Celldex reeling from Pfizer break up

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The writing had been appearing on the wall in increasingly large red letters over Pfizer’s commitment to Celldex Therapeutics’ brain cancer vaccine, rindopepimut (PF-04948568 / CDX-110) for some time now. Despite reporting decent if unspectacular phase IIb data at Asco this summer, Pfizer’s silence ever since over phase III plans was looking ominous (Event - Celldex hoping Asco data will move cancer vaccine into phase III, May 12, 2010).

Nevertheless, all break-ups are painful when they finally happen and Celldex’s shares tumbled 26% on Friday to a record low of $3.53, valuing the Massachusetts biotech at just $113m despite it sitting on $65m in cash. Investors, unmoved by Celldex’s ambitious and positively spun response, are naturally more concerned about the reasons why Pfizer decided to ditch the vaccine and Celldex’s determination to go it alone with phase III trials, which will most likely need to be funded by dilutive financing.

Falling short

In the run up to Asco, expectations had clearly been high not only for decent clinical data on rindopepimut but also that Pfizer would reiterate its commitment and announce plans to start a pivotal phase III trial.

Celldex’s shares had more than doubled in value in the first part of the year to reach a 12-month high of $9.43 in mid-May just before the abstracts for Asco were released. Investors were no doubt also encouraged by a deal between Pfizer and Qiagen in February to develop a companion diagnostic to the vaccine, signalling a potential to become a truly personalised agent – the crucial pieces appeared to be falling into place nicely for Celldex.

However, the data at Asco was respectable at best, being as it was only similar to previous studies in progression free survival in patients with glioblastoma multiforme (GBM). Meanwhile the lack of positive noises from Pfizer started alarm bells ringing. As such, Celldex did not have a good Asco season and even before Friday’s decline its shares had lost half their value (Asco EventAnalyzer - 2010's winners and losers, June 10, 2010).

Change of champion?

According to Celldex, Pfizer is handing back the rights to rindopepimut because the “program is no longer a strategic priority of Pfizer”. Celldex’s managers did not offer any further insight on a conference call and ambiguous statements such as these understandably make shareholders nervous – the biggest fear must be that Pfizer’s decision is actually a negative verdict on the product’s chances of regulatory and commercial success.

Pfizer licensed rindopepimut in 2008 for $50m upfront, $40m of which was cash and $10m an equity stake. A further $390m was potentially payable in clinical and regulatory milestones, as well as double-digit royalties.

One factor behind Pfizer’s decision could be that the economics of the deal simply did not match the risk associated with the project, assuming a reasonable milestone would have been payable to Celldex upon the start of phase III trials. The fact that Transgene received just €10m upfront from Novartis for its lung cancer vaccine about to enter phase IIb/III studies is indicative of the risk big pharma is still attaching to this technology (Transgene deal disappoints but were expectations too high?,March 10, 2010).

Another, perhaps more speculative, factor is the recent change of R&D helm at Pfizer, which in May saw Martin Mackay leave Pfizer for AstraZeneca, to be replaced by Mikael Dolsten, previously of Wyeth. Mr Mackay was in charge when the original deal with Celldex was struck and the Qiagen collaboration in February appeared to confirm Pfizer’s commitment to rindopepimut.

Could it be therefore that Friday’s announcement is the result of a different view on the product’s potential taken by Mr Dolsten? Remember Pfizer has already been through a major pipeline review following the Wyeth merger and rindopepimut had survived so far.

Novel financing

As it stands Celldex seems committed to taking rindopepimut into phase III on its own, although full details and timelines will not be announced until after the 60-day transfer of rights is complete, by early November.

With $65m in cash at the end of June and little indication that the company will actively seek a partner to take over the costs, Celldex has said it will need to raise cash to fund further trials, while it will also rationalise the projects in its pipeline.

Established in 2003 as a spin out from Medarex, intriguingly Celldex appears never to have been through a significant financing round. Instead it has accumulated cash by hoovering up distressed companies. Last year it gained $52m by acquiring Curagen, in 2008 it gained a stock market listing and $11m from reversing into Avant Immunotherapeutics and back in 2005 it captured $30m through its acquisition of Lorantis.

As such, unless a similar target can be found, and there are many suitable candidates out there, Celldex’s shareholders could be faced with the somewhat novel prospect of dipping in their own pockets.

For now though, for all the talk of the Provenge approval providing validation of the cancer vaccine approach, Pfizer’s decision highlights that the technology still has some way to go.

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