX-011 from the lot filled by Formatech, after such patients were informed of the potential risk and reconsented to continued participation in the study. Since the Phase 2b trial completed accrual of patients in December 2011 and there are currently no other ongoing open studies with CDX-011, the only patients that are affected by the partial hold are in the Investigator’s Choice (control arm) of the study who currently are not receiving CDX-011 and may be eligible to cross over at the time of progression and receive CDX-011 under the study protocol.

 

In subsequent conversations with the FDA, they have agreed to allow patients on the Investigator Choice control arm in the ongoing Phase 2b study to resume cross over at the time of progression and receive an older lot of CDX-011 drug product that was filled by a different contract manufacturer once the patients are informed that they can only receive treatment with CDX-011 until the earlier of disease progression, exhaustion or expiration of the older lot of CDX-011.  The primary analyses for the study are entirely based upon the primary randomization and do not include the cross over results.  We do not believe that this partial hold will significantly impact analysis of the Phase 2b data for purposes of determining next steps in our future development of CDX-011.

 

In addition, the FDA has agreed in concept that we could reprocess the remaining available vials of CDX-011 manufactured at Formatech at another cGMP contract manufacturer. The FDA’s final decision regarding the acceptability of this reprocessing will be made upon review of data concerning the stability and sterility of the reprocessed vials of CDX-011. If we are unsuccessful at reprocessing the available drug product or if FDA does not approve the use of these reprocessed vials, we will need to manufacture new drug product for subsequent clinical studies for CDX-011, which may cause a delay in the initiation of a subsequent trial with CDX-011.

 

Treatment of Metastatic Melanoma:  In 2009, we completed enrollment of 117 patients in a Phase 1/2 open-label, multi-center, dose escalation study to evaluate the safety, tolerability and pharmacokinetics of CDX-011 for 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

 

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to be 1.88 mg/kg administered intravenously (IV) once every three weeks. The study achieved its primary activity objective with an ORR in the Phase 2 cohort of 15% (5/34). Median PFS was 3.9 months. CDX-011 was generally well tolerated, with the most frequent treatment-related adverse events being rash, fatigue, alopecia (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 intend to initially focus our resources on advancing CDX-011 in breast cancer while pursuing further development of CDX-011 in melanoma through collaborations and investigator sponsored studies.

 

CDX-1127

 

CDX-1127 is a human monoclonal antibody that targets CD27, a member of the tumor necrosis factor (TNF) receptor superfamily. 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 for access to the UltiMab technology to develop and commercialize human antibodies to CD27. CD27 acts downstream from CD40 and may provide a novel way to regulate the immune responses. CD27 is a co-stimulatory molecule on T cells and is over-expressed in certain lymphomas and leukemias. CDX-1127 is an agonist antibody designed to have two potential therapeutic mechanisms. CDX-1127 has been shown to activate immune cells that can target and eliminate cancerous cells in tumor bearing mice and to directly kill or inhibit the growth of CD27 expressing lymphomas and leukemias in vitro and in vivo. Both mechanisms have been seen even at low doses in appropriate preclinical models.

 

In November 2011, we initiated an open label, dose-escalating Phase 1 study of CDX-1127 in patients with selected malignant solid tumors or hematologic cancers at multiple clinical sites in the United States. The Phase 1 study is designed to test five escalating doses of CDX-1127 to determine a Phase 2 dose for further development based on safety, tolerability, potential activity and immunogenicity. The study will accrue approximately 30 patients in each of the two arms, either selected refractory/relapsed solid tumors or lymphomas/leukemias known to express CD27. Patients will have received all appropriate prior therapies for their specific disease. The trial design incorporates both single dosing and multiple dosing regimens at each dose level. We expect to complete enrollment in this study by the end of 2012.

 

CDX-1401

 

CDX-1401, developed from our APC Targeting Technology, is a fusion protein consisting of a fully human monoclonal antibody with specificity for the dendritic cell receptor, DEC-205, linked to the NY-ESO-1 tumor antigen. In humans, NY-ESO-1 has been detected in 20 — 30% of all melanoma, lung, esophageal, liver, gastric, prostate, ovarian and bladder cancers, thus representing a broad opportunity. This product is intended to selectively deliver the NY-ESO-1 antigen to dendritic cells for generating robust immune responses against cancer cells expressing NY-ESO-1. We are developing CDX-1401 for the treatment of malignant melanoma and a variety of solid tumors which express the proprietary cancer antigen NY-ESO-1, which we licensed from the Ludwig Institute for Cancer Research in 2006. Preclinical studies have shown that CDX-1401 is effective for activation of human T cell responses against NY-ESO-1.

 

In September 2009, we initiated enrollment in a dose-escalating, multi-center, Phase 1/2 study aimed at determining the optimal dose for further development based on the safety, tolerability, and immunogenicity of the CDX-1401 vaccine. The trial will evaluate three different doses of the vaccine in combination with TLR agonists poly-ICLC or Hiltonol™ and/or R848 or resiquimod.

 

In October 2010, we announced interim data for the first 20 patients enrolled in the study, 35% of whom had confirmed NY-ESO-1 expression. The interim data showed that six patients maintained stable disease and were eligible for multiple cycles of the treatment regimen, including 4 patients who have received 3 or more cycles (6 weeks of treatment followed by a 6 week rest), with stable disease of up to 11.5+ months. The treatment was well tolerated and there were no dose-limiting toxicities. Robust anti-NY-ESO-1 immunity was induced with the majority of the patients developing anti-NY-ESO-1 antibody responses and 39% of the patients having increases in NY-ESO-1 specific T cell responses, including both CD4 and CD8 responses. Importantly, the T cell responses were directed against multiple regions of the NY-ESO-1 antigen.

 

In February 2012, we completed enrollment in the Phase 1 portion of the study and expect to report data at an appropriate scientific conference in the second half of 2012.

 

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CDX-301

 

CDX-301 is a FMS-like tyrosine kinase 3 ligand (Flt3L) stem cell mobilizer and dendritic cell growth factor. We licensed CDX-301 from Amgen in March 2009. CDX-301 is a potent hematopoietic cytokine that stimulates the expansion and differentiation of hematopoietic progenitor and stem cells. CDX-301 has demonstrated a unique capacity to increase the number of circulating dendritic cells in both laboratory and clinical studies. In addition, CDX-301 has shown impressive results in models of cancer, infectious diseases and inflammatory/autoimmune diseases. We believe CDX-301 may hold significant opportunity for synergistic development in combination with other proprietary molecules in our portfolio.

 

In January 2012, we initiated a dose-escalating Phase 1 study of CDX-301 in approximately 30 healthy subjects in collaboration with Rockefeller University. The Phase 1 study will evaluate seven different dosing regimens of CDX-301 to determine the appropriate dose for further development based on safety, tolerability, and biological activity.

 

Preclinical Programs

 

CDX-1135

 

CDX-1135 is a molecule that inhibits a part of the human immune system called the complement system. The complement system is a series of proteins that are important initiators of the body’s acute inflammatory response against disease, infection and injury. Excessive complement activation also plays a role in some persistent inflammatory conditions. CDX-1135 is a soluble form of naturally occurring Complement Receptor 1 that has been shown to inhibit the activation of the complement cascade in animal models and in human clinical trials. In preclinical studies, CDX-1135 has been shown to inhibit both the classical and alternative pathways of complement activation.

 

Dense Deposit Disease (DDD) is a rare and devastating disease that is caused by uncontrolled activation of the alternative pathway of complement and leads to progressive kidney damage in children. There is currently no treatment for patients with DDD and about half progress to end-stage renal disease within 10 years. Because DDD recurs in virtually all patients who receive a kidney transplant, transplantation is not a viable option for these patients. In animal models of DDD, CDX-1135 treatment showed evidence of reversal of kidney damage. We believe that regulating the complement system could have therapeutic and prophylactic applications in DDD and several other acute and chronic conditions, including organ transplantation, multiple sclerosis, rheumatoid arthritis, age-related macular degeneration (AMD), atypical Hemolytic Uremic Syndrome (aHUS), Paroxysmal Nocturnal Hemaglobinuria (PNH), and myasthenia gravis.

 

CDX-1135 is currently being studied in DDD under an investigator sponsored IND and initial experience indicates that CDX-1135 limits complement abnormalities. In 2011, we completed process development activities and manufactured GMP clinical drug product. Based on discussion to date with the FDA, we are currently planning to initiate a Phase 2 pilot study of CDX-1135 in a small number of DDD patients to determine the appropriate dose and regimen for further clinical development based on safety, tolerability and biological activity in the second half of 2012.

 

CDX-014

 

CDX-014 is a fully-human monoclonal ADC that targets TIM-1, a molecule that is highly expressed on renal and ovarian cancers with minimal expression in normal tissues. The antibody, CDX-014, is linked to a potent chemotherapeutic, monomethyl auristatin E (MMAE), using Seattle Genetics’ proprietary technology. The ADC is designed to be stable in the bloodstream, but to release MMAE upon internalization into TIM-1-expressing tumor cells, resulting in a targeted cell-killing effect. CDX-014 has shown potent activity in preclinical models of ovarian and renal cancer.

 

Marketed Products

 

Rotavirus is a major cause of diarrhea and vomiting in infants and children. In 1997, we licensed our oral rotavirus strain to GlaxoSmithKline plc (Glaxo) and Glaxo assumed responsibility for all subsequent clinical trials and all other development activities. Glaxo gained approval for its rotavirus vaccine, Rotarix, in Mexico in July 2004, which represented the first in a series of worldwide approvals and commercial launches for the product leading up to the approval in Europe in 2006 and in the U.S. in 2008. We licensed-in our rotavirus strain in 1995 and owe a license fee of 30% to Cincinnati Children’s Hospital Medical Center (CCH) on net royalties received from Glaxo. We are obligated to maintain a license with CCH with respect to the Glaxo agreement. The term of the Glaxo agreement is through the expiration of the last of the relevant patents covered by the agreement, although Glaxo may terminate the agreement upon 90 days prior written notice. The last relevant patent is scheduled to expire in December 2012. No additional milestone payments are due from Glaxo under the agreement.

 

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In May 2005, we entered into an agreement whereby an affiliate of Paul Royalty Fund II, L.P. (PRF) purchased a 70% interest in the milestone payments and net royalties that we will receive on the development and worldwide sales of Rotarix. We have received a total of $60 million in milestone payments under the PRF agreement. No additional milestone payments are due from PRF under the agreement. The PRF agreement terminates in December 2012, unless otherwise extended. We would retain approximately 65% of the royalties on worldwide sales of Rotarix if PRF receives 2.45 times the aggregate cash payments of $60 million it made to us prior to December 2012. We do not expect this to occur.

 

CRITICAL ACCOUNTING POLICIES

 

Our critical accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 and there have been no material changes to such critical accounting policies.  We believe our most critical accounting policies include accounting for business combinations, revenue recognition, impairment of long-lived assets, research and development expenses and stock-based compensation expense.

 

RESULTS OF OPERATIONS

 

Three Months Ended March 31, 2012 compared with Three Months Ended March 31, 2011

 

 

 

Three Months Ended
March 31,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2012

 

2011

 

$

 

%

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

Product Development and Licensing Agreements

 

$

35

 

$

14

 

$

21

 

150

%

Contracts and Grants

 

54

 

 

54

 

n/a

 

Product Royalties

 

2,344

 

2,502

 

(158

)

(6

)%

Total Revenue

 

$

2,433

 

$

2,516

 

$

(83

)

(3

)%

Operating Expense:

 

 

 

 

 

 

 

 

 

Research and Development

 

10,769

 

6,853

 

3,916

 

57

%

Royalty

 

2,344

 

2,502

 

(158

)

(6

)%

General and Administrative

 

2,317

 

2,336

 

(19

)

(1

)%

Amortization of Acquired Intangible Assets

 

291

 

483

 

(192

)

(40

)%

Total Operating Expense

 

15,721

 

12,174

 

3,547

 

29

%

Operating Loss

 

(13,288

)

(9,658

)

3,630

 

38

%

Investment and Other Income, Net

 

205

 

84

 

121

 

144

%

Interest Expense

 

(433

)

(485

)

(52

)

(11

)%

Net Loss

 

$

(13,516

)

$

(10,059

)

$

3,457

 

34

%

 

Net Loss

 

The $3.5 million increase in net loss for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily the result of an increase in research and development expense.

 

Revenue

 

The $0.1 million increase in contract and grant revenue for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was due to an increase in revenue related to an HIV vaccine being funded through a Small Business Innovation Research (SBIR) grant in collaboration with Rockefeller University.  The $0.2 million decrease in product royalty revenue for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was related to our retained interests in Rotarix® net royalties which were not sold to PRF and which is equal to the amount payable to CCH and recognized in royalty expense by us.

 

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Research and Development Expense

 

Research and development expenses consist primarily of (i) personnel expenses, (ii) laboratory supply expenses relating to the development of our technology, (iii) facility expenses, and (iv) product development expenses associated with our product candidates as follows:

 

 

 

Three Months Ended
March 31,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2012

 

2011

 

$

 

%

 

 

 

(In thousands)

 

Personnel

 

$

3,427

 

$

3,203

 

$

224

 

7

%

Laboratory Supplies

 

388

 

530

 

(142

)

(27

)%

Facility

 

1,143

 

1,174

 

(31

)

(3

)%

Product Development

 

4,984

 

1,369

 

3,615

 

264

%

 

Personnel expenses primarily include salary, benefits, stock-based compensation, payroll taxes and recruiting costs. The $0.2 million increase in personnel expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily due to higher headcount.  We expect personnel expenses to increase slightly over the next twelve months, although there may be fluctuations on a quarterly basis.

 

Laboratory supply expenses include laboratory materials and supplies, services, and other related expenses incurred in the development of our technology.  The $0.1 million decrease in laboratory supply expense for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was due to lower manufacturing supply purchases.  We expect supply expenses to increase over the next twelve months as a result of increased research and development activities, although there may be fluctuations on a quarterly basis.

 

Facility expenses include depreciation, amortization, utilities, rent, maintenance, and other related expenses incurred at our facilities.  Facility expenses for the three months ended March 31, 2012 were relatively consistent compared to the three months ended March 31, 2011.  We expect facility expenses to remain relatively consistent over the next twelve months, although there may be fluctuations on a quarterly basis.

 

Product development expenses include clinical investigator site fees, external trial monitoring costs, data accumulation costs, contracted research and outside clinical drug product manufacturing. The $3.6 million increase in product development expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011was primarily due to an increase in clinical trial costs of $3.7 million primarily due to ACT IV and ReACT studies.  We expect product development expenses to increase over the next twelve months primarily due to the increase in clinical trial expenses related to our rindopepimut program, although there may be fluctuations on a quarterly basis.

 

Royalty Expense

 

Royalty expenses include product royalty and sublicense royalty fees on our out-licensed programs. The $0.2 million decrease in royalty expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was due to a decrease in Rotarix® related product royalty fees.  Our retained interests in Rotarix® net royalties which were not sold to PRF are recorded as product royalty revenue and a corresponding amount that is payable to CCH is recorded as royalty expense.

 

General and Administrative Expense

 

General and administrative expenses for the three months ended March 31, 2012 were relatively consistent compared to the three months ended March 31, 2011 and included higher investor relations expenses offset by lower other professional service fees.  We expect general and administrative expense to remain relatively consistent over the next twelve months, although there may be fluctuations on a quarterly basis.

 

Amortization Expense

 

The $0.2 million decrease in amortization expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011was due to certain intangible assets becoming fully amortized during 2011.  We expect amortization expense of acquired intangible assets to decrease over the next twelve months.

 

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Investment and Other Income, Net

 

The $0.1 million increase in investment and other income, net for the three months ended March 31, 2012 compared to the three months ended March 31, 2011was primarily due to $0.1 million in other income related to the sale of New Jersey tax benefits.  We anticipate investment income to increase over the next twelve months due to the $51.9 million in net proceeds we raised during the three months ended March 31, 2012.

 

Interest Expense

 

The $0.1 million decrease in interest expense for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily due to us paying $12.8 million to satisfy all outstanding principal and accrued interest related to the CuraGen Debt in February 2011.  We anticipate interest expense to remain relatively consistent over the next twelve months.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2012, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $92.1 million. Our working capital at March 31, 2012 was $81.7 million. At March 31, 2012, our Term Loan balance was $15.2 million. We incurred a loss of $13.5 million for the three months ended March 31, 2012.  Net cash used in operations for the three months ended March 31, 2012 was $13.6 million.  We believe that the cash, cash equivalents and marketable securities at March 31, 2012 are sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

Our cash equivalents are highly liquid investments with a maturity of three months or less at the date of purchase and consist primarily of investments in money market mutual funds with commercial banks and financial institutions. We maintain cash balances with financial institutions in excess of insured limits. We do not anticipate any losses with respect to such cash balances. We invest our excess cash balances in marketable securities including municipal bond securities, U.S. government agency securities, and high-grade corporate bonds that meet high credit quality standards, as specified in our investment policy. Our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity.

 

The use of our cash flows for operations has primarily consisted of salaries and wages for our employees, facility and facility-related costs for our offices, laboratories and manufacturing facility, fees paid in connection with preclinical studies, clinical studies, contract manufacturing, laboratory supplies and services, consulting, legal and other professional fees. To date, and for the foreseeable future, the primary sources of cash flows from operations have been payments received from our collaborative partners and from government entities. The timing of any new collaboration agreements, government contracts or grants and any payments under these agreements, contracts or grants cannot be easily predicted and may vary significantly from quarter to quarter.

 

We raised net proceeds of $51.9 million during the three months ended March 31, 2012 from the sale of our common stock.  During the next twelve months, we may take further steps to raise additional capital to meet our long-term liquidity needs.  Our 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 we continue 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 our negotiating position in capital-raising efforts may worsen as existing resources are used. There is also no assurance that we will be able to enter into further collaborative relationships. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and licensing or strategic collaborations may result in royalties or other terms which reduce our economic potential from products under development. 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.

 

Operating Activities

 

Net cash used in operating activities was $13.6 million for the three months ended March 31, 2012 compared to $8.9 million for the three months ended March 31, 2011. The increase in net cash used in operating activities was primarily due to an increase in net loss of $3.5 million and changes in working capital.  We expect that cash used in operations will increase over the next twelve months primarily related to costs incurred on our rindopepimut program.

 

We have incurred and will continue to incur significant costs in the area of research and development, including preclinical studies and clinical trials, as our product candidates are developed. We plan to spend significant amounts to progress our current

 

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product candidates through the clinical trial and commercialization process as well as to develop additional product candidates. As our product candidates progress through the clinical trial process, we may be obligated to make significant milestone payments.

 

Investing Activities

 

Net cash used in investing activities was $27.5 million for the three months ended March 31, 2012 compared to net cash provided by investing activities of $5.3 million for the three months ended March 31, 2011. The increase in net cash used in investing activities was primarily due to net purchases of marketable securities for the three months ended March 31, 2012 of $27.5 million as compared to net sales of marketable securities for the three months ended March 31, 2011 of $5.4 million.

 

Financing Activities

 

Net cash provided by financing activities was $51.9 million for the three months ended March 31, 2012 compared to net cash used in financing activities of $7.5 million for the three months ended March 31, 2011.  We raised net proceeds of $51.9 million during the three months ended March 31, 2012 from the sale of our common stock.  In February 2011, we paid $12.5 million to satisfy all outstanding principal related to the CuraGen Debt.  In March 2011, we amended the Loan Agreement and borrowed an additional $5 million from GECC to increase the amount owed under the Term Loan to $15 million.

 

Equity Offerings

 

In April 2010, we filed a shelf registration statement with the Securities and Exchange Commission to register for sale any combination of the types of securities described in the filing up to a dollar amount of $150 million. The shelf registration went effective on April 22, 2010.

 

In January 2011, we entered into a controlled equity offering sales agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which we may issue and sell up to 5,000,000 shares of our common stock from time to time through Cantor, acting as agent. We agreed to pay Cantor a commission up to 5% of the gross proceeds from each sale and to reimburse Cantor for certain expenses incurred in connection with entering into the Cantor Agreement. The Cantor Agreement terminates upon the sale of all 5,000,000 shares or upon ten day notice by either Cantor or the Company.  During the year ended December 31, 2011, we sold 575,000 shares of common stock under the Cantor Agreement and raised $2.2 million in net proceeds, after deducting commission and offering expenses. During the three months ended March 31, 2012, we sold 2,450,000 shares of common stock under the Cantor Agreement and raised $8.5 million in net proceeds. Under the terms of the Cantor Agreement, we have the ability to sell up to 1,975,000 shares of our common stock upon the expiration or earlier waiver of our 90-day lock-up with the underwriters of our recent offering in February 2012.

 

During the three months ended March 31, 2012, we issued 12,075,000 shares of our common stock in an underwritten public offering, including the underwriter’s exercise of their full over-allotment option to purchase an additional 1,575,000 shares of common stock. The net proceeds to us were $43.4 million, after deducting underwriting fees and offering expenses.

 

Term Loan

 

On December 30, 2010, we entered the Loan Agreement with MidCap pursuant to which we borrowed $10 million from MidCap. In March 2011, we amended the Loan Agreement and borrowed an additional $5 million from GECC to increase the amount owed under the Term Loan to $15 million. No additional advances are available under the Loan Agreement. The Term Loan accrues interest at a fixed annual interest rate equal to the greater of (i) the sum of (A) the LIBOR Rate (as defined in the Loan Agreement) plus (B) 6.25%; or (ii) a minimum rate of 9.50%. In September 2011, we exercised an option to extend the interest-only period by 6 months from October 1, 2011 to April 1, 2012. In March 2012, we amended the Loan Agreement to extend the maturity date from December 2013 to December 2014 in return for an upfront fee of $25,000 and an additional fee of $37,500 due upon repayment of the Term Loan in full.

 

Interest on the Term Loan is payable monthly and principal is due, as amended, in 34 equal consecutive monthly installments commencing on April 1, 2012. All unpaid principal and accrued interest with respect to the Term Loan is due and payable on the earlier of (A) December 30, 2014 or (B) the date that the Term Loan otherwise becomes due and payable under the terms of the Loan Agreement. We may prepay all, but not less than all, of the Term Loan subject to a prepayment premium of 1% in year three and 2% in year two of the original principal amount of the Term Loan. There is no prepayment premium if the loan is paid off early in year four. We are also obligated to make a payment of $0.5 million (Payment Fee) upon the earlier of (A) December 30, 2013 or (B) upon repayment of the Term Loan in full prior to December 30, 2013.

 

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Our obligations under the Loan Agreement are secured by a first priority lien upon and security interest in substantially all of our existing and after-acquired assets, excluding our intellectual property assets. Under the Loan Agreement, we are subject to specified affirmative and negative covenants customary for financings of this type. The Loan Agreement provides that, upon the occurrence of certain specified events of default customary for financings of this type, our obligations under the Loan Agreement may be automatically accelerated, whereupon our obligations under the Loan Agreement shall be immediately due and payable. At March 31, 2012, we believe we are in compliance with the Loan Agreement.

 

AGGREGATE CONTRACTUAL OBLIGATIONS

 

The disclosures relating to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2011 which was filed with the SEC on March 8, 2012 have not materially changed since we filed that report.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Refer to Note 2, “Significant Accounting Policies,” in the accompanying notes to the condensed consolidated financial statements for a discussion of recent accounting pronouncements.

 

Item 3.                         Quantitative and Qualitative Disclosures about Market Risk

 

We own financial instruments that are sensitive to market risk as part of our investment portfolio. Our investment portfolio is used to preserve our capital until it is used to fund operations, including our research and development activities. None of these market-risk sensitive instruments are held for trading purposes. We invest our cash primarily in money market mutual funds. These investments are evaluated quarterly to determine the fair value of the portfolio. From time to time, we invest our excess cash balances in marketable securities including municipal bond securities, U.S. government agency securities, and high-grade corporate bonds that meet high credit quality standards, as specified in our investment policy. Our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity. Because of the short-term nature of these investments, we do not believe we have material exposure due to market risk. The impact to our financial position and results of operations from likely changes in interest rates is not material.

 

We do not utilize derivative financial instruments. The carrying amounts reflected in the consolidated balance sheet of cash and cash equivalents, accounts receivables and accounts payable approximates fair value at March 31, 2012 due to the short-term maturities of these instruments.

 

Item 4.                         Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.

 

As of March 31, 2012, we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2012. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting during the three months ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1A.                Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K may not be the only risks

 

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facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

 

There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2012.

 

Item 6.

 

Exhibits

 

 

 

2.1

 

Agreement and Plan of Merger, dated as of May 28, 2009, by and among Celldex Therapeutics, Inc., CuraGen Corporation and Cottrell Merger Sub, Inc. incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed May 29, 2009 with the Securities and Exchange Commission.

3.1

 

Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.2

 

Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.3

 

Second Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.4

 

Third Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q, filed May 10, 2002 with the Securities and Exchange Commission.

3.5

 

Fourth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on March 11, 2008 with the Securities and Exchange Commission.

3.6

 

Fifth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on March 11, 2008 with the Securities and Exchange Commission.

3.7

 

Sixth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.7 of the Company’s Quarterly Report on Form 10-Q, filed November 10, 2008 with the Securities and Exchange Commission.

4.3

 

Amendment No. 2 to Shareholder Rights Agreement dated November 5, 2004, between the Company and Computershare Trust Company, N.A. (formerly EquiServe Trust Company, N.A.), as Rights Agent, incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form 8-A1G/A, filed on March 7, 2008 with the Securities and Exchange Commission.

10.1

 

Second Loan Modification Agreement, dated as of March 2, 2012, by and among Celldex Therapeutics, Inc., Celldex Research Corporation, MidCap Funding V, LLC and General Electric Capital Corporation (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K, filed on March 7, 2012 with the Securities and Exchange Commission.

*31.1

 

Certification of President and Chief Executive Officer

*31.2

 

Certification of Senior Vice President and Chief Financial Officer

**32.1

 

Section 1350 Certifications

101.1+

 

XBRL Instance Document.

101.2+

 

XBRL Taxonomy Extension Schema Document.

101.3+

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.4+

 

XBRL Taxonomy Extension Definition Linkbase Document.

101.5+

 

XBRL Taxonomy Extension Label Linkbase Document.

101.6+

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 


*

 

Filed herewith.

**

 

Furnished herewith.

+

 

The XBRL information is being furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statement under the Securities Act of 1933, as amended.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

CELLDEX THERAPEUTICS, INC.

 

 

 

BY:

 

 

 

/s/ ANTHONY S. MARUCCI

Dated: May 4, 2012

Anthony S. Marucci

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

/s/ AVERY W. CATLIN

Dated: May 4, 2012

Avery W. Catlin

 

Senior Vice President, Treasurer and Chief Financial

 

Officer

 

(Principal Financial and Accounting Officer)

 

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Table of Contents

 

EXHIBIT INDEX

 

Exhibit
No.

 

Description

2.1

 

Agreement and Plan of Merger, dated as of May 28, 2009, by and among Celldex Therapeutics, Inc., CuraGen Corporation and Cottrell Merger Sub, Inc. incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed May 29, 2009 with the Securities and Exchange Commission.

3.1

 

Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.2

 

Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.3

 

Second Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215), filed July 16, 1998 with the Securities and Exchange Commission.

3.4

 

Third Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q, filed May 10, 2002 with the Securities and Exchange Commission.

3.5

 

Fourth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on March 11, 2008 with the Securities and Exchange Commission.

3.6

 

Fifth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on March 11, 2008 with the Securities and Exchange Commission.

3.7

 

Sixth Certificate of Amendment of Third Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.7 of the Company’s Quarterly Report on Form 10-Q, filed November 10, 2008 with the Securities and Exchange Commission.

4.3

 

Amendment No. 2 to Shareholder Rights Agreement dated November 5, 2004, between the Company and Computershare Trust Company, N.A. (formerly EquiServe Trust Company, N.A.) as Rights Agent, incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form 8-A1G/A, filed on March 7, 2008 with the Securities and Exchange Commission.

10.1

 

Second Loan Modification Agreement, dated as of March 2, 2012, by and among Celldex Therapeutics, Inc., Celldex Research Corporation, MidCap Funding V, LLC and General Electric Capital Corporation (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K, filed on March 7, 2012 with the Securities and Exchange Commission.

*31.1

 

Certification of President and Chief Executive Officer

*31.2

 

Certification of Senior Vice President and Chief Financial Officer

**32.1

 

Section 1350 Certifications

101.1+

 

XBRL Instance Document.

101.2+

 

XBRL Taxonomy Extension Schema Document.

101.3+

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.4+

 

XBRL Taxonomy Extension Definition Linkbase Document.

101.5+

 

XBRL Taxonomy Extension Label Linkbase Document.

101.6+

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 


*

 

Filed herewith.

**

 

Furnished herewith.

+

 

The XBRL information is being furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statement under the Securities Act of 1933, as amended.

 

27