Celldex Therapeutics, Inc. (CLDX)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/08/2012
Filed Period 12/31/2011
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TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
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
(State or other jurisdiction of
incorporation or organization)
13-3191702
(I.R.S. Employer
Identification No.)
119 Fourth Avenue, Needham, Massachusetts 02494
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 433-0771
Securities registered pursuant to Section 12(b) of the Act:
Title of Class:
Common Stock, par value $.001
Name of Each Exchange on Which Registered:
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý 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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this Chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. ý
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
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 ý
Non-accelerated filer o
(Do not check if a
smaller reporting company)
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2011 was $156.1 million. Exclusion of shares held by
any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the actions of the management or
policies of the registrant, or that such person is controlled by or under common control with the registrant.
The number of shares of common stock outstanding at February 29, 2012 was 57,160,636 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for our 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.
CELLDEX THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2011
TABLE OF CONTENTS
Part I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This Annual Report on Form 10-K 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:
•
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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;
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•
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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
the factors listed under "Risk Factors" in this Annual Report on Form 10-K.
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.
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Item 1. BUSINESS
Overview
PART I
Celldex Therapeutics, Inc., which we refer to as "Celldex," "we," "us," "our" or the "Company," is 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 candidate, rindopepimut (CDX-110), 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.
Based on results from three prior Phase 2 trials, 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. In December 2011, we also initiated ReACT, a Phase 2 study of rindopepimut in
combination with Avastin® in patients with recurrent EGFRvIII-positive GB.
Our other lead drug candidates include CDX-011 and CDX-1127. 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. In December 2011, we completed enrollment of EMERGE, a
randomized Phase 2b study of CDX-011 in patients with heavily pre-treated, advanced, GPNMB-positive breast cancer and expect to present results at an
appropriate scientific conference in the first half of 2012.
CDX-1127 is a fully human monoclonal antibody that targets CD27. 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. 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.
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
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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 material to our business:
Product (generic)
CLINICAL
CDX-110
(rindopepimut)
CDX-110
(rindopepimut)
CDX-011
(glembatumumab vedotin)
CDX-1127
CDX-1401
CDX-301
PRECLINICAL
CDX-1135
CDX-014
MARKETED PRODUCTS
Rotarix
Indication/Field
Partner
Status
Front-line Glioblastoma
Recurrent Glioblastoma
Metastatic breast cancer and melanoma
Lymphoma/leukemia and solid tumors
Multiple solid tumors
Cancer, autoimmune disease and transplant
Renal disease
Ovarian and renal cancer
—
—
—
—
—
—
—
—
Phase 3
Phase 2
Phase 2b
Phase 1
Phase 1/2
Phase 1
Preclinical
Preclinical
Rotavirus infection
GlaxoSmithKline Marketed
Using our expertise in immunology, we are building business franchises in major disease areas including oncology. We have pursued some of these
opportunities independently in a highly focused manner. In other cases, we have leveraged the financial support and development capabilities of corporate and
public sector partners to bring our development projects to fruition. The research we have pursued over the past several years has matured into what we
believe is an exciting and diverse portfolio of drug candidates.
Our success has depended and will continue to depend upon many factors, including our ability, and that of our licensees and collaborators, to
successfully develop, obtain regulatory approval for and commercialize our drug candidates. Commercial sales are currently generated by GlaxoSmithKline,
which is marketing Rotarix. We have had no commercial revenues from sales of our human therapeutic or other human vaccine products and we have had a
history of operating losses. It is possible that we may not be able to successfully develop, obtain regulatory approval for or commercialize our drug
candidates, and we are subject to a number of risks that you should be aware of before investing in us. These risks are described more fully in "Item 1A. Risk
Factors."
We are a Delaware corporation organized in 1983. Our website is located at http://www.celldextherapeutics.com. On our website, investors can obtain,
free of charge, a copy of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
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other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended, as soon as reasonably practicable after we file
such material electronically with, or furnish it to, the Securities and Exchange Commission (SEC). None of the information posted on our website is
incorporated by reference into this Annual Report.
Clinical Development Programs
Rindopepimut
Our lead clinical development program, rindopepimut, is a peptide-based immunotherapy that targets the tumor specific molecule called EGFRvIII, a
functional variant of the naturally expressed EGFR, a protein which has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not
present in normal tissues and has been shown to be a transforming oncogene that can directly contribute to cancer cell growth. EGFRvIII is commonly present
in glioblastoma or GB, also commonly referred to as glioblastoma multiforme or 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.
In April 2008, we and Pfizer Inc. (Pfizer) entered into a License and Development Agreement (the "Pfizer Agreement") under which Pfizer was granted
an exclusive worldwide license to rindopepimut. The Pfizer Agreement provided for reimbursement by Pfizer of all costs incurred by us in connection with
the collaboration since the effective date. In November 2010, the Pfizer Agreement was terminated (the "Pfizer Termination") and all rights to rindopepimut
were returned to us. Pfizer did not provide a reason for termination. Effective with the Pfizer Termination, Pfizer is no longer funding the development of
rindopepimut.
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,
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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).
ACT III (n=65)
ACT II (n=22)
ACTIVATE (n=18)
Matched historical control (n=17)(2)
Standard of care radiation/TMZ (n=287)(3)
Median PFS from
diagnosis (months)
Median OS from
diagnosis (months)
OS at 24 months
12.3(1)
15.3
14.2
6.4
6.9
24.6
24.4
24.6
15.2
14.6
52%
50%
50%
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
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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.
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
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is frequently expressed in this patient population. We expect to present results at the 2012 American Society of Clinical Oncology (ASCO) meeting in June
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. Currently there are eight patients remaining on the control arm.
We have initiated discussions with the FDA regarding our proposal to utilize vials of CDX-011 that were filled by a different contract manufacturer.
Although the FDA has stated that no new patients may receive CDX-011 and that no patients may cross over to receive CDX-011, we have asked the FDA to
reconsider allowing patients currently on the control arm to cross over to CDX-011 after stability testing and confirmation that the product filled by the other
contract manufacturer is acceptable for continued use. If the FDA agrees to our proposal concerning use of the alternative CDX-011 for the eligible cross-over
patients, we believe that we should have sufficient clinical supply of CDX-011 to treat these cross-over patients. If we are not able to treat the eight remaining
cross-over patients with CDX-011, patients may withdraw from the control arm study upon learning that they will not be allowed to cross over to CDX-011
following disease progression. However, the primary analyses for the study are entirely based upon the primary randomization and do not include the cross
over results. Based on our discussions with our clinical investigators, we do not believe that a high proportion of patients will withdraw from the control arm
prior to progression. 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 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
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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
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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.
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.
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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 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.
Development Strategy
Precision Targeted Immunotherapy Platform:
We believe there is tremendous untapped potential in immunotherapy that can be exploited through the right combination of therapeutic agents.
Immunotherapy approaches have encountered difficulties when following standard drug development. The mechanisms of action are complex, activity is
generally not dependent on highest tolerated dose and patient response is highly variable. Our understanding of the immune system, cancer's effect on immune
mediated mechanisms, and the impact of conventional therapies on the immune system provides a new rationale for combining therapies that may lead to
significant clinical responses. The concept of Precision Targeted Immunotherapy is to exploit this knowledge and the availability of good, tested products that
may not be sufficiently effective
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to be commercialized as a monotherapy, but which we believe may be very effective in combination approaches. Our goal is to develop products that
maximize the efficacy of immunotherapy regimens through combinations of therapeutic agents. These therapeutic agents include:
Therapeutic Antibodies: These programs are based on the well validated approach to using antibodies that target cancer and other diseases directly, or
interfere with critical interactions between the patient and the disease. Our antibody programs include antibody-drug conjugates (ADCs) that are designed to
deliver potent cytotoxic molecules to cancer cells, and traditional unmodified antibody approaches. Our current programs are based on fully human sequence
antibodies to minimize patient reactivity against the drug. In addition, we have access through a Research and Commercialization Agreement with Medarex
(now a subsidiary of Bristol-Myers Squibb) to the UltiMAb® Technology for generating fully human monoclonal antibodies. Under this agreement, we can
exercise up to ten separate licenses to develop and commercialize therapeutic antibody products, either alone or through collaboration with our licensing
partners.
Our APC Targeting Technology: This is a new class of vaccines based on our proprietary antibody-targeted vaccine technology that is used to
generate an immune response against cancer or other diseases. Our APC Targeting Technology uses human monoclonal antibodies linked to disease
associated antigens to efficiently deliver the attached antigens to immune cells known as antigen presenting cells, or APCs. This technology has been
designed to allow us to take advantage of many important characteristics of human monoclonal antibodies, including their long circulating half-life, well
known safety profile, and standardized manufacturing procedures. We believe that our APC Targeting Technology provides significant manufacturing,
regulatory and other practical advantages over patient specific and other immune-based treatments and can substantially reduce the dosage and cost currently
required in conventional immunotherapies. Preclinical studies have demonstrated that APC Targeting Technology is more effective than conventional non-
targeted vaccines. We have developed several proprietary monoclonal antibodies that can independently be developed to generate new product opportunities.
Our CDX-1401 program is in clinical development utilizing the APC technology.
Immune System Modulators: Immune system modulators include drugs that activate or suppress specific parts of the immune system. Currently we
are combining our APC technology drug candidates with molecules known as Toll-Like Receptor (TLR) agonists that can activate patients' innate and
adaptive immunity. We are also developing an immune cell growth factor called FMS-like tyrosine kinase 3 ligand (FLT3-L or CDX-301) designed to expand
immune cells and stem cells. In addition, we are investigating the activity of a complement inhibitor (CDX-1135) that suppresses inflammatory reactions.
These agents further support our Precision Targeted Immunotherapy Platform.
Antibody-Drug Conjugates (ADC): ADCs are monoclonal antibodies that are linked to potent cell-killing drugs. Our ADCs utilize fully-human
monoclonal antibodies that internalize within target cells after binding to their cell-surface receptors. Enzymes present inside the cell cause the cell-killing
drug to be released from the monoclonal antibody, allowing it to have the desired activity. A key component of our ADCs is the linker that attaches the drug
to the monoclonal antibody. When the ADC is internalized within the target cell, the drug is released, thereby minimizing toxicity to normal tissues. Our
CDX-011 program is in clinical development with the ADC technology.
Our strategy is to utilize our expertise to design and develop targeted immunotherapeutics that have significant and growing market potential; to establish
governmental and corporate alliances to fund development; and to commercialize our products either through corporate partners or, in appropriate
circumstances, through our own direct selling efforts. Our goal is to demonstrate clinical proof-of-concept for each product, and then seek partners to help see
those products which we cannot develop ourselves through to commercialization. This approach allows us to maximize the overall value of our technology
and product portfolios while best ensuring the expeditious development of each individual product.
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Factors that may significantly harm our commercial success, and ultimately the market price of our common stock, include but are not limited to,
announcements of technological innovations or new commercial products by our competitors, disclosure of unsuccessful results of clinical testing or
regulatory proceedings and governmental approvals, adverse developments in patent or other proprietary rights, public concern about the safety of products
developed by us and general economic and market conditions. See "Item 1A. Risk Factors."
Partnerships
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. We are exploring potential development and commercialization
collaborations for certain product 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.
We have entered into collaborative partnership agreements with pharmaceutical and other companies and organizations that provide financial and other
resources, including capabilities in research, development, manufacturing, and sales and marketing, to support our research and development programs. We
depend on these relationships and may enter into more of them in the future. Some of our partners have substantial responsibility to commercialize a product
and to make decisions about the amount and timing of resources that are devoted to developing and commercializing a product. As a result, we do not have
complete control over how resources are used toward some of our products.
Partnership agreements may terminate without benefit to us if the underlying products are not fully developed. If we fail to meet our obligations under
these agreements, they could terminate and we might need to enter into relationships with other collaborators and to spend additional time, money, and other
valuable resources in the process.
We cannot predict whether our collaborators will continue their development efforts or, if they do, whether their efforts will achieve success. Many of
our collaborators face the same kinds of risks and uncertainties in their business that we face. A delay or setback to a partner will, at a minimum, delay the
commercialization of any affected products, and may ultimately prevent it. Moreover, any partner could breach its agreement with us or otherwise not use best
efforts to promote our products. A partner may choose to pursue alternative technologies or products that compete with our technologies or products. In either
case, if a partner failed to successfully develop one of our products, we would need to find another partner. Our ability to do so would depend upon our legal
right to do so at the time and whether the product remained commercially viable.
GlaxoSmithKline plc (Glaxo)
Rotavirus is a major cause of diarrhea and vomiting in infants and children. In 1997, we licensed our oral rotavirus strain to 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
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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.
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.
Vaccine Technologies, Inc. (VTI)
In January 2009, we entered into a license agreement with VTI under which we granted a worldwide exclusive license to VTI to develop and
commercialize our CholeraGarde and ETEC vaccine programs. We may receive milestones payments of up to $0.8 million and royalties in the low to mid
teens with respect to development and commercialization of the technology licensed to VTI.
TopoTarget A/S (TopoTarget)
Under our April 2008 agreement (TopoTarget Agreement) with TopoTarget, we could receive up to $6 million in either potential commercial milestone
payments related to future net sales of Belinostat or 10% of any sublicense income received by TopoTarget (TopoTarget Payments). We have no financial and
operational responsibility for the clinical development of Belinostat under the TopoTarget Agreement. In February 2010, TopoTarget entered into a co-
development and commercialization agreement for Belinostat with Spectrum Pharmaceuticals, Inc. resulting in our receipt of $3 million of the TopoTarget
Payments.
Research Collaboration and License Agreements
We have entered into license agreements whereby we have received licenses or options to license technology, specified patents and/or patent
applications. These license and collaboration agreements generally provide for royalty payments equal to specified percentages of product sales, annual
license maintenance fees, continuing patent prosecution costs and potential future milestone payments to third parties upon the achievement of certain
development, regulatory and/or commercial milestones.
Medarex, Inc., a subsidiary of Bristol-Myers Squibb (Medarex)
We and Medarex, a former related party, have entered into the following agreements, each of which was approved by a majority of its independent
directors who did not have an interest in the transaction. These agreements include:
•
•
An Assignment and License Agreement, as amended, (Assignment and License Agreement) that provides for the assignment of certain patent
and other intellectual property rights and a license to certain Medarex technology related to the Company's APC Targeting Technology and an
anti-mannose receptor product; and
A Research and Commercialization Agreement, as amended, (Research and Commercialization Agreement) that provides us with certain rights
to obtain exclusive commercial licenses to proprietary monoclonal antibodies raised against certain antigens utilizing the Medarex UltiMAb
technology platform for generating antibodies.
Under the terms of the Assignment and License Agreement, we may be required to pay royalties in the low-single digits on any net product sale of a
Licensed Royalty-Bearing Product or Anti-Mannose
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Product to Medarex until the later of (i) the expiration of the last to expire applicable patent and (ii) the tenth anniversary of the first commercial sale of such
licensed product. Under the terms of the Research and Commercialization Agreement, we may be required to pay milestones of up to $7.0 million upon
obtaining first approval for commercial sale in a first indication of a product containing a licensed antibody and royalty payments in the low- to mid-single
digits on any net product sales to Medarex with respect to the development of any products containing such licensed antibodies until the later of (i) the
expiration of the last to expire applicable patent and (ii) the tenth anniversary of the first commercial sale of such licensed product. In September 2010, we
exercised an option under our Research and Commercialization Agreement, whereby we licensed from Medarex access to the UltiMab technology to develop
and commercialize human antibodies to CD27, including CDX-1127.
Rockefeller University (Rockefeller)
In November 2005, we and Rockefeller entered into a license agreement for the exclusive worldwide rights to human DEC-205 receptor, with the right to
sublicense the technology. The license grant is exclusive except that Rockefeller may use and permit other nonprofit organizations to use the human DEC-205
receptor patent rights for educational and research purposes. We may be required to pay milestones of up to $3.9 million upon obtaining first approval for
commercial sale in a first indication of a product targeting the licensed receptor and royalty payments in the low- to mid-single digits on any net product sales
to Rockefeller with respect to development and commercialization of the human DEC-205 receptor.
Duke University Brain Tumor Cancer Center (Duke)
In September 2006, we and Duke entered into a license agreement that gave us access and reference to the clinical data generated by Duke and its
collaborators in order for us to generate our own filing with the FDA relating to rindopepimut. We may be required to pay milestones of up to $1.0 million
upon obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to Duke with
respect to development and commercialization of rindopepimut.
Ludwig Institute for Cancer Research (Ludwig)
In October 2006, we and Ludwig entered into an agreement for the nonexclusive rights to certain cancer tumor targets for use in combination with our
APC Targeting Technology. The term of the agreement is for ten years. We may be required to pay milestones of up to $1.0 million upon obtaining first
approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to Ludwig with respect to
development and commercialization of the technology licensed from Ludwig.
Alteris Therapeutics, Inc. (Alteris)
In October 2005, we completed the acquisition of the assets of Alteris, including the EGFRvIII molecule. We may be required to pay Alteris up to
$5.0 million upon obtaining the first approval for commercial sale of a product containing EGFRvIII, including rindopepimut.
Thomas Jefferson University (TJU)
In connection with our acquisition of the assets of Alteris, we obtained the rights to two exclusive license agreements with TJU dated February 2003
related to the EGFRvIII tumor antigen. Under these licenses, we may be required to pay milestones of up to $3.0 million upon obtaining first approval for
commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to TJU with respect to development and
commercialization of rindopepimut.
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3M Company
In June 2008, we and 3M Company entered into a license agreement for the exclusive worldwide rights to access 3M Company's proprietary Immune
Response Modifier, Resiquimod, (and additional Toll-Like Receptor 7/8 agonists (TLR)) for clinical study with our proprietary APC Targeting Technology,
for use as vaccine adjuvants, with the right to sublicense the technology. We may be required to pay milestones of up to $3.8 million upon obtaining first
approval for commercial sale of each product using this vaccine adjuvant and royalty payments in the low-single digits on any net product sales to 3M
Company with respect to development and commercialization of the technology licensed from 3M Company.
University of Southampton, UK (Southampton)
In November 2008, we entered into a license agreement with Southampton to develop human antibodies towards CD27, a potentially important target for
immunotherapy of various cancers. We may be required to pay milestones of up to approximately $1.4 million upon obtaining first approval for commercial
sale in a first indication and royalty payments in the low-single digits on any net product sales to Southampton with respect to development and
commercialization of CDX-1127.
Amgen Inc. (Amgen)
In March 2009, we entered into a license agreement with Amgen to expand our Precision Targeted Immunotherapy Platform by acquiring exclusive
rights to FMS-like tyrosine kinase 3 ligand (Flt3L or CDX-301) and CD40 ligand (CD40L). CDX-301 and CD40L are immune modulating molecules that
increase the numbers and activity of immune cells that control immune responses. We may be required to pay milestones of up to $1.3 million upon obtaining
first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to Amgen with respect to
development and commercialization of the technology licensed from Amgen, including CDX-301.
Amgen Fremont (formerly Abgenix)
In connection with our acquisition of CuraGen Corporation (CuraGen) in 2009, we assumed the license agreement between CuraGen and Amgen
Fremont (successor in-interest to Abgenix) to develop fully-human monoclonal antibody therapeutics. In May 2009, an amendment to the license agreement
(Amgen Amendment) was entered into related to CuraGen's exclusive rights to develop and commercialize CDX-011, CDX-014 and 10 other licensed
antigens. Under the Amgen Amendment, CuraGen and Amgen Fremont agreed to modify the terms of their existing cross-license of antigens whereby our
amended license would be fully paid-up and royalty-free (except for any potentially required payments to the original licensor of CDX-011).
Seattle Genetics, Inc. (Seattle Genetics)
In connection with our acquisition of CuraGen, we assumed the license agreement between CuraGen and Seattle Genetics whereby CuraGen acquired the
rights to proprietary ADC technology for use with its proprietary antibodies for the potential treatment of cancer. We may be required to pay milestones of up
to $7.5 million upon obtaining first approval for commercial sale in a first indication and royalty payments in the mid-single digits on any net product sales to
Seattle Genetics with respect to development and commercialization of the ADC technology, including CDX-011.
Competition
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Many of the
products that we are attempting to develop and commercialize will be competing with existing therapies. In addition, a number of companies are
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pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and
biotechnology companies both in the United States and abroad. Our competitors may utilize discovery technologies and techniques or partner with
collaborators in order to develop products more rapidly or successfully than us or our collaborators are able to do. Many of our competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and human resources than we do. In addition, academic institutions, government
agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or
technologies and may establish exclusive collaborative or licensing relationships with our competitors.
We face intense competition in our development activities. We face competition from many companies in the United States and abroad, including a
number of large pharmaceutical companies, firms specialized in the development and production of vaccines, adjuvants and vaccine and immunotherapeutic
delivery systems and major universities and research institutions. The competitors for which we are aware have initiated a Phase 3 study or have obtained
marketing approval for a potentially competitive drug include Alexion, Agenus, Baxter, BMS, Dendreon, Eli Lilly, GlaxoSmithKline, ImmunoGen, Merck,
Pfizer, Roche, Sanofi-Aventis, Seattle Genetics, and Takeda. Many other companies are developing or commercializing products in areas that we have
targeted for product development. Some of these products use therapeutic approaches that may compete directly with our drug candidates. Most of our
competitors possess substantially greater financial, technical and human resources than we possess. In addition, many of our competitors have significantly
greater experience than we have in conducting preclinical and nonclinical testing and human clinical trials of drug candidates, scaling up manufacturing
operations and obtaining regulatory approvals of drugs and manufacturing facilities. Accordingly, our competitors may succeed in obtaining regulatory
approval for drugs more rapidly than we do. If we obtain regulatory approval and launch commercial sales of our drug candidates, we also will compete with
respect to manufacturing efficiency and sales and marketing capabilities, areas in which we currently have limited experience.
We also face competition from pharmaceutical and biotechnology companies, academic institutions, government agencies and private research
organizations in recruiting and retaining highly qualified scientific personnel and consultants and in the development and acquisition of technologies.
Moreover, technology controlled by third parties that may be advantageous to our business may be acquired or licensed by our competitors, thereby
preventing us from obtaining technology on commercially reasonable terms, if at all. We will also compete for the services of third parties that may have
already developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies to target the
diseases on which we have focused both in the U.S. and outside of the U.S.
Our competitive position will also depend upon our ability to attract and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for the often lengthy period between technological conception and commercial sales.
We will require substantial capital resources to complete development of some or all of our products, obtain the necessary regulatory approvals and
successfully manufacture and market our products. In order to secure capital resources, we anticipate having to sell additional capital stock, which would
dilute existing stockholders. We may also attempt to obtain funds through research grants and agreements with commercial collaborators. However, these
types of fundings are uncertain because they are at the discretion of the organizations and companies that control the funds. As a result, we may not receive
any funds from grants or collaborations. Alternatively, we may borrow funds from commercial lenders, likely at high interest rates, which would increase the
risk of any investment in us.
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Manufacturing
We have limited experience in large scale manufacturing and we have relied upon collaborators or contractors to manufacture some of our proposed
products for both clinical and commercial purposes to date. We have established our own manufacturing facility in Fall River, Massachusetts, to produce
antibodies, vaccines and other products that we may develop at scale for clinical trials. In 2010, we completed renovations at our Fall River, MA
manufacturing facility which increased our capacity by installing a 1000L bioreactor and made improvement to the facility to be able to manufacture in
compliance with European Medicines Agency (EMEA) regulations. Implementing EMEA requirements along with FDA Good Manufacturing Practices
(GMP) will allow us to distribute potential products to clinical sites in both the US and EU. In order for us to establish a commercial manufacturing facility,
we will require substantial additional funds and will be required to hire and retain significant additional personnel and comply with the extensive GMP
regulations applicable to such facility. The commercial manufacturing facility would also need to be licensed for the production of antibodies, vaccines and
other products by the FDA. We intend to establish manufacturing arrangements with contract manufacturers that comply with the FDA's requirements and
other regulatory standards, although there can be no assurance that we will be able to do so.
While we believe that there is currently sufficient capacity worldwide for the production of our potential products by our collaborators or through
contract manufacturers, establishing long-term relationships with contract manufacturers and securing multiple sources for the necessary quantities of clinical
and commercial materials required can be a challenge. Qualifying the initial source of clinical and ultimately commercial material is a time consuming and
expensive process due to the highly regulated nature of the pharmaceutical/biotech industry. These costs are hopefully mitigated in the economies of scale
realized in commercial manufacture and product sale. The key difficulty in qualifying more than one source for each product is the duplicated time and
expense in doing so without the potential to mitigate these costs if the secondary source is never utilized.
We use rindopepimut drug product that was manufactured by Pfizer in the ACT IV and ReACT clinical studies. We plan to establish a relationship with
a contract manufacturer to support future clinical trials and for the commercial manufacturing of rindopepimut. To date, we have utilized contract
manufacturers for the manufacture of clinical trial supplies of CDX-011. We manufacture clinical materials of CDX-1127, CDX-1401, CDX-1135 and
CDX-301 in our Fall River facility for our current and planned Phase 1 and Phase 2 clinical trials. Manufacture of the rotavirus vaccine is the responsibility of
Glaxo, which has received from us a worldwide exclusive license to commercialize this vaccine.
The manufacturing processes for our other vaccine and immunotherapeutic delivery systems and vaccines utilize known technologies. We believe that
the products we currently have under development can be scaled up to permit manufacture in commercial quantities. However, there can be no assurance that
we will not encounter difficulties in scaling up the manufacturing processes.
Use of third party manufacturers limits our control over and ability to monitor the manufacturing process. As a result, we may not be able to detect a
variety of problems that may arise and may face additional costs in the process of interfacing with and monitoring the progress of our contract manufacturers.
If third party manufacturers fail to meet our manufacturing needs in an acceptable manner, we would face delays and additional costs while we develop
internal manufacturing capabilities or find alternative third party manufacturers. It may not be possible to have multiple third party manufacturers ready to
supply us with needed material at all or without incurring significant costs.
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Marketing
Under the terms of existing and future partnership agreements, we rely and expect to continue to rely on the efforts of our collaborators, including Glaxo,
for the sale and marketing of our products. There can be no assurance that our collaborators will develop and market vaccine products incorporating our
technologies, or, if marketed, that such efforts will be successful. The failure of our collaborators to successfully market products would harm our business.
We have retained, and in the future intend to retain, marketing rights to some of our drug candidates, including vaccine and immunotherapeutic delivery
systems and vaccine candidates, in selected geographic areas and for specified indications. We intend to seek marketing and distribution agreements and/or
co-promotion agreements for the distribution of our products in these geographic areas and for these indications. We believe that these arrangements could
enable us to generate greater financial return than might be obtained from early stage licensing and collaboration agreements. We currently have no marketing
and sales staff and limited experience relating to marketing and distribution of commercial products, including vaccines. If we determine in the future to
engage in direct marketing of our products, we will be required to recruit an experienced marketing group, develop a supporting distribution capability and
incur significant additional expenditures. There can be no assurance that we will be able to establish a successful marketing force. We may choose or find it
necessary to enter into strategic partnerships on uncertain, but potentially unfavorable, terms to sell, market and distribute our products. Any delay in the
marketing or distribution of our products, whether it results from problems with internal capabilities or with a collaborative relationship, could harm the value
of an investment in us.
Patents, Licenses and Proprietary Rights
In general, our intellectual property strategy is to protect our technology by filing patent applications and obtaining patent rights covering our own
technology, both in the United States and in foreign countries that we consider important to our business. In addition, we have acquired and will seek to
acquire as needed or desired, exclusive rights of others through assignment or license to complement our portfolio of patent rights. We also rely on trade
secrets, unpatented know-how and technological expertise and innovation to develop and maintain our competitive position.
Patents
The successful development and marketing of products by us will depend in part on our ability to create and maintain intellectual property, including
patent rights. We are the owner or exclusive licensee to proprietary patent positions in the areas of vaccine technologies, antibody technologies and
complement inhibitor technology. Although we continue to pursue patent protection for our products, no assurance can be given that any pending application
will issue as a patent, that any issued patent will have a scope that will be of commercial benefit, or that we will be able to successfully enforce our patent
position against infringers. We routinely review our patent portfolio and adjust our strategies for prosecution and maintenance of individual cases according to
a number of factors including program priorities, stage of development, and patent term.
We own or license rights under more than 400 granted patents and national and regional patent applications around the world covering inventions
relating to our business. The key patents and patent applications owned by us or licensed to us that we consider important to our business include the
following (the indicated and estimated patent expiry dates do not include any possible Patent Term Extensions or Supplementary Protection Certificates, if
these may be secured in due course):
•
Patents for the technology used in rindopepimut have expiration dates through 2014 in the United States and through 2015 in the United
Kingdom, Germany and France. We also have rights under patent applications around the world relating to uses of rindopepimut which are
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currently pending. If issued and maintained to full term in a form which covers commercial use of rindopepimut, the latter filings could potentially
provide additional patent protection for the relevant use in the relevant territories to 2026. We also have rights to an international patent
application relating to methods of manufacture and formulation of rindopepimut, which, if issued in the main designated territories in a form
which covers manufacture and/or formulation rindopepimut and maintained to full term in due course, would have estimated patent expiry dates in
2030.
Our patent portfolio for CDX-011 includes an issued patent in Europe and pending patent applications in the U.S. and Japan. If issued and
maintained to full term in due course, these would have estimated patent expiry dates in 2025. In addition, patent rights relating to the toxin and
conjugation technology used in CDX-011 have been licensed from Seattle Genetics.
We have licensed pending patent applications in the U.S., Europe and Japan relating to the technology used in CDX-1127. If issued and
maintained to full term in due course, these would have estimated patent expiry dates in 2027. U.S. and international patent applications have
also been filed which, if issued in the main designated territories and maintained to full term in due course, would have estimated patent expiry
dates in 2031.
We have pending patent application relating to the technology used in CDX-1401 which, if issued and maintained to full term in due course,
would have estimated patent expiry dates in 2028.
Patents for the technology used in CDX-1135 have expiration dates that range from 2013 to 2016. Further patent applications are also pending.
Patents for the technology used in CDX-301 have current expiration dates that range from 2016 in the major European territories to 2020 in the
US.
Our patent portfolio for CDX-014 includes pending patent applications in the U.S., Europe and Japan. If issued and maintained to full term in
due course, these would have estimated patent expiry dates in 2024.
Patents for the technology used in the cholera and typhoid vaccines expire between 2013 and 2016. Our patent portfolio for ETEC includes
pending patent applications around the world which, if issued and maintained to full term in due course, would have estimated patent expiry
dates in 2028.
A U.S. patent for our rotavirus strain that we licensed to Glaxo has an expiration date in December 2012.
•
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•
•
•
•
•
•
There can be no assurance that patent applications owned by or licensed to us will result in granted patents or that, if granted, the resultant patents will
afford protection against competitors with similar technology. It is also possible that third parties may obtain patents or other proprietary rights that may be
necessary or useful to us. In cases where third parties are first to invent a particular product or technology, it is possible that those parties will obtain patents
that will be sufficiently broad to prevent us from using important technology or from further developing or commercializing important vaccine and
immunotherapeutic systems and vaccine candidates. If licenses from third parties are necessary but cannot be obtained, commercialization of the covered
products might be delayed or prevented. Even if these licenses can be obtained, they would probably require us to pay ongoing royalties and other costs,
which could be substantial.
Although a patent has a statutory presumption of validity in the United States, the issuance of a patent is not conclusive as to validity or as to the
enforceable scope of the patent claims. The validity or enforceability of a patent after its issuance by the Patent and Trademark Office can be challenged in
litigation. As a business that uses a substantial amount of intellectual property, we face a heightened
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risk of intellectual property litigation. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention
covered by the patent without authorization or payment. There can be no assurance that our issued patents or any patents subsequently issued to or licensed by
us will not be successfully challenged in the future. In addition, there can be no assurance that our patents will not be infringed or that the coverage of our
patents will not be successfully avoided by competitors through design innovation.
We are aware that others, including universities and companies, have filed patent applications and have been granted patents in the United States and
other countries which claim subject matter potentially useful or necessary to the commercialization of our products. The ultimate scope and validity of
existing or future patents which have been or may be granted to third parties, and the availability and cost of acquiring rights in those patents necessary to the
manufacture, use or sale of our products presently cannot be determined by us.
Third parties may have or may obtain valid and enforceable patents or proprietary rights that could block us from developing products using our
technology, including:
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•
•
•
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•
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certain patents and applications in the United States and Europe owned by Sanofi-Aventis, which relate to antibody-antigen conjugates and
methods of their use for eliciting an immune response against the antigen;
certain patents and applications in the United States and foreign countries covering particular antigens and antigenic fragments targeted by our
current vaccine drug candidates, including CDX-1401;
certain patents and pending applications related to particular receptors and other molecules on dendritic cells and macrophages that may be useful
for generating monoclonal antibodies and can be employed in our APC Targeting Technology;
two United States patents and related foreign patents and applications covering methods of diagnosing gliomas by detecting the presence of the
EGFRvIII (tumor specific splice variant) protein;
a United States patent relating to certain uses of GM-CSF;
a United States patent owned by Genentech, Inc., relating to the production of recombinant antibodies in host cells;
a United States patent owned by GlaxoSmithKline plc related to methods of culturing cells under certain conditions; and
certain patents held by third parties relating to antibody expression in particular types of host cells.
In addition to the patents referred to in the previous paragraphs, there may be other patent applications and issued patents belonging to competitors that
may require us to alter our vaccine candidates and vaccine and immunotherapeutic delivery systems, pay licensing fees or cease some of our activities. If our
drug candidates conflict with patents that have been or may be granted to competitors, universities or others, the patent owners could bring legal action against
us claiming damages and seeking to enjoin manufacturing and marketing of the patented products. If any of these actions is successful, in addition to any
potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. There can be no
assurance that we would prevail in any such action or that any license required under any such third party patent would be made available on acceptable terms
or at all. We believe that there may be significant litigation in the biotechnology and vaccine industries regarding patent and other intellectual property rights.
If we become involved in that litigation, we could consume substantial resources.
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Licenses
We have entered into several significant license agreements relating to technology that is being developed by us and/or our collaborators. In general,
these institutions have granted us an exclusive worldwide license (with right to sublicense) to make, use and sell products embodying the licensed technology,
subject to the reservation by the licensor of a non-exclusive right to use the technologies for non-commercial research purposes. Generally, the term of each
license is through the expiration of the last of the patents issued with respect to the technologies covered by the license. We have generally agreed to use
reasonable efforts to develop and commercialize licensed products and to achieve specified milestones and pay license fees, milestone payments and royalties
based on the net sales of the licensed products or to pay a percentage of sublicense income. If we breach our obligations, the licensor has the right to terminate
the license, and, in some cases, convert the license to a non-exclusive license. Generally, we control and are responsible for the cost of defending the patent
rights of the technologies that we license.
Proprietary Rights
We also rely on unpatented technology, trade secrets and confidential information, and no assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain access to our know-how and information, or that we can meaningfully protect
our rights in such unpatented technology, trade secrets and information. We require each of our employees, consultants and advisors to execute a
confidentiality agreement at the commencement of an employment or consulting relationship with us. The agreements generally provide that all inventions
conceived by the individual in the course of employment or in providing services to us and all confidential information developed by, or made known to, the
individual during the term of the relationship shall be the exclusive property of us and shall be kept confidential and not disclosed to third parties except in
limited specified circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for our information in the
event of unauthorized use or disclosure of such confidential information.
Government Regulation
Our activities and products are significantly regulated by a number of governmental entities, including the FDA in the United States and by comparable
authorities in other countries. These entities regulate, among other things, the manufacture, testing, safety, effectiveness, labeling, documentation, advertising
and sale of our products. We must obtain regulatory approval for a product in all of these areas before we can commercialize the product. Product
development within this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many products that initially
appear promising ultimately do not reach the market because they are found to be unsafe or ineffective when tested. Our inability to commercialize a product
would impair our ability to earn future revenues.
FDA Approval Process
In the United States, vaccines and immunotherapeutics for human use are subject to FDA approval as "biologics" under the Public Health Service Act
and "drugs" under the Federal Food, Drug and Cosmetic Act. The steps required before a new product can be commercialized include: preclinical studies in
animals, clinical trials in humans to determine safety and efficacy and FDA approval of the product for commercial sale.
Data obtained at any stage of testing is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Moreover, during
the regulatory process, new or changed drug approval policies may cause unanticipated delays or rejection of our product. We may not obtain
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necessary regulatory approvals within a reasonable period of time, if at all, or avoid delays or other problems in testing our products. Moreover, even if we
received regulatory approval for a product, the approval may require limitations on use, which could restrict the size of the potential market for the product.
The FDA provides that human clinical trials may begin thirty (30) days after receipt and review of an IND application, unless the FDA requests
additional information or changes to the study protocol within that period. An IND must be sponsored and filed for each of our proposed products.
Authorization to conduct a clinical trial in no way assures that the FDA will ultimately approve the product. Clinical trials are usually conducted in three
sequential phases. In a Phase 1 trial, the product is given to a small number of healthy volunteers to test for safety (adverse effects). Phase 2 trials are
conducted on a limited group of the target patient population; safety, optimal dosage and efficacy are studied. A Phase 3 trial is performed in a large patient
population over a wide geographic area to provide evidence for the safety of the product and to prove and confirm efficacy. The FDA has ongoing oversight
over all these trials and can order a temporary or permanent discontinuation if warranted. Such an action could materially harm us. Clinical tests are critical to
the success of our products but are subject to unforeseen and uncontrollable delay, including delay in enrollment of patients. Any delay in clinical trials could
delay our commercialization of a product.
A product's safety and effectiveness in one test is not necessarily indicative of its safety and effectiveness in another test. Moreover, we may not discover
all potential problems with a product even after completing testing on it. Some of our products and technologies have undergone only preclinical testing. As a
result, we do not know whether they are safe or effective for humans. Also, regulatory authorities may decide, contrary to our findings, that a product is
unsafe or not as effective in actual use as its test results indicated. This could prevent the product's widespread use, require its withdrawal from the market or
expose us to liability.
The results of the clinical trials and all supporting data are submitted to the FDA for approval. A Biologics License Application (BLA) is submitted for a
biologic product; a New Drug Application (NDA) for a drug product. The interval between IND filing and BLA/NDA filing is usually at least several years
due to the length of the clinical trials, and the BLA/NDA review process can take over a year. During this time the FDA may request further testing or
additional trials or may turn down the application. Even with approval, the FDA frequently requires post-marketing safety studies (known as Phase 4 trials) to
be performed.
The FDA requires that the manufacturing facility that produces a licensed product meet specified standards, undergo an inspection and obtain an
establishment license prior to commercial marketing. Subsequent discovery of previously unknown problems with a product or its manufacturing process may
result in restrictions on the product or the manufacturer, including withdrawal of the product from the market. Failure to comply with the applicable regulatory
requirements can result in fines, suspensions of regulatory approvals, product recalls, operating restrictions and criminal prosecution.
Expedited Review and Approval
The FDA has various programs, including fast track, priority review, and accelerated approval, that are intended to expedite or simplify the process for
reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for these programs are those for
serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing
treatments, however, these programs do not affect the standards for approval. Fast track designation applies to the combination of the product and the specific
indication for which it is being studied. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-
marketing clinical trials.
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Orphan Drug
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a
disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there
is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered
from sales in the United States for that drug. If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for
which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to
market the same drug for the same indication, except in very limited circumstances, for seven years.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after
the product reaches the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the
effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results
of these post-marketing programs.
Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and
distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for FDA approval. Approval by the FDA does not ensure approval by the
regulatory bodies of other countries.
Under European Union regulatory systems, we may submit marketing authorization applications either under a centralized or decentralized procedure.
The centralized procedure, which is compulsory for medicines produced by biotechnology and optional for those which are highly innovative, provides for the
grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of
national approval decisions. Under the decentralized procedure, the holder of a national marketing authorization may submit an application to the remaining
member states. Within 90 days of receiving the applications and assessments report each member state must decide whether to recognize approval. If a
member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is
binding on all member states. As in the United States, we may apply for designation of our products as orphan drug for the treatment of a specific indication
in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including
a 10-year market exclusivity period for the approved indication, but not for the same drug, unless another applicant can show that its product is safer, more
effective or otherwise clinically superior to the orphan-designated product.
Our collaborators are also subject to all of the above-described regulations in connection with the commercialization of products utilizing our technology.
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Other Regulatory Processes
We are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to the
oversight activities of the SEC and the regulations of the NASDAQ Global Market, on which our shares are traded. We are also subject to regulation under
other federal laws and regulation under state and local laws, including laws relating to occupational safety, laboratory practices, environmental regulations,
and hazardous substance control.
Employees
As of December 31, 2011, we employed 103 employees, 14 of whom have Ph.D. and/or M.D. degrees. Of these employees, 86 were engaged in or
directly support research and development activities. We believe that our employee relations are good. We believe that our future success will depend in large
part on our ability to attract and retain experienced and skilled employees.
Item 1A. RISK FACTORS
You should consider carefully these risk factors together with all of the information included or incorporated by reference in this Annual Report in
addition to our financial statements and the notes to our financial statements. This section includes forward-looking statements.
The following is a discussion of the risk factors that we believe are material to us at this time. These risks and uncertainties are not the only ones facing
us and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business,
results of operations, financial condition and cash flows.
Risks Related to our Business
We expect to incur future losses and we may never become profitable.
We have incurred operating losses of $43.4 million, $6.5 million and $36.9 million during 2011, 2010 and 2009, respectively, and expect to incur an
operating loss in 2012. We believe that operating losses will continue beyond 2012 because we are planning to incur significant costs associated with the
clinical development and manufacturing commercial supply of rindopepimut to prepare for the potential launch of rindopepimut. In addition, we are planning
to incur significant costs in the clinical development of CDX-011, CDX-1127, CDX-1401, CDX-301 and CDX-1135. Our net losses have had and will
continue to have an adverse effect on, among other things, our stockholders' equity, total assets and working capital. We expect that losses will fluctuate from
quarter to quarter and year to year, and that such fluctuations may be substantial. We cannot predict when we will become profitable, if at all.
Our long term success depends heavily on our ability to fund and complete research and development activities for, and to commercialize, our lead
drug candidate, rindopepimut, which we are developing internally.
While in the past we have typically focused on developing and demonstrating proof-of-concept for our product candidates by bringing such candidates
through Phase 1 and one or more Phase 2 clincial trials, and then leveraging their value through partnerships, we have decided to fund and complete the
research and development activities for rindopepimut ourselves. We plan to commercialize rindopepimut ourselves in North America and to find a partner to
commercialize rindopepimut outside of North America. Therefore, we must allocate a significant portion of our time, personnel and financial resources to the
development of rindopepimut. We initiated ACT IV, our pivotal Phase 3 clinical trial of rindopepimut, in December 2011. While we are targeting two years
for patient accrual, it could take up to three years to enroll all the patients, and another 18 to 24 months of follow-up, at a
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cost of over $50 million to complete this Phase 3 study. Our management team lacks significant experience in completing Phase 3 clinical trials and bringing
a drug through commercialization. If we face delays, difficulties or unanticipated costs in completing the development of rindopepimut, we will need
substantial additional financing. Further, even if we complete the development of rindopepimut and gain marketing approvals from the FDA and comparable
foreign regulatory authorities in a timely manner, we cannot be sure that rindopepimut will be commercially successful in the pharmaceutical market. If the
results of clinical trials of rindopepimut, the anticipated or actual timing of marketing approvals for rindopepimut, or the market acceptance of rindopepimut,
if approved, do not meet the expectations of investors or public market analysts, the market price of our common stock would likely decline.
We may be unable to manage one Phase 3 clinical trial or multiple late stage clinical trials for a variety of product candidates simultaneously.
As our current clinical trials progress, we may need to manage multiple late stage clinical trials simultaneously in order to continue developing all of our
current products. Our management team does not have significant experience in completing late stage clinical trials and the management of late stage clinical
trials is more complex and time consuming than early stage trials. Typically, early stage trials involve several hundred patients in no more than 10-30 clinical
sites. Late stage (Phase 3) trials may involve up to several thousand patients in up to several hundred clinical sites and may require facilities in several
countries. Therefore, the project management required to supervise and control such an extensive program is substantially larger than early stage programs.
As the need for these resources is not known until some months before the trials begin, it is necessary to recruit large numbers of experienced and talented
individuals very quickly. If the labor market does not allow this team to be recruited quickly, the sponsor is faced with a decision to delay the program or to
initiate it with inadequate management resources. This may result in recruitment of inappropriate patients, inadequate monitoring of clinical investigators and
inappropriate handling of data or data analysis. Consequently it is possible that conclusions of efficacy or safety may not be acceptable to permit filing of a
BLA or NDA for any one of the above reasons or a combination of several.
We will need additional capital to fund our operations, including the development, manufacture and potential commercialization of our drug
candidates. If we do not have or cannot raise additional capital when needed, we will be unable to develop and ultimately commercialize our drug
candidates successfully.
We expect to incur significant costs as we develop our drug candidates. In particular, the continuing development and commercialization of
rindopepimut requires additional capital beyond our current resources. As of December 31, 2011, we had cash, cash equivalents and marketable securities of
$53.3 million, which, at that time, we believed would support expected operations for more than 12 months.
During the next twelve months, we may take further steps to raise additional capital to fund our long-term liquidity needs. Our capital raising activities
may include, but may not be limited to, one or more of the following:
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•
•
•
licensing of drug candidates with existing or new collaborative partners;
possible business combinations;
issuance of debt; or
issuance of common stock or other securities via private placements or public offerings.
While we may 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
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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.
In January 2011, we entered into a financing facility with Cantor Fitzgerald & Co., providing for the sale of up to 5 million shares of our common stock
from time to time into the open market at prevailing prices. 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. As of December 31, 2011, we had 4,425,000
shares available to be sold under the Cantor Agreement. In January 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 will 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. We may or may not sell additional shares
under this facility, depending on the volume and price of our common stock, as well as our capital needs and potential alternative sources of capital. If we
actively sell shares under this facility, a significant number of shares of common stock could be issued in a short period of time, although we would attempt to
structure the volume and price thresholds in a way that minimizes market impact. Notwithstanding these control efforts, these sales, or the perceived risk of
dilution from potential sales of stock through this facility, may depress our stock price, cause holders of our common stock to sell their shares, or encourage
short selling by market participants, which could contribute to a decline in our stock price. A decline in our stock price might impede our ability to raise
capital through the issuance of additional shares of common stock or other equity securities, and may cause our stockholders to lose part or all of the value of
their investment in our stock.
In February 2012, we issued 10,500,000 shares of our common stock in an underwritten public offering. The net proceeds to us were $37.7 million, after
deducting underwriting fees and estimated offering expenses. We have granted the underwriters a 30-day option to purchase up to an aggregate of 1,575,000
additional shares of common stock to cover overallotments, if any.
We rely on third parties to plan, conduct and monitor our clinical tests, and their failure to perform as required would interfere with our product
development.
We rely on third parties to conduct a significant portion of our clinical development activities. These activities include clinical patient recruitment and
observation, clinical trial monitoring, clinical data management and analysis, safety monitoring and project management. We conduct project management
and medical and safety monitoring in-house for some of our programs and rely on third parties for the remainder of our clinical development activities. If any
of these third parties fails to perform as we expect or if their work fails to meet regulatory standards, our testing could be delayed, cancelled or rendered
ineffective.
The significant third parties who we currently rely on for clinical development activities include Novella Clinical Inc. (Novella) for ACT IV. If Novella
is unable to perform in a quality and timely manner, and at a feasible cost, ACT IV will face delays.
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We may enter into collaboration agreements for the licensing, development and ultimate commercialization of some of our drug candidates
including, where appropriate, for our lead drug candidates. In such cases, we will depend greatly on our third party collaborators to license, develop
and commercialize such drug candidates, and they may not meet our expectations.
We are exploring potential co-development and commercialization partnerships for certain products, including rindopepimut for commercialization
outside of North America, CDX-011 and CDX-1127. The process of identifying collaborators and negotiating collaboration agreements for the licensing,
development and ultimate commercialization of some of our drug candidates may cause delays and increased costs. We may not be able to enter into
collaboration agreements on terms favorable to us. Furthermore some of those agreements may give substantial responsibility over our drug candidates to the
collaborator. Some collaborators may be unable or unwilling to devote sufficient resources to develop our drug candidates as their agreements require. They
often face business risks similar to ours, and this could interfere with their efforts. Also, collaborators may choose to devote their resources to products that
compete with ours. If a collaborator does not successfully develop any one of our products, we will need to find another collaborator to do so. The success of
our search for a new collaborator will depend on our legal right to do so at the time and whether the product remains commercially viable.
If we enter into collaboration agreements for one or more of our lead drug candidates, the success of such drug candidates will depend in great part upon
our and our collaborators' success in promoting them as superior to other treatment alternatives. We believe that our drug candidates can be proven to offer
disease prevention and treatment with notable advantages over drugs in terms of patient compliance and effectiveness. However, there can be no assurance
that we will be able to prove these advantages or that the advantages will be sufficient to support the successful commercialization of our drug candidates.
We may face delays, difficulties or unanticipated costs in establishing sales, distribution and manufacturing capabilities for our commercially ready
products.
Our current plan is to retain, rather than license to a third party, all rights to rindopepimut in North America (and to explore partnership opportunities to
commercialize rindopepimut outside of North America) and our APC Targeting Technology programs. As a result, we will have full responsibility for
commercialization of these products if and when they are approved for sale. We currently lack the marketing, sales and distribution capabilities that we will
need to carry out this strategy. To market any of our products directly, we must develop a substantial marketing and sales force with technical expertise and a
supporting distribution capability. We have little expertise in this area, and we may not succeed. We may find it necessary to enter into strategic partnerships
on uncertain but potentially unfavorable terms to sell, market and distribute our products when they are approved for sale.
Some of our products are difficult to manufacture, especially in large quantities, and we have not yet developed commercial scale manufacturing
processes for any of our products. We do not currently plan to develop internal manufacturing capabilities to produce any of our products at commercial scale
if they are approved for sale. To the extent that we choose to market and distribute these products ourselves, this strategy will make us dependent on other
companies to produce our products in adequate quantities, in compliance with regulatory requirements, and at a competitive cost. We may not find third
parties capable of meeting those manufacturing needs.
Our drug candidates are subject to extensive regulatory scrutiny.
All of our drug candidates are at various stages of development and commercialization and our activities and drug candidates are significantly regulated
by a number of governmental entities,
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including the FDA in the United States and by comparable authorities in other countries. These entities regulate, among other things, the manufacture, testing,
safety, effectiveness, labeling, documentation, advertising and sale of drugs and drug candidates. We or our partners must obtain regulatory approval for a
drug candidate in all of these areas before we can commercialize the drug candidate. Product development within this regulatory framework takes a number of
years and involves the expenditure of substantial resources. This process typically requires extensive preclinical and clinical testing, which may take longer or
cost more than we anticipate, and may prove unsuccessful due to numerous factors. Many drug candidates that initially appear promising ultimately do not
reach the market because they are found to be unsafe or ineffective when tested. Companies in the pharmaceutical, biotechnology and vaccines industries
have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. Our inability to commercialize a drug
candidate would impair our ability to earn future revenues.
If our products do not pass required tests for safety and effectiveness, we will not be able to derive commercial revenue from them.
In order to succeed, we will need to derive commercial revenue from the products we have under development. The FDA has not approved our
rindopepimut, CDX-011 or CDX-1127 drug candidates or any of our other products for sale to date. Our drug candidates are in various stages of preclinical
and clinical testing. Preclinical tests are performed at an early stage of a product's development and provide information about a product's safety and
effectiveness on laboratory animals. Preclinical tests can last years. If a product passes its preclinical tests satisfactorily, and we determine that further
development is warranted, we would file an IND application for the product with the FDA, and if the FDA gives its approval we would begin Phase 1 clinical
tests. Phase 1 testing generally lasts between 6 and 24 months. If Phase 1 test results are satisfactory and the FDA gives its approval, we can begin Phase 2
clinical tests. Phase 2 testing generally lasts between 6 and 36 months. If Phase 2 test results are satisfactory and the FDA gives its approval, we can begin
Phase 3 pivotal studies. Phase 3 studies generally last between 12 and 48 months. Once clinical testing is completed and a new drug application is filed with
the FDA, it may take more than a year to receive FDA approval.
In all cases we must show that a pharmaceutical product is both safe and effective before the FDA, or drug approval agencies of other countries where
we intend to sell the product, will approve it for sale. Our research and testing programs must comply with drug approval requirements both in the United
States and in other countries, since we are developing our lead products with the intention to, or could later decide to, commercialize them both in the U.S.
and abroad. A product may fail for safety or effectiveness at any stage of the testing process. A major risk we face is the possibility that none of our products
under development will come through the testing process to final approval for sale, with the result that we cannot derive any commercial revenue from them
after investing significant amounts of capital in multiple stages of preclinical and clinical testing.
Product testing is critical to the success of our products but subject to delay or cancellation if we have difficulty enrolling patients.
As our portfolio of potential products moves from preclinical testing to clinical testing, and then through progressively larger and more complex clinical
trials, we will need to enroll an increasing number of patients with the appropriate characteristics. At times we have experienced difficulty enrolling patients
and we may experience more difficulty as the scale of our clinical testing program increases. The factors that affect our ability to enroll patients are largely
uncontrollable and include principally the following:
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the nature of the clinical test;
the size of the patient population;
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patients' willingness to receive a placebo or less effective treatment on the control arm of a clinical study;
the distance between patients and clinical test sites; and
the eligibility criteria for the trial.
If we cannot enroll patients as needed, our costs may increase or it could force us to delay or terminate testing for a product.
We may have delays in completing our clinical trials and we may not complete them at all.
We have not completed the clinical trials necessary to obtain FDA approval to market rindopepimut, CDX-011 or any of our other products in
development. We initiated a Phase 3 study of rindopepimut in December 2011 but we have not initiated Phase 3 studies for CDX-011 or any of our other
products in development. Our management lacks significant experience in completing Phase 3 trials and bringing a drug through commercialization. Our
rindopepimut Phase 3 trial, CDX-011 Phase 2b studies and planned clinical trials for other products in development may be delayed or terminated as a result
of many factors, including the following:
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difficulty in enrolling patients in our clinical trials;
patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons
failure by regulators to authorize us to commence a clinical trial;
suspension or termination by regulators of clinical research for many reasons, including concerns about patient safety or failure of our contract
manufacturers to comply with cGMP requirements;
delays or failure of the FDA to remove the partial clinical hold on our CDX-011 studies;
treatment candidates demonstrating a lack of efficacy during clinical trials;
inability to continue to fund clinical trials or to find a partner to fund the clinical trials;
competition with ongoing clinical trials and scheduling conflicts with participating clinicians; and
delays in completing data collection and analysis for clinical trials.
Any delay or failure to complete clinical trials and obtain FDA approval for our drug candidates could have a material adverse effect on our cost to
develop and commercialize, and our ability to generate revenue from, a particular drug candidate.
Any delay in obtaining regulatory approval would have an adverse impact on our ability to earn future revenues.
It is possible that none of the drug candidates that we develop will obtain the regulatory approvals necessary for us to begin commercializing them. The
time required to obtain FDA and other approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon the
nature of the drug candidate. Any analysis we perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities,
which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material adverse effect on our
ability to generate revenues from the particular drug candidate including, but not limited to, loss of patent term during the approval period. Furthermore, if we,
or our partners, do not reach the market with our products before our competitors offer products for the same or similar uses, or if
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we, or our partners, are not effective in marketing our products, our revenues from product sales, if any, will be reduced.
We face intense competition in our development activities. We face competition from many companies in the United States and abroad, including a
number of large pharmaceutical companies, firms specialized in the development and production of vaccines, adjuvants and vaccine and immunotherapeutic
delivery systems and major universities and research institutions. The competitors for which we are aware have initiated a Phase 3 study or have obtained
marketing approval for a potentially competitive drug include Alexion, Agenus, Baxter, BMS, Dendreon, Eli Lilly, GlaxoSmithKline, ImmunoGen, Merck,
Pfizer, Roche, Sanofi-Aventis, Seattle Genetics, and Takeda. Most of our competitors have substantially greater resources, more extensive experience in
conducting preclinical studies and clinical testing and obtaining regulatory approvals for their products, greater operating experience, greater research and
development and marketing capabilities and greater production capabilities than those of ours. These companies might succeed in obtaining regulatory
approval for competitive products more rapidly than we can for our products, especially if we experience any delay in obtaining required regulatory
approvals.
Failure to comply with applicable regulatory requirements would adversely impact our operations.
Even after receiving regulatory approval, our products would be subject to extensive regulatory requirements, and our failure to comply with applicable
regulatory requirements will adversely impact our operations. In the United States, the FDA requires that the manufacturing facility that produces a product
meet specified standards, undergo an inspection and obtain an establishment license prior to commercial marketing. Subsequent discovery of previously
unknown problems with a product or its manufacturing process may result in restrictions on the product or the manufacturer, including withdrawal of the
product from the market. Failure to comply with the applicable regulatory requirements can result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution.
We depend greatly on the intellectual capabilities and experience of our key executives and scientists and the loss of any of them could affect our
ability to develop our products.
The loss of Anthony S. Marucci, our President and Chief Executive Officer, or other key members of our staff, including Avery W. Catlin, our Chief
Financial Officer, Dr. Thomas Davis, our Chief Medical Officer, Dr. Tibor Keler, our Chief Scientific Officer or Ronald Pepin, our Chief Business Officer,
could harm us. We entered into employment agreements with Messrs. Marucci, Catlin, Davis, Keler and Pepin although an employment agreement as a
practical matter does not guarantee retention of an employee. We also depend on our scientific and clinical collaborators and advisors, all of whom have
outside commitments that may limit their availability to us. In addition, we believe that our future success will depend in large part upon our ability to attract
and retain highly skilled scientific, managerial and marketing personnel, particularly as we expand our activities in clinical trials, the regulatory approval
process and sales and manufacturing. We routinely enter into consulting agreements with our scientific and clinical collaborators and advisors, key opinion
leaders and heads of academic departments in the ordinary course of our business. We also enter into contractual agreements with physicians and institutions
who recruit patients into our clinical trials on our behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant
competition for this type of personnel from other companies, research and academic institutions, government entities and other organizations. We cannot
predict our success in hiring or retaining the personnel we require for continued growth.
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We rely on contract manufacturers over whom we have limited control. Should the cost, delivery and quality of clinical and commercial grade
materials supplied by contract manufacturers vary to our disadvantage, our business operations could suffer significant harm.
We have limited experience in large scale manufacturing at our Fall River facility. We rely on sourcing from third-party manufacturers for suitable
quantities of some of our clinical and commercial grade materials and certain filling and packaging essential to preclinical and clinical studies currently
underway and to planned clinical trials in addition to those currently being conducted by third parties or us. The inability to have suitable quality and
quantities of these essential materials produced in a timely manner would result in significant delays in the clinical development and commercialization of
products, which could adversely affect our business, financial condition and results of operations.
For example, one lot of our CDX-011 product candidate being used in our on-going Phase 2b study was aseptically filled in 2009 by Formatech, a third
party contract manufacturer. 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 the eight patients remaining in the 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.
We have initiated discussions with the FDA regarding our proposal to utilize vials of CDX-011 that were filled by a different contract manufacturer.
Although the FDA has stated that no new patients may receive CDX-011 and that no patients may cross-over to receive CDX-011, we have asked the FDA to
reconsider allowing patients currently on the control arm to cross-over to CDX-011 after stability testing and confirmation that the product filled by the other
contract manufacturer is acceptable for continued use. If the FDA agrees to our proposal concerning use of the alternative CDX-011 for the eligible cross-over
patients, we believe that we should have sufficient clinical supply of CDX-011 to treat these cross-over patients. If we are not able to treat the eight remaining
cross-over patients with CDX-011, patients may withdraw from the control arm study upon learning that they will not be allowed to cross-over to CDX-011
following disease progression. However, the primary analyses for the study are entirely based upon the primary randomization and do not include the cross-
over results. Based on our discussions with our clinical investigators, we do not believe that a high proportion of patients will withdraw from the control arm
prior to progression. 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.
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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. We also rely on collaborators and contract manufacturers to manufacture proposed products in both clinical and
commercial quantities in the future. Our leading vaccine candidates require specialized manufacturing capabilities and processes.
We may face difficulty in securing commitments from U.S. and foreign contract manufacturers as these manufacturers could be unwilling or unable to
accommodate our needs. Relying on foreign manufacturers involves peculiar and increased risks, including the risk relating to the difficulty foreign
manufacturers may face in complying with GMP requirements as a result of language barriers, lack of familiarity with GMP or the FDA regulatory process or
other causes, economic or political instability in or affecting the home countries of our foreign manufacturers, shipping delays, potential changes in foreign
regulatory laws governing the sales of our product supplies, fluctuations in foreign currency exchange rates and the imposition or application of trade
restrictions.
There can be no assurances that we will be able to enter into long-term arrangements with third party manufacturers on acceptable terms, or at all.
Further, contract manufacturers must also be able to meet our timetable and requirements, and must operate in compliance with GMP; failure to do so could
result in, among other things, the disruption of product supplies. As noted above, non-U.S. contract manufacturers may face special challenges in complying
with GMP requirements, and although we are not currently dependent on non-U.S. collaborators or contract manufacturers, we may choose or be required to
rely on non-U.S. sources in the future as we seek to develop stable supplies of increasing quantities of materials for ongoing clinical trials of larger scale. Our
dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and deliver products on a
timely and competitive basis.
The significant third parties who we currently rely on for sourcing of suitable quantities of some of our clinical and commercial grade materials include
Biosyn, Bayer and Sanofi for our rindopepimut drug candidate. If we or our third-party manufacturers are unable to produce drug material in suitable
quantities of appropriate quality, in a timely manner, and at a feasible cost, our clinical tests will face delays.
Certain factors could negatively affect the demand for and sales of Rotarix®, which would have a material adverse affect on our revenues.
We have licensed a rotavirus strain to Glaxo for the purposes of Glaxo developing and commercializing their Rotarix® vaccine worldwide. 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. Glaxo gained approval for Rotarix® in Mexico in July 2004, in
the European Union in February 2006 and in the United States in April 2008. In May 2005, we entered into an agreement whereby an affiliate of PRF
purchased a 70% interest in the net royalties we receive on worldwide sales of Rotarix®. In addition, we retain upside participation in the worldwide net
royalties from Rotarix® once, and if, PRF receives an agreed upon return on capital invested (2.45 times PRF's aggregate cash payments to us of $60 million).
The PRF agreement terminates in December 2012,
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unless otherwise extended. The following are potential factors, among others, that may negatively affect the demand for Rotarix®:
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competitors in the pharmaceuticals, biotechnology and vaccines market have greater financial and management resources, and significantly more
experience in bringing products to market, and may develop, manufacture and market products that are more effective or less expensive than
Rotarix®;
Rotarix® could be replaced by a novel product and may become obsolete;
Glaxo may be unable to prevent third parties from infringing upon their proprietary rights related to Rotarix®;
users may not accept such a recently approved product without years of proven history; and
we are dependent on Glaxo for the manufacturing, testing, acquisition of regulatory approvals, marketing, distribution and commercialization of
Rotarix®.
Any of these factors could have a material adverse effect on the sales of Rotarix® and our revenues. However, any decline in revenue would not impact
our net income because any royalty revenue we receive from sales of Rotarix® is offset by a corresponding royalty expense that we pay to PRF.
Other factors could affect the demand for and sales of Rotarix and any other products that we may commercialize in the future.
In general, other factors that could affect the demand for and sales and profitability of our products include, but are not limited to:
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the timing of regulatory approval, if any, of competitive products;
our, Glaxo's, or any other of our partners' pricing decisions, as applicable, including a decision to increase or decrease the price of a product, and
the pricing decisions of our competitors;
government and third-party payer reimbursement and coverage decisions that affect the utilization of our products and competing products;
negative safety or efficacy data from new clinical studies conducted either in the U.S. or internationally by any party could cause the sales of our
products to decrease or a product to be recalled;
the degree of patent protection afforded our products by patents granted to or licensed by us and by the outcome of litigation involving our or any
of our licensor's patents;
the outcome of litigation involving patents of other companies concerning our products or processes related to production and formulation of
those products or uses of those products;
the increasing use and development of alternate therapies;
the rate of market penetration by competing products; and
the termination of, or change in, existing arrangements with our partners.
Any of these factors could have a material adverse effect on Glaxo's sales of Rotarix and on the sales of any other products that we may commercialize in
the future.
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We face the risk of product liability claims, which could exceed our insurance coverage, and produce recalls, each of which could deplete our cash
resources.
As a participant in the pharmaceutical, biotechnology and vaccines industries, we are exposed to the risk of product liability claims alleging that use of
our drug candidates caused an injury or harm. These claims can arise at any point in the development, testing, manufacture, marketing or sale of our drug
candidates and may be made directly by patients involved in clinical trials of our products, by consumers or healthcare providers or by individuals,
organizations or companies selling our products. Product liability claims can be expensive to defend, even if the drug or drug candidate did not actually cause
the alleged injury or harm.
Insurance covering product liability claims becomes increasingly expensive as a drug candidate moves through the development pipeline to
commercialization. Under our license agreements, we are required to maintain clinical trial liability insurance coverage up to $14 million. However, there can
be no assurance that such insurance coverage is or will continue to be adequate or available to us at a cost acceptable to us or at all. We may choose or find it
necessary under our collaborative agreements to increase our insurance coverage in the future. We may not be able to secure greater or broader product
liability insurance coverage on acceptable terms or at reasonable costs when needed. Any liability for damages resulting from a product liability claim could
exceed the amount of our coverage, require us to pay a substantial monetary award from our own cash resources and have a material adverse effect on our
business, financial condition and results of operations. Moreover, a product recall, if required, could generate substantial negative publicity about our products
and business and inhibit or prevent commercialization of other products and drug candidates.
In addition, some of our licensing and other agreements with third parties require or might require us to maintain product liability insurance. If we cannot
maintain acceptable amounts of coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the corresponding
agreements would be subject to termination, which could have a material adverse impact on our operations.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them.
Because we rely on third parties to develop our products, we must share trade secrets with them. We seek to protect our proprietary technology in part by
entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other
similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These
agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our
academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order
to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some
cases we may share these rights with other parties. We also conduct joint research and development programs which may require us to share trade secrets
under the terms of research and development partnership or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover
our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where
we do not have proprietary or otherwise protected rights at the time of publication. A competitor's discovery of our trade secrets would impair our competitive
position.
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We may not be able to successfully integrate newly-acquired technology with our existing technology or to modify our technologies to create new
vaccines.
As part of our acquisition of technology assets from entities such as 3M Company and Amgen, we have acquired access to Resiquimod (a TLR 7/8
agonist) and Flt3L, which may improve the immunogenicity of our vaccines. If we are able to integrate these licensed assets with our vaccine technologies,
we believe these assets will give our vaccines a competitive advantage. However, if we are unable to successfully integrate licensed assets, or other
technologies which we have acquired or may acquire in the future, with our existing technologies and potential products currently under development, we
may be unable to realize any benefit from our acquisition of these assets, or other technologies which we have acquired or may acquire in the future and may
face the loss of our investment of financial resources and time in the integration process.
We believe that our vaccine technology portfolio may offer opportunities to develop vaccines that treat a variety of oncology, inflammatory and
infectious diseases by stimulating a patient's immune system against those disease organisms. If our vaccine technology portfolio cannot be used to create
effective vaccines against a variety of disease organisms, we may lose all or portions of our investment in development efforts for new vaccine candidates.
We license technology from other companies to develop products, and those companies could influence research and development or restrict our use
of it.
Companies that license technologies to us that we use in our research and development programs may require us to achieve milestones or devote
minimum amounts of resources to develop products using those technologies. They may also require us to make significant royalty and milestone payments,
including a percentage of any sublicensing income, as well as payments to reimburse them for patent costs. The number and variety of our research and
development programs require us to establish priorities and to allocate available resources among competing programs. From time to time we may choose to
slow down or cease our efforts on particular products. If in doing so we fail to fully perform our obligations under a license, the licensor can terminate the
licenses or permit our competitors to use the technology. Moreover, we may lose our right to market and sell any products based on the licensed technology.
We have many competitors in our field and they may develop technologies that make ours obsolete.
Biotechnology, pharmaceuticals and therapeutics are rapidly evolving fields in which scientific and technological developments are expected to continue
at a rapid pace. We have many competitors in the U.S. and abroad. The competitors for which we are aware have initiated a Phase 3 study or have obtained
marketing approval for a potentially competitive drug include Alexion, Agenus, Baxter, BMS, Dendreon, Eli Lilly, GlaxoSmithKline, ImmunoGen, Merck,
Pfizer, Roche, Sanofi-Aventis, Seattle Genetics, and Takeda. Our success depends upon our ability to develop and maintain a competitive position in the
product categories and technologies on which we focus. Many of our competitors have greater capabilities, experience and financial resources than we do.
Competition is intense and is expected to increase as new products enter the market and new technologies become available. Our competitors may:
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develop technologies and products that are more effective than ours, making ours obsolete or otherwise noncompetitive;
obtain regulatory approval for products more rapidly or effectively than us; and
obtain patent protection or other intellectual property rights that would block our ability to develop competitive products.
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We rely on patents, patent applications and other intellectual property protections to protect our technology and trade secrets; which are expensive
and may not provide sufficient protection.
Our success depends in part on our ability to obtain and maintain patent protection for technologies that we use. Biotechnology patents involve complex
legal, scientific and factual questions and are highly uncertain. To date, there is no consistent policy regarding the breadth of claims allowed in biotechnology
patents, particularly in regard to patents for technologies for human uses like those we use in our business. We cannot predict whether the patents we seek will
issue. If they do issue, a competitor may challenge them and limit their scope. Moreover, our patents may not afford effective protection against competitors
with similar technology. A successful challenge to any one of our patents could result in a third party's ability to use the technology covered by the patent. We
also face the risk that others will infringe, avoid or circumvent our patents. Technology that we license from others is subject to similar risks and this could
harm our ability to use that technology. If we, or a company that licenses technology to us, were not the first creator of an invention that we use, our use of the
underlying product or technology will face restrictions, including elimination.
If we must defend against suits brought against us or prosecute suits against others involving intellectual property rights, we will incur substantial costs.
In addition to any potential liability for significant monetary damages, a decision against us may require us to obtain licenses to patents or other intellectual
property rights of others on potentially unfavorable terms. If those licenses from third parties are necessary but we cannot acquire them, we would attempt to
design around the relevant technology, which would cause higher development costs and delays, and may ultimately prove impracticable.
Our business requires us to use hazardous materials, which increases our exposure to dangerous and costly accidents.
Our research and development activities involve the use of hazardous chemicals, biological materials and radioactive compounds. Although we believe
that our safety procedures for handling and disposing of hazardous materials comply with the standards prescribed by applicable laws and regulations, we
cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, an injured party will likely sue us
for any resulting damages with potentially significant liability. The ongoing cost of complying with environmental laws and regulations is significant and may
increase in the future.
Health care reform and restrictions on reimbursement may limit our returns on potential products.
Because our strategy ultimately depends on the commercial success of our products, we assume, among other things, that end users of our products will
be able to pay for them. In the United States and other countries, in most cases, the volume of sales of products like those we are developing depends on the
availability of reimbursement from third-party payors, including national health care agencies, private health insurance plans and health maintenance
organizations. Third-party payors increasingly challenge the prices charged for medical products and services. Accordingly, if we succeed in bringing
products to market, and reimbursement is not available or is insufficient, we could be prevented from successfully commercializing our potential products.
The health care industry in the United States and in Europe is undergoing fundamental changes as a result of political, economic and regulatory
influences. Reforms proposed from time to time include mandated basic health care benefits, controls on health care spending, the establishment of
governmental controls over the cost of therapies, creation of large medical services and products purchasing groups and fundamental changes to the health
care delivery system. We anticipate ongoing review and assessment of health care delivery systems and methods of payment in the United States and other
countries. We cannot predict whether any particular reform initiatives will result or, if
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adopted, what their impact on us will be. However, we expect that adoption of any reform proposed will impair our ability to market products at acceptable
prices and that uncertainty concerning future government regulation of consumer healthcare purchasing and insurance may result in difficulties for drug
development companies, like Celldex, in raising capital.
Changes in laws affecting the health care industry could adversely affect our business.
In the U.S., there have been numerous proposals considered at the federal and state levels for comprehensive reforms of health care and its cost, and it is
likely that federal and state legislatures and health agencies will continue to focus on health care reform in the future. Congress has considered legislation to
reform the U.S. health care system by expanding health insurance coverage, reducing health care costs and making other changes. While health care reform
may increase the number of patients who have insurance coverage for our products, it may also include cost containment measures that adversely affect
reimbursement for our products. Congress has also considered legislation to change the Medicare reimbursement system for outpatient drugs, increase the
amount of rebates that manufacturers pay for coverage of their drugs by Medicaid programs and facilitate the importation of lower-cost prescription drugs that
are marketed outside the U.S. Some states are also considering legislation that would control the prices of drugs, and state Medicaid programs are increasingly
requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental
rebates are not being paid. Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of
particular drugs. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may
result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding constraint on prices and
reimbursement for our products.
We and our collaborators and partners operate in a highly regulated industry. As a result, governmental actions may adversely affect our business,
operations or financial condition, including:
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new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability,
method of delivery and payment for health care products and services;
changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market
opportunity;
changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or
use, or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the
future permitted uses of approved products, or otherwise adversely affect the market for our products;
new laws, regulations and judicial decisions affecting pricing or marketing practices; and
changes in the tax laws relating to our operations.
The enactment in the U.S. of health care reform, possible legislation which could ease the entry of competing follow-on biologics in the marketplace,
new legislation or implementation of existing statutory provisions on importation of lower-cost competing drugs from other jurisdictions, and legislation on
comparative effectiveness research are examples of previously enacted and possible future changes in laws that could adversely affect our business. In
addition, the Food and Drug Administration Amendments Act of 2007 included new authorization for the FDA to require post-market safety monitoring,
along with an expanded clinical trials registry and clinical trials results database, and expanded authority for the FDA to impose civil monetary penalties on
companies that fail to meet certain commitments.
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If physicians, patients and third-party payors do not accept any future drugs that we may develop, we may be unable to generate significant revenue,
if any.
Even if our drug candidates as well as any drug candidates that we may develop or acquire in the future obtain regulatory approval, they may not gain
market acceptance among physicians, patients and health care payors. Physicians may elect not to recommend these drugs for a variety of reasons including:
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timing of market introduction of competitive drugs;
lower demonstrated clinical safety and efficacy compared to other drugs;
lack of cost-effectiveness;
lack of availability of reimbursement from third-party payors;
convenience and ease of administration;
prevalence and severity of adverse side effects;
other potential advantages of alternative treatment methods; and
ineffective marketing and distribution support.
If any drugs that we develop fail to achieve market acceptance, we would not be able to generate sufficient revenue from product sales to maintain or
grow our business.
Risks Related to our Capital Stock
Our history of losses and uncertainty of future profitability make our common stock a highly speculative investment.
We have had no commercial revenue to date from sales of our human therapeutic or vaccine products and cannot predict when we will have commercial
revenue from such sales. We had an accumulated deficit of $205 million as of December 31, 2011. We expect to spend substantial funds to continue the
research and development testing of our products that we have in the preclinical and clinical testing stages of development that have not been partnered.
In anticipation of FDA approval of these products, we will need to make substantial investments to establish sales, marketing, quality control, and
regulatory compliance capabilities. These investments will increase if and when any of these products receive FDA approval. We cannot predict how quickly
our lead products will progress through the regulatory approval process. As a result, we may continue to lose money for several years.
We cannot be certain that we will achieve or sustain profitability in the future. Failure to achieve profitability could diminish our ability to sustain
operations, pay dividends on our common stock, obtain additional required funds and make required payments on our present or future indebtedness.
Our share price has been and could remain volatile.
The market price of our common stock has historically experienced and may continue to experience significant volatility. From January 2011 through
December 2011, the market price of our common stock has fluctuated from a high of $4.46 per share in the second quarter of 2011, to a low of $2.11 per share
in the fourth quarter of 2011. Our progress in developing and commercializing our products, the impact of government regulations on our products and
industry, the potential sale of a large volume of our common stock by stockholders, our quarterly operating results, changes in general conditions in the
economy or the financial markets and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate
substantially with
37
Table of Contents
significant market losses. If our stockholders sell a substantial number of shares of common stock, especially if those sales are made during a short period of
time, those sales could adversely affect the market price of our common stock and could impair our ability to raise capital. In addition, in recent years, the
stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect the price of our common stock. In addition, we could be subject to a securities
class action litigation as a result of volatility in the price of our stock, which could result in substantial costs and diversion of management's attention and
resources and could harm our stock price, business, prospects, results of operations and financial condition.
The restrictive covenants contained in our credit agreement may limit our activities.
On December 30, 2010, we entered into a Loan and Security Agreement (the "Loan Agreement") with MidCap Financial, LLC (MidCap) pursuant to
which we borrowed $10 million (the "Term Loan") from MidCap. In March 2011, we 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. Our obligations under the Term Loan 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 (the "Collateral"). Under the Term Loan, we are subject to specified affirmative covenants
customary for loans of this type, including but not limited to the obligations to maintain good standing, provide various notices to the Lenders, deliver
financial statements to the Lenders, maintain adequate insurance, promptly discharge all taxes, protect our intellectual property and protect the Collateral. We
are also subject to certain negative covenants customary for loans of this type, including but not limited to prohibitions against certain mergers and
consolidations, certain management and ownership changes constituting a "change of control," and the imposition of additional liens on Collateral or other of
our assets, as well as prohibitions against additional indebtedness, certain dispositions of property, changes in our business, name or location, payment of
dividends, prepayment of certain other indebtedness, certain investments or acquisitions, and certain transactions with affiliates, in each case subject to certain
customary exceptions, including exceptions that allow us to enter into non-exclusive and/or exclusive licenses and similar agreements providing for the use of
our intellectual property in collaboration with third parties provided certain conditions are met.
Failure to comply with the restrictive covenants in our Term Loan could accelerate the repayment of any debt outstanding under the Term Loan.
Additionally, as a result of these restrictive covenants, we may be at a disadvantage compared to our competitors that have greater operating and financing
flexibility than we do.
Our ability to use our net operating loss carryforwards will be subject to limitation and, under certain circumstances, may be eliminated.
Utilization of our net operating loss (NOL) and research and development credit (R&D credit) carryforwards may be subject to substantial annual
limitation due to ownership change limitations that have occurred previously or that could occur in the future provided by Section 382 of the Internal Revenue
Code of 1986 (Section 382), as well as similar state provisions. In general, an ownership change, as defined by Section 382, results from transactions
increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
In October 2007, June 2009 and in December 2009, we experienced a change in ownership as defined by Section 382 of the Internal Revenue Code.
Historically, we have raised capital through the issuance of capital stock on several occasions which, combined with shareholders' subsequent disposition of
those shares, has resulted in three changes of control, as defined by Section 382. As a
38
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result of the ownership change in October 2007, utilization of its Federal NOLs is subject to an annual limitation. Any unused annual limitation may be
carried over to later years, and the amount of the limitation may, under certain circumstances, be subject to adjustment if the fair value of the our net assets are
determined to be below or in excess of the tax basis of such assets at the time of the ownership change, and such unrealized loss or gain is recognized during
the five-year period after the ownership change. Subsequent ownership changes, as defined in Section 382, could further limit the amount of net operating loss
carryforwards and research and development credits that can be utilized annually to offset future taxable income.
We have not undertaken a study to assess whether an ownership change or multiple ownership changes has occurred for (i) AVANT or CuraGen prior to
our acquisitions, (ii) the Company on the state level, (iii) the Company since December 2009, or (iv) R&D credits. If there has been an ownership change at
any time since its formation, utilization of NOL or tax credit carryforwards would be subject to an annual limitation under Section 382.
Refer to Note 15, "Income Taxes," in the accompanying notes to the consolidated financial statements for additional discussion on income taxes.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our significant leased properties are described below.
Property Location
Needham, Massachusetts
Fall River, Massachusetts
Phillipsburg, New Jersey
New Haven, Connecticut
Approximate Square Feet
Use
Lease Expiration Date
35,200 Office Headquarters and Laboratory
23,400 Manufacturing Facility
19,400 Office and Laboratory
3,000 Office
April 2017
December 2017(1)
August 2016(2)
January 2013(3)
(1)
Lease includes two renewal options of five years each. Lease also includes provision for early termination in December 2015 upon prior notice of one
year.
(2)
Lease includes one renewal option of five years.
(3)
Lease includes one renewal option of three years.
Item 3. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
39
Table of Contents
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock currently trades on the Nasdaq Global Market (NASDAQ) under the symbol "CLDX". The following table sets forth for the periods
indicated the high and low sale prices per share for our common stock, as reported by NASDAQ.
PART II
Fiscal Period
Year Ended December 31, 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
6.48
9.49
5.59
4.98
4.22
4.46
3.73
3.21
4.35
4.53
2.91
3.90
3.45
3.03
2.29
2.11
As of February 29, 2012, there were approximately 562 shareholders of record of our common stock. On February 29, 2012 the closing price of our
common stock, as reported by NASDAQ, was $3.79 per share. We have not paid any dividends on our common stock since our inception and do not intend to
pay any dividends in the foreseeable future.
Equity Compensation Plan Information
The following table provides information as of December 31, 2011 regarding shares of our common stock that may be issued under our existing equity
compensation plans, including our 2008 Stock Option and Incentive Plan (the "2008 Plan") and our 2004 Employee Stock Purchase Plan (the "2004 ESPP
Plan").
Equity Compensation Plan Information
Number of securities
to be issued upon
exercise
of outstanding options
and rights(1)
Weighted Average
exercise price of
outstanding options
and rights
Number of securities
remaining available for
future issuance under
equity
compensation plan
(excluding securities
referenced in column (a))
Equity
compensation
plans approved
by security
holders(2)
4,459,034(3)
$
6.08
997,493(4)
(1)
Does not include any Restricted Stock as such shares are already reflected in our outstanding shares.
(2)
Consists of the 2008 Plan, 2004 ESPP Plan, Celldex Research's 2005 Equity Incentive Plan and CuraGen's 2007 Stock Plan.
(3)
Does not include purchase rights accruing under the 2004 ESPP Plan because the purchase price (and therefore the number of shares to be purchased)
will not be determined until the end of the purchase period.
(4)
Includes shares available for future issuance under the 2008 Plan and the 2004 ESPP Plan.
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CELLDEX THEAPEUTICS, INC., NASDAQ MARKET INDEX—U.S. AND
PEER GROUP INDICES
The graph below compares the cumulative total stockholder return on the common stock for the period from December 31, 2006 through December 31,
2011, with the cumulative return on (i) NASDAQ Market Index—U.S. Companies and (ii) NASDAQ Pharmaceutical Index. The comparison assumes
investment of $100 on December 31, 2006 in our common stock and in each of the indices and, in each case, assumes reinvestment of all dividends. The
points on the graph are as of December 31 of the year indicated.
Celldex Therapeutics, Inc.
NASDAQ Stock Market (U.S.) Index
NASDAQ Pharmaceutical Stock Index
Item 6. SELECTED FINANCIAL DATA
2006
$
$
$
100 $
100 $
100 $
2007
2008
37 $ 49 $
108 $ 66 $
105 $ 98 $
2009
2010
2011
29 $
95 $
110 $
26 $
113 $
119 $
16
114
128
The following selected consolidated financial data are derived from our financial statements. The consolidated statement of operations data for the years
ended December 31, 2011, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011 and 2010 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. This data should be read in conjunction with our audited
consolidated financial statements and related notes which are included elsewhere in this Annual Report on Form 10-K, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 below.
On October 1, 2009, our acquisition of CuraGen became effective. The CuraGen acquisition was accounted for using the acquisition method of
accounting and was treated as our acquisition of CuraGen. Accordingly, the financial information presented below for periods prior to October 1, 2009
reflects the financial position and the results of operations of us alone, and for periods from October 1, 2009 forward the combined financial position and
combined results of operations of us and CuraGen.
On March 7, 2008, the AVANT merger became effective. The AVANT merger was accounted for using the purchase method of accounting and was
treated as our acquisition of AVANT. Accordingly, the financial information presented below for periods prior to March 8, 2008 reflects the financial position
and the results of operations of us alone, and for periods from March 8, 2008 forward the
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Table of Contents
combined financial position and combined results of operations of us and AVANT. All amounts are in thousands except per share data.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
REVENUE:
Product Development and Licensing Agreements
Contracts and Grants
Product Royalties
Total Revenue
OPERATING EXPENSE:
Research and Development
Royalty
Charge for In-Process Research and Development(2)
Other Operating Expense
Total Operating Expense
Operating Loss
Investment and Other Income, Net
Interest Expense
Net Loss Before Income Taxes
Income Tax Benefit
Net Loss
2011
2010
2009
2008
2007
$
110 $40,187 $ 5,662 $ 3,716 $
533
36
3,207
7,456
1,802
220
9,119 6,386
7,716
9,265 46,793 15,180
466
940
—
1,406
—
8,397
9,119 12,077
—
9,892
32,439 27,650 26,169 22,636
—
3,711
—
— 14,756
11,106 13,521 17,464 15,109
7,022
52,664 53,248 52,030 56,212 16,914
(43,399) (6,455) (36,850) (48,756) (15,508)
435
—
(44,799) (2,533) (37,054) (47,501) (15,073)
—
$(44,799)$ (2,533)$(36,525)$(47,501)$(15,073)
396 5,259
(1,796) (1,337)
1,411
(156)
248
(452)
529
—
—
—
Basic and Diluted Net Loss Per Common Share
Shares Used in Calculating Basic and Diluted Net Loss Per Common
Share(1)
$
(1.13)$ (0.08)$
(1.84)$
(3.34)$
(1.81)
39,501 31,868 19,823 14,217
8,309
(1)
Weighted average common shares outstanding for 2007 have been adjusted to reflect the AVANT merger and a reverse stock split of 1-for-12 effective
March 7, 2008.
(2)
The 2008 amount arose as a result of the merger between AVANT and us.
CONSOLIDATED BALANCE SHEET DATA
Working Capital
Total Assets
Long Term Liabilities
Accumulated Deficit
Total Stockholders' Equity (Deficit)
$
2011
2010
2009
2008
40,386 $
97,994
14,974
(205,006)
68,722
42,739 $
109,943
14,480
(160,207)
75,255
69,569 $
140,364
52,190
(157,674)
73,767
32,975 $
69,793
37,558
(121,149)
18,134
2007
(4,438)
9,375
370
(73,648)
(1,132)
42
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 candidate, rindopepimut (CDX-110), 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.
Based on results from three prior Phase 2 trials, 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. In December 2011, we also initiated ReACT, a Phase 2 study of rindopepimut in
combination with Avastin® in patients with recurrent EGFRvIII-positive GB.
Our other lead drug candidates include CDX-011 and CDX-1127. 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. In December 2011, we completed enrollment of EMERGE, a
randomized Phase 2b study of CDX-011 in patients with heavily pre-treated, advanced, GPNMB-positive breast cancer and expect to present results at an
appropriate scientific conference in the first half of 2012.
CDX-1127 is a fully human monoclonal antibody that targets CD27. 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. 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.
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.
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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 material to our business:
Product (generic)
CLINICAL
CDX-110
(rindopepimut)
CDX-110
(rindopepimut)
CDX-011
(glembatumumab vedotin)
CDX-1127
CDX-1401
CDX-301
PRECLINICAL
CDX-1135
CDX-014
MARKETED PRODUCTS
Rotarix
Indication/Field
Partner
Status
Front-line Glioblastoma
Recurrent Glioblastoma
Metastatic breast cancer and melanoma
Lymphoma/leukemia and solid tumors
Multiple solid tumors
Cancer, autoimmune disease and transplant
Renal disease
Ovarian and renal cancer
—
—
—
—
—
—
—
—
Phase 3
Phase 2
Phase 2b
Phase 1
Phase 1/2
Phase 1
Preclinical
Preclinical
Rotavirus infection
GlaxoSmithKline Marketed
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
Phase 1
Phase 2
Phase 3
Estimated
Completion
Period
1 - 2 Years
1 - 5 Years
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;
44
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•
•
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, it is difficult to accurately estimate the duration and completion costs of our research and
development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to
complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly
increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing
from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us,
would jeopardize the future success of our business.
During the past five years through December 31, 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 years
ended December 31, 2011, 2010 and 2009. The amounts disclosed in the following table
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Table of Contents
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.
Rindopepimut
CDX-011
CDX-1127
CDX-1401
CDX-301
CDX-1135
CDX-014
CDX-1307
Other Programs
Total R&D Expense
Clinical Development Programs
Rindopepimut
Year Ended
December 31,
2011
Year Ended
December 31,
2010
(In thousands)
Year Ended
December 31,
2009
$
$
8,366
4,917
5,965
2,464
1,112
5,524
481
1,440
2,170
32,439
$
$
1,718
4,104
4,967
2,899
4,345
839
130
4,067
4,581
27,650
$
$
3,249
1,098
1,308
4,293
2,424
473
8
6,510
6,806
26,169
Our lead clinical development program, rindopepimut, is a peptide-based immunotherapy that targets the tumor specific molecule called EGFRvIII, a
functional variant of the naturally EGFR, a protein which has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not present in
normal tissues and has been shown to be a transforming oncogene that can directly contribute to cancer cell growth. EGFRvIII is commonly present in
glioblastoma or GB, also commonly referred to as glioblastoma multiforme or 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.
In April 2008, we and Pfizer Inc. (Pfizer) entered into a License and Development Agreement (the "Pfizer Agreement") under which Pfizer was granted
an exclusive worldwide license to rindopepimut. The Pfizer Agreement provided for reimbursement by Pfizer of all costs incurred by us in connection with
the collaboration since the effective date. In November 2010, the Pfizer Agreement was terminated (the "Pfizer Termination") and all rights to rindopepimut
were returned to us. Pfizer did not provide a reason for termination. Effective with the Pfizer Termination, Pfizer is no longer funding the development of
rindopepimut.
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
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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).
ACT III (n=65)
ACT II (n=22)
ACTIVATE (n=18)
Matched historical control (n=17)(2)
Standard of care radiation/TMZ (n=287)(3)
Median PFS from
diagnosis (months)
Median OS from
diagnosis (months)
OS at 24 months
12.3(1)
15.3
14.2
6.4
6.9
24.6
24.4
24.6
15.2
14.6
52%
50%
50%
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
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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.
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
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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 present results at the 2012 American Society of Clinical Oncology (ASCO) meeting in June 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. Currently there are eight patients remaining on the control arm.
We have initiated discussions with the FDA regarding our proposal to utilize vials of CDX-011 that were filled by a different contract manufacturer.
Although the FDA has stated that no new patients may receive CDX-011 and that no patients may cross over to receive CDX-011, we have asked the FDA to
reconsider allowing patients currently on the control arm to cross over to CDX-011 after stability testing and confirmation that the product filled by the other
contract manufacturer is acceptable for continued use. If the FDA agrees to our proposal concerning use of the alternative CDX-011 for the eligible cross-over
patients, we believe that we should have sufficient clinical supply of CDX-011 to treat these cross-over patients. If we are not able to treat the eight remaining
cross-over patients with CDX-011, patients may withdraw from the control arm study upon learning that they will not be allowed to cross over to CDX-011
following disease progression. However, the primary analyses for the study are entirely based upon the primary randomization and do not include the cross
over results. Based on our discussions with our clinical investigators, we do not believe that a high proportion of patients will withdraw from the control arm
prior to progression. 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
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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 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
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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.
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.
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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 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 Vaccine
Rotavirus is a major cause of diarrhea and vomiting in infants and children. In 1997, we licensed our oral rotavirus strain to 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.
In May 2005, we entered into an agreement whereby an affiliate of 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.
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CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of this Form 10-K. 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.
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our
consolidated financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or
estimates about the future could materially change our reported results. We believe the following accounting policies are the most critical to us in that they are
important to the portrayal of our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our
consolidated financial statements:
Business Combinations
We account for business combinations under the acquisition method of accounting. We record the fair value of the consideration transferred to acquire a
business to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. We
assess the fair value of assets, including intangible assets such as IPR&D, using a variety of methods including present-value models. Each asset is measured
at fair value from the perspective of a market participant. The method used to estimate the fair values of IPR&D assets incorporates significant assumptions
regarding the estimates a market participant would make in order to evaluate an asset, including a market participant's assumptions regarding the probability
of completing IPR&D projects, which would require obtaining regulatory approval for marketing of the associated drug candidate; a market participant's
estimates regarding the timing of and the expected costs to complete IPR&D projects; a market participant's estimates of future cash flows from potential
product sales; and the appropriate discount rates for a market participant. Transaction costs and restructuring costs associated with the transaction are
expensed as incurred.
IPR&D assets acquired in a business combination initially are recorded at fair value and accounted for as indefinite-lived intangible assets. These assets
are maintained on our consolidated balance sheets until either the project underlying them is completed or the assets become impaired. If a project is
completed, the carrying value of the related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which the
project is completed. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value and an
impairment charge is taken in the period in which the impairment occurs. IPR&D assets are tested for impairment on an annual basis during the third quarter,
or earlier if impairment indicators are present. We performed an annual impairment test of the IPR&D assets as of July 1, 2011 and concluded that the IPR&D
assets were not impaired.
Intangible assets acquired in a business combination with a finite life are recorded at fair value and amortized over the greater of economic consumption
or on a straight-line basis over their estimated useful life.
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is recorded to goodwill.
Goodwill is evaluated for impairment on an annual basis during the third quarter, or earlier if impairment indicators are present. We performed an annual
impairment test of the goodwill asset as of July 1, 2011 and concluded that the goodwill asset was not impaired.
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Revenue Recognition
We recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have
been rendered; the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured.
We have entered into and in the future may enter into biopharmaceutical product development agreements with collaborative partners for the research
and development of therapeutic drug products. The terms of the agreements may include nonrefundable signing and licensing fees, funding for research,
development and manufacturing, milestone payments and royalties on any product sales derived from collaborations. These multiple element arrangements
are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. In accounting for
these transactions, we allocate revenue to the various elements based on their fair value. The fair value of a revenue generating element can be based on
current selling prices offered by us or another party for current products or the our best estimate of a selling price for future products. Revenue allocated to an
individual element is recognized when all other revenue recognition criteria are met for that element.
These collaborative and other agreements may contain milestone payments. Revenues from milestones, if they are considered substantive, are recognized
upon successful accomplishment of the milestones. Determining whether a milestone is substantive involves judgment, including an assessment of our
involvement in achieving the milestones and whether the amount of the payment is commensurate to our performance. If not considered substantive,
milestones are initially deferred and recognized over the remaining performance obligation.
Payments received to fund certain research activities are recognized as revenue in the period in which the research activities are performed. Revenue
from contracts and grants is recognized as the services are performed and recorded as effort is expended on the contracted work and billed to the government
or our contractual partner. Payments received in advance that are related to future performance are deferred and recognized as revenue when the research
projects are performed.
Product royalty revenue consists of payments received from licensees for a portion of sales proceeds from products that utilize our licensed technologies
and are recognized when the amount of and basis for such royalty payments are reported to us in accurate and appropriate form and in accordance with the
related license agreement.
Impairment of Long-Lived Assets
We evaluate the recoverability of our long-lived assets, including property and equipment, and intangible assets when circumstances indicate that an
event of impairment may have occurred. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of
the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets
are written-down to their estimated fair values.
Research and Development Expenses
Research and development costs, including internal and contract research costs, are expensed as incurred. Research and development expenses consist
mainly of clinical trial costs, manufacturing of clinical material, toxicology and other studies, personnel costs, depreciation, license fees and funding of
outside research.
Clinical trial expenses include expenses associated with clinical research organizations (CRO). The invoicing from CROs for services rendered can lag
several months. We accrue the cost of services rendered in connection with CRO activities based on our estimate of site management, monitoring
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costs, and project management costs. We maintain regular communication with our CROs to gauge the reasonableness of our estimates. Differences between
actual clinical trial expenses and estimated clinical trial expenses recorded have not been material and are adjusted for in the period in which they become
known.
Stock-Based Compensation Expense
We record stock-based compensation expense for all stock-based awards made to employees and directors based on the estimated fair values of the
stock-based awards expected to vest at the grant date and is adjusted, if necessary, to reflect actual forfeitures. Compensation expense for all stock-based
awards to employees and directors is recognized using the straight-line method over the term of vesting or performance.
We record stock-based compensation expense for stock options granted to non-employees based on the fair value of the stock options which is re-
measured over the vesting term resulting in periodic adjustments to stock-based compensation expense.
RESULTS OF OPERATIONS
Year Ended December 31, 2011 compared with Year Ended December 31, 2010
Revenue:
Product Development and Licensing Agreements
Contracts and Grants
Product Royalties
Total Revenue
Operating Expense:
Research and Development
Royalty
Gain on Sale of Assets
General and Administrative
Amortization of Acquired Intangible Assets
Total Operating Expense
Operating Loss
Investment and Other Income, Net
Interest Expense
Net Loss
Year Ended December 31,
2011
2010
(In thousands)
Increase/
(Decrease)
$
Increase/
(Decrease)
%
$
$
110
36
9,119
9,265
$
$
40,187 $ (40,077)
(184)
220
2,733
6,386
46,793 $ (37,528)
32,439
9,119
(50)
9,243
1,913
52,664
(43,399)
396
(1,796)
(44,799)
$
27,650
12,077
(50)
10,428
3,143
53,248
(6,455)
5,259
(1,337)
(2,533) $
4,789
(2,958)
—
(1,185)
(1,230)
(584)
36,944
(4,863)
459
42,266
$
(100)%
(84)%
43%
(80)%
17%
(24)%
—
(11)%
(39)%
(1)%
572%
(92)%
34%
1,669%
Net Loss
The $42.3 million increase in net loss for the year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily the result of
a decrease in product development and licensing agreement revenue.
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Revenue
The $40.1 million decrease in product development and licensing agreement revenue for the year ended December 31, 2011 compared to the year ended
December 31, 2010 was primarily due to the termination of the Pfizer Agreement which resulted in us recognizing the remaining deferred revenue of
$35.6 million during the year ended December 31, 2010. The $0.2 million decrease in contracts and grants revenue for the year ended December 31, 2011
compared to the year ended December 31, 2010 was due to a decrease in revenue related to our vaccine development work on Rockefeller's DCVax-001
(CDX-2401) program. The $2.7 million increase in product royalty revenue for the year ended December 31, 2011 compared to the year ended December 31,
2010 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. We expect that royalty revenue related to the Glaxo agreement will end during the year ended December 31, 2013 as the
term of the Glaxo agreement is through the expiration of the last of the relevant patents covered by the agreement and the last relevant patent is scheduled to
expire in December 2012.
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 drug candidates as follows:
Year Ended December 31,
2011
2010
(In thousands)
Increase/
(Decrease)
$
Increase/
(Decrease)
%
Personnel
Laboratory Supplies
Facility
Product Development
$
$
12,715
1,920
4,674
10,044
$
12,204
1,779
4,962
5,832
511
141
(288)
4,212
4%
8%
(6)%
72%
Personnel expenses primarily include salary, benefits, stock-based compensation and payroll taxes. The $0.5 million increase in personnel expenses for
the year ended December 31, 2011 compared to the year ended December 31, 2010 was due to higher headcount. We expect personnel expenses to increase
over the next twelve months as we plan to continue to increase our headcount, primarily in clinical research personnel, to support our Phase 3 study of
rindopepimut.
Laboratory supply expenses include laboratory materials and supplies, services, and other related expenses incurred in the development of our
technology. The $0.1 million increase in laboratory supply expenses for the year ended December 31, 2011 compared to the year ended December 31, 2010
was primarily due to the renovations completed during the year ended December 31, 2010 at our Fall River, MA manufacturing facility during which
manufacturing activities ceased. 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. The $0.3 million
decrease in facility expenses for the year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily due to lower depreciation
and amortization expenses. 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 $4.2 million increase in product development expenses for the year ended December 31, 2011
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compared to the year ended December 31, 2010 was primarily due to an increase in clinical trial costs of $4.6 million primarily due to our rindopepimut and
CDX-011 programs. We expect product development expenses to increase over the next twelve months primarily due to the increase in clinical trial expenses
related to rindopepimut, 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 $3.0 million decrease in royalty expenses for the
year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily due to the termination of the Pfizer Agreement which resulted
in us recognizing the remaining deferred sublicense fees of $5.1 million, partially offset by an increase in Rotarix related 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. We expect royalty expense related to the Glaxo agreement will end during the year ended December 31, 2013 as the term of the Glaxo
agreement is through the expiration of the last of the relevant patents covered by the agreement and the last relevant patent is scheduled to expire in December
2012.
General and Administrative Expense
The $1.2 million decrease in general and administrative expenses for the year ended December 31, 2011 compared to the year ended December 31, 2010
was primarily due a decrease in legal, patent and other professional services. 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 $1.2 million decrease in amortization expenses for the year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily
due to the TopoTarget intangible asset becoming fully amortized during the year ended December 31, 2011. We recorded amortization expense related to the
TopoTarget Agreement of $0.3 million and $1.7 million for the years ended December 31, 2011 and 2010, respectively. We expect amortization expense of
acquired intangible assets to decrease over the next twelve months as a result of intangible assets becoming fully amortized during 2011.
Investment and Other Income, Net
The $4.9 million decrease in investment and other income, net for the year ended December 31, 2011 compared to the year ended December 31, 2010
was primarily due to $3.0 million received in connection with the TopoTarget Agreement and $1.7 million received related to the IRS Qualifying Therapeutic
Discovery Grants during the year ended December 31, 2010. We anticipate investment income to increase over the next twelve months due to higher cash and
investment balances resulting from fundraising efforts in January and February 2012. In January 2012, we sold 2,450,000 shares of common stock under the
Cantor Agreement and raised $8.5 million in net proceeds. In February 2012, we issued 10,500,000 shares of our common stock in an underwritten public
offering. The net proceeds to us were $37.7 million, after deducting underwriting fees and estimated offering expenses. We have granted the underwriters a
30-day option to purchase up to an aggregate of 1,575,000 additional shares of common stock to cover overallotments, if any.
Interest Expense
The $0.5 million increase in interest expense for the year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily due to
our Term Loan. On December 30, 2010, we
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entered into a Loan and Security Agreement (the "Loan Agreement") with MidCap Financial, LLC (MidCap) pursuant to which we borrowed $10 million (the
"Term Loan") from MidCap. In March 2011, we 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. 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%. We anticipate interest expense to remain relatively consistent over the next twelve months.
Year Ended December 31, 2010 compared with Year Ended December 31, 2009
Revenue:
Product Development and Licensing Agreements
Contracts and Grants
Product Royalties
Total Revenue
Operating Expense:
Research and Development
Royalty
Gain on Sale of Assets
General and Administrative
Amortization of Acquired Intangible Assets
Total Operating Expense
Operating Loss
Investment and Other Income, Net
Interest Expense
Net Loss Before Income Taxes
Income Tax Benefit
Net Loss
Year Ended December 31,
2010
2009
(In thousands)
Increase/
(Decrease)
$
Increase/
(Decrease)
%
$
$
40,187
220
6,386
46,793
$
$
5,662 $
1,802
7,716
15,180 $
34,525
(1,582)
(1,330)
31,613
27,650
12,077
(50)
10,428
3,143
53,248
(6,455)
5,259
(1,337)
(2,533)
—
(2,533)
$
26,169
8,397
(604)
17,119
949
52,030
(36,850)
248
(452)
(37,054)
529
1,481
3,680
554
(6,691)
2,194
1,218
(30,395)
5,011
885
(34,521)
(529)
(36,525) $ (33,992)
$
610%
(88)%
(17)%
208%
6%
44%
92%
(39)%
231%
2%
(82)%
2,021%
196%
(93)%
(100)%
(93)%
Net Loss
The $34.0 million decrease in net loss for the year ended December 31, 2010 compared to the year ended December 31, 2009 was primarily the result of
an increase in product development and licensing agreement revenue and other income and a decrease in general and administrative expense. This impact was
partially offset by a decrease in contracts and grants and product royalty revenue and increased research and development, royalty and amortization expense
on acquired intangible assets.
Revenue
The $34.5 million increase in product development and licensing agreement revenue for the year ended December 31, 2010 was primarily due to the
Pfizer Termination which resulted in us recognizing the remaining deferred revenue of $35.6 million related to the Pfizer Agreement. The $1.6 million
decrease in contracts and grants revenue for the year ended December 31, 2010 was due to a decrease in revenue related to our vaccine development work on
Rockefeller's DCVax-001 (CDX-2401) program. The $1.3 million decrease in product royalty revenue for the year ended December 31, 2010 was
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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. In late March 2010, the FDA temporarily suspended the use of Rotarix in the United States as a precautionary measure following the
discovery of PCV-1 DNA material in the vaccine. In May 2010, the FDA determined that healthcare practitioners could resume the use of Rotarix. Our
royalties from sales of Rotarix were negatively impacted during the year ended December 31, 2010 by the FDA's decision to temporarily suspend the use of
Rotarix from March 2010 through May 2010 and that negative impact from the temporary suspension may extend into the future as well. However, our net
loss and cash position were not impacted even though our royalty revenue was impacted because there was an offsetting impact on our royalty expense.
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 drug candidates as follows:
Year Ended December 31,
2010
2009
(In thousands)
Increase/
(Decrease)
$
Increase/
(Decrease)
%
Personnel
Laboratory Supplies
Facility
Product Development
$
$
12,204
1,779
4,962
5,832
$
11,108
2,517
4,782
5,758
1,096
(738)
180
74
10%
(29)%
4%
1%
Personnel expenses primarily include salary, benefits, stock-based compensation and payroll taxes. The $1.1 million increase in personnel expenses for
the year ended December 31, 2010 was due to higher headcount, partially offset by $0.9 million in severance expense during the year ended December 31,
2009 related to the CuraGen acquisition.
Laboratory supply expenses include laboratory materials and supplies, services, and other related expenses incurred in the development of our
technology. The $0.7 million decrease in laboratory supply expenses was primarily due to the renovations completed during the year ended December 31,
2010 at our Fall River, MA manufacturing facility during which manufacturing activities ceased.
Facility expenses include depreciation, amortization, utilities, rent, maintenance, and other related expenses incurred at our facilities. The $0.2 million
increase in facility expenses for the year ended December 31, 2010 was primarily due to higher depreciation and amortization expenses.
Product development expenses include clinical investigator site fees, external trial monitoring costs, data accumulation costs, contracted research and
outside clinical drug product manufacturing. The $0.1 million increase in product development expenses for the year ended December 31, 2010 was primarily
due to an increase in product development costs related to our CDX-011 program.
Royalty Expense
Royalty expenses include product royalty and sublicense royalty fees on our out-licensed programs. The $3.7 million increase in royalty expenses for the
year ended December 31, 2010 was primarily due to the Pfizer Termination which resulted in us recognizing the remaining deferred sublicense fees related to
the Pfizer Agreement of $5.1 million, partially offset by a decrease in Rotarix related 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.
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General and Administrative Expense
The $6.7 million decrease in general and administrative expenses for the year ended December 31, 2010 was primarily due to $3.3 million in severance
expense incurred during the year ended December 31, 2009 related to the CuraGen acquisition and a decrease of $2.1 million in consultant and legal expense
primarily related to costs incurred in connection with the CuraGen acquisition in 2009. The decrease was also a result of $0.7 million in severance expense,
including related non-cash stock-based compensation expense, incurred during the year ended December 31, 2009 related to our former SVP, Business
Development.
Amortization Expense
The $2.2 million increase in amortization expenses for the year ended December 31, 2010 was primarily due to intangible assets acquired in connection
with the CuraGen acquisition including the TopoTarget Agreement. In February 2010, TopoTarget entered into a co-development and commercialization
agreement for Belinostat with Spectrum Pharmaceuticals, Inc. which resulted in our receipt of $3.0 million which we recorded as Other Income for the year
ended December 31, 2010. We recorded amortization expense related to the TopoTarget Agreement of $1.7 million for the year ended December 31, 2010.
Investment and Other Income, Net
The $5.0 million increase in investment and other income, net for the year ended December 31, 2010 was primarily due to $3.0 million received in
connection with the TopoTarget Agreement and $1.7 million in other income related to the receipt of IRS Qualifying Therapeutic Discovery Grants.
Interest Expense
The $0.9 million increase in interest expense for the year ended December 31, 2010 was primarily due to the CuraGen Debt we assumed in connection
with the CuraGen acquisition.
Income Tax Benefit
The $0.5 million decrease in income tax benefit for the year ended December 31, 2010 was due to non-cash tax consequences as a result of the CuraGen
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $53.3 million. Our working
capital at December 31, 2011 was $40.4 million. At December 31, 2011, our Term Loan balance was $15.1 million. We incurred a loss of $44.8 million for
the year ended December 31, 2011. Net cash used in operations for the year ended December 31, 2011 was $35.7 million. In January 2012, we sold 2,450,000
shares of common stock under the Cantor Agreement and raised $8.5 million in net proceeds. In February 2012, we issued 10,500,000 shares of our common
stock in an underwritten public offering. The net proceeds to us were $37.7 million, after deducting underwriting fees and estimated offering expenses. We
have granted the underwriters a 30-day option to purchase up to an aggregate of 1,575,000 additional shares of common stock to cover overallotments, if any.
We believe that the cash, cash equivalents and marketable securities at December 31, 2011, the $8.5 million raised under the Cantor Agreement in January
2012, the $37.7 million raised in the underwritten offering in February and interest income on invested funds, are sufficient to meet estimated working capital
requirements and fund planned operations for at least the next twelve months.
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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, 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 $35.9 million during the year ended December 31, 2011 and $46.2 million during the two months ended February 29, 2012
from the sale of our common stock. During the next twelve months, we may take further steps to raise additional capital to fund 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 may 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 $35.7 million for the year ended December 31, 2011 compared to $30.4 million for the year ended
December 31, 2010. The increase in net cash used in operating activities was primarily due to changes in working capital and decreases during the year ended
December 31, 2011 in other income and the related amortization of intangible assets resulting from the $3.0 million received in connection with the
TopoTarget Agreement during the year ended December 31, 2010. We expect that cash used in operating activities 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 and clinical trials, as our drug
candidates are developed. We plan to spend significant amounts to progress our current drug candidates through the clinical trial and commercialization
process as well as to develop additional drug candidates. As our drug candidates progress through the clinical trial process, we may be obligated to make
significant milestone payments.
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Investing Activities
Net cash used in investing activities was $2.2 million for the year ended December 31, 2011 compared to $16.2 million for the year ended December 31,
2010. The decrease in net cash used in investing activities was primarily due to net purchases of marketable securities for the year ended December 31, 2011
of $1.7 million as compared to $14.1 million for the year ended December 31, 2010. We expect that cash provided by investing activities will increase over
the next twelve months as we fund our operations through the net proceeds from the sale and maturity of marketable securities, cash provided by financing
activities and/or new partnerships.
Financing Activities
Net cash provided by financing activities was $28.4 million for the year ended December 31, 2011 compared to $10.8 million for the year ended
December 31, 2010. The increase in net cash provided by financing activities was primarily due to the $35.9 million in net proceeds we received through the
sale of 11,500,000 shares of our common stock in an underwritten public offering in May 2011 and the sale of 575,000 shares of common stock under the
Cantor Agreement during the year ended December 31, 2011. 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 shelf registration statement up to a dollar amount of $150 million. The shelf registration became effective on April 22, 2010.
On January 6, 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 of 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 us. 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. In January 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 will 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.
In May 2011, we issued 11,500,000 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 1,500,000 shares of common stock. The net proceeds to us were $33.7 million, after deducting underwriting
fees and offering expenses.
In February 2012, we issued 10,500,000 shares of our common stock in an underwritten public offering. The net proceeds to us were $37.7 million, after
deducting underwriting fees and estimated offering expenses. We have granted the underwriters a 30-day option to purchase up to an aggregate of 1,575,000
additional shares of common stock to cover overallotments, if any.
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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.
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 December 31, 2011, we believe we are in compliance with the Loan Agreement.
AGGREGATE CONTRACTUAL OBLIGATIONS
We have entered into license agreements whereby we have received licenses or options to license technology, specified patents and/or patent
applications. These license and collaboration agreements generally provide for royalty payments equal to specified percentages of product sales, annual
license maintenance fees, continuing patent prosecution costs and potential future milestone payments to third parties upon the achievement of certain
development, regulatory and/or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2011, such
contingencies have not been recorded in our financial statements. We expect to incur approximately $0.7 million of milestone payments in 2012.
The following table summarizes our contractual obligations (not including contingent royalty and milestone payments as described above) at
December 31, 2011 and the effect such obligations and commercial commitments are expected to have on our liquidity and cash flow in future years. These
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obligations, commitments and supporting arrangements represent expected payments based on current operating forecasts, which are subject to change:
Contractual obligations:
Operating lease obligations(1)
Other contractual obligations(2)
Other long-term liabilities(3)
Term Loan(4)
Total contractual obligations
Total
2012
2013 - 2014
(In thousands)
2015 - 2016
Thereafter
$
$
13,181 $
18,090
527
15,450
47,248 $
2,405 $
18,090
51
3,971
24,517 $
4,859
—
118
11,479
16,456
$
$
4,903
—
129
—
5,032
$
$
1,014
—
229
—
1,243
(1)
Such amounts primarily consist of payments for our facility leases and do not assume the exercise of renewal terms or early termination provisions.
(2)
Such amounts primarily consist of research and development commitments with third parties. Our obligation to pay certain of these amounts may
increase or be reduced based on certain future events.
(3)
Such amounts include the outstanding balance on a loan payable which accrues interest at 5.5% and is payable monthly.
(4)
Such amounts include the outstanding balance at December 31, 2011 on the Term Loan along with the Payment Fee. 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%. As described above, we amended our Term Loan in March 2012 and currently all amounts borrowed under the Term Loan
mature in December 2014.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the consolidated financial statements for a discussion of
recent accounting pronouncements.
OFF-BALANCE SHEET ARRANGEMENTS
None.
Item 7A. 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 December 31, 2011 due to the short-term maturities of these instruments.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To the Board of Directors and Stockholders of Celldex Therapeutics, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, of
stockholders' equity, and of cash flows, present fairly, in all material respects, the financial position of Celldex Therapeutics, Inc. and its subsidiaries at
December 31, 2011 and December 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management
is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 8, 2012
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CELLDEX THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
Current Assets:
Cash and Cash Equivalents
Marketable Securities
Accounts and Other Receivables
Prepaid and Other Current Assets
Total Current Assets
Property and Equipment, Net
Intangible Assets, Net
Other Assets
Goodwill
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable
Accrued Expenses
Current Portion of Long-Term Liabilities
Current Portion of Term Loan
Convertible Subordinated Debt
Total Current Liabilities
Term Loan, less Current Portion
Other Long-Term Liabilities
Total Liabilities
Commitments and Contingent Liabilities (Notes 14 and 16)
Stockholders' Equity:
Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; No Shares
Issued and Outstanding at December 31, 2011 and 2010
Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 44,210,636 and
32,055,382 Shares Issued and Outstanding at December 31, 2011 and 2010,
respectively
Additional Paid-In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
December 31, 2011 December 31, 2010
$
$
$
$
$
$
11,899
41,413
170
1,202
54,684
9,093
24,923
329
8,965
97,994
935
7,008
219
6,136
—
14,298
9,008
5,966
29,272
21,287
39,811
324
1,525
62,947
10,832
26,836
363
8,965
109,943
931
4,936
818
1,111
12,412
20,208
8,889
5,591
34,688
—
—
44
271,032
2,652
(205,006)
68,722
97,994
$
32
232,679
2,751
(160,207)
75,255
109,943
$
The accompanying notes are an integral part of the consolidated financial statements.
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CELLDEX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
REVENUE:
Product Development and Licensing Agreements
Contracts and Grants
Product Royalties
Total Revenue
OPERATING EXPENSE:
Research and Development
Royalty
Gain on Sale of Assets
General and Administrative
Amortization of Acquired Intangible Assets
Total Operating Expense
Operating Loss
Investment and Other Income, Net
Interest Expense
Net Loss Before Income Taxes
Income Tax Benefit
Net Loss
Basic and Diluted Net Loss Per Common Share (See Note 2)
Shares Used in Calculating Basic and Diluted Net Loss per Share (See
Note 2)
COMPREHENSIVE LOSS:
Net Loss
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments
Unrealized (Loss) Gain on Marketable Securities
Comprehensive Loss
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Year Ended
December 31, 2009
$
$
$
$
110
36
9,119
9,265
$
40,187
220
6,386
46,793
5,662
1,802
7,716
15,180
32,439
9,119
(50)
9,243
1,913
52,664
(43,399)
396
(1,796)
(44,799)
—
(44,799)
(1.13)
$
$
27,650
12,077
(50)
10,428
3,143
53,248
(6,455)
5,259
(1,337)
(2,533)
—
(2,533)
(0.08)
$
$
26,169
8,397
(604)
17,119
949
52,030
(36,850)
248
(452)
(37,054)
529
(36,525)
(1.84)
39,501
31,868
19,823
$
(44,799)
$
(2,533)
$
(36,525)
(9)
(90)
(44,898)
$
2
203
(2,328)
$
(12)
(48)
(36,585)
$
The accompanying notes are an integral part of the consolidated financial statements.
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CELLDEX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Common
Stock
Shares
Common
Stock
Par
Value
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders'
Equity
15,789,756 $ 16 $136,661
$
2,606 $ (121,149) $ 18,134
172,592 —
917
—
—
917
Balance at
December 31,
2008
Shares Issued
under Stock
Option and
Employee
Stock
Purchase
Plans
Shares Issued in
Connection
with the
CuraGen
acquisition
Share-Based
Compensation
Foreign
Currency
Translation
Adjustments
Unrealized
Losses on
Marketable
Securities
Net Loss
Balance at
December 31,
2009
Shares Issued
under Stock
Option and
Employee
Stock
Purchase
Plans
Share-Based
Compensation
Foreign
Currency
Translation
Adjustments
Unrealized
Gains on
Marketable
Securities
Net Loss
Balance at
December 31,
2010
Shares Issued
under Stock
Option and
Employee
Stock
Purchase
Plans
Shares Issued in
Connection
with Cantor
Agreement
Shares Issued in
Underwritten
Offering
15,722,713
16 88,227
— —
3,058
—
—
—
—
88,243
3,058
— —
—
(12)
—
(12)
— —
— —
—
—
(48)
—
—
(36,525)
(48)
(36,525)
31,685,061
32 228,863
2,546
(157,674)
73,767
370,321 —
1,014
— —
2,802
—
—
—
—
1,014
2,802
— —
—
2
—
2
— —
— —
—
—
203
—
—
(2,533)
203
(2,533)
32,055,382
32 232,679
2,751
(160,207)
75,255
80,254 —
173
—
—
173
575,000
1
2,154
11,500,000
11 33,684
—
—
—
2,155
—
33,695
Share-Based
Compensation
Foreign
Currency
Translation
Adjustments
Unrealized
Losses on
Marketable
Securities
Net Loss
Balance at
December 31,
2011
— —
2,342
—
—
2,342
— —
—
(9)
—
(9)
— —
— —
—
—
(90)
—
—
(44,799)
(90)
(44,799)
44,210,636 $ 44 $271,032
$
2,652 $ (205,006) $ 68,722
The accompanying notes are an integral part of the consolidated financial statements.
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CELLDEX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Year Ended
December 31, 2009
$
(44,799)
$
(2,533)
$
(36,525)
Cash Flows From Operating Activities:
Net Loss
Adjustments to Reconcile Net Loss to Cash Used in Operating
Activities:
Depreciation and Amortization
Amortization of Intangible Assets
Amortization and Premium of Marketable Securities
Realized Loss (Gain) on Sales and Maturities of Marketable
Securities
(Gain) Loss on Sale or Disposal of Assets
Stock-Based Compensation Expense
Non-Cash Interest Expense
Non-Cash Tax Benefit
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Accounts and Other Receivables
Prepaid and Other Current Assets
Other Assets
Accounts Payable and Accrued Expenses
Deferred Revenue
Other Liabilities
Net Cash Used in Operating Activities
Cash Flows From Investing Activities:
Cash Acquired in the CuraGen acquisition
Sales and Maturities of Marketable Securities
Purchases of Marketable Securities
Acquisition of Property and Equipment
Proceeds from Sale or Disposal of Assets
Net Cash (Used in) Provided by Investing Activities
Cash Flows From Financing Activities:
Net Proceeds from Stock Issuances
Related Party Loan Due to Medarex
Issuance of Term Loan
Payment of Convertible Subordinated Debt
Payment of Other Liabilities
Net Cash Provided by (Used in) Financing Activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period
Supplemental Disclosure of Non-Cash Flow Information
Shares Issued to Executive Officers
Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest
$
$
$
2,248
1,913
17
5
(58)
2,342
307
—
154
241
34
2,076
—
(138)
(35,658)
—
51,003
(52,717)
(509)
68
(2,155)
36,023
—
5,000
(12,503)
(86)
28,434
(9)
(9,388)
21,287
11,899
—
1,560
$
$
$
2,718
3,143
(14)
(4)
(38)
2,802
728
—
220
(546)
5,592
(1,193)
(39,382)
(1,865)
(30,372)
—
42,383
(56,522)
(2,100)
77
(16,162)
1,014
—
10,000
—
(197)
10,817
2
(35,715)
57,002
21,287
—
604
$
$
$
2,583
949
—
24
(556)
3,058
181
(529)
1,283
743
722
(2,463)
(2,038)
2,699
(29,869)
51,654
2,674
(9,559)
(528)
850
45,091
668
(2,957)
—
—
(176)
(2,465)
(12)
12,745
44,257
57,002
250
157
The accompanying notes are an integral part of the consolidated financial statements.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND OVERVIEW
Celldex Therapeutics, Inc. (the "Company" or "Celldex") is a biopharmaceutical company focused on the development and commercialization of several
immunotherapy technologies for the treatment of cancer and other difficult-to-treat diseases. The Company's lead drug candidates include rindopepimut
(CDX-110), an immunotherapeutic vaccine in a pivotal Phase 3 study for the treatment of 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. The Company has additional clinical and preclinical programs, including CDX-1401, an APC Targeting Technology program, CDX-301, an
immune cell mobilizing agent, and CDX-1135, a molecule that inhibits a part of the immune system called the complement system. The Company's
collaboration with GlaxoSmithKline (Glaxo) resulted in the commercialization of Rotarix, an oral human rotavirus vaccine.
At December 31, 2011, the Company had cash, cash equivalents and marketable securities of $53.3 million; working capital of $40.4 million; and a Term
Loan balance of $15.1 million. The Company incurred a loss of $44.8 million for the year ended December 31, 2011. Net cash used in operations for the year
ended December 31, 2011 was $35.7 million. In January 2012, the Company sold 2,450,000 shares of common stock under the Cantor Agreement and raised
$8.5 million in net proceeds. In February 2012, the Company issued 10,500,000 shares of its common stock in an underwritten public offering. The net
proceeds to the Company were $37.7 million, after deducting underwriting fees and estimated offering expenses. The Company has granted the underwriters a
30-day option to purchase up to an aggregate of 1,575,000 additional shares of common stock to cover overallotments, if any. The Company believes that the
cash, cash equivalents and marketable securities at December 31, 2011, the $8.5 million raised under the Cantor Agreement in January and the $37.7 million
raised in the underwritten public offering in February and interest income on invested funds, 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 $35.9 million during the year ended December 31, 2011 and $46.2 million during the two months ended
February 29, 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 that 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.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. All intercompany balances
and transactions have been eliminated in consolidation. The Company operates in one segment, which is the business of development, manufacturing and
commercialization of novel therapeutics for human health care.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP) requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at the date of purchase to be cash equivalents.
Cash equivalents consist principally of money market funds and debt securities.
Marketable Securities
The Company invests its excess cash balances in marketable securities including municipal bond securities, U.S. government agency securities, and high-
grade corporate bonds. 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. Marketable securities are stated at fair value with their unrealized gains and losses included as a component
of accumulated other comprehensive income (loss), which is a separate component of stockholders' equity, until such gains and losses are realized. If a decline
in the fair value is considered other-than-temporary, based on available evidence, the unrealized loss is transferred from other comprehensive income (loss) to
the consolidated statements of operations. Realized gains and losses are determined on the specific identification method and are included in investment and
other income, net.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, marketable
securities and accounts receivable. The Company invests its cash, cash equivalents and marketable securities in debt instruments and interest bearing accounts
at major financial institutions in excess of insured limits. The Company mitigates credit risk by limiting the investment type and maturity to securities that
preserve capital, maintain liquidity and have a high credit quality. The Company has not historically experienced credit losses from its accounts receivable
and therefore has not established an allowance for doubtful accounts.
Revenue from Glaxo and Pfizer represented 98% and none for the year ended December 31, 2011, 14% and 85% for the year ended December 31, 2010
and 52% and 34% for the year ended December 31, 2009 of total Company revenue, respectively.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value Measurements
The Company has certain assets and liabilities that are measured at fair value in the financial statements. The Company seeks to maximize the use of
observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's
assumptions about how market participants would price assets and liabilities) when measuring the fair value of its assets and liabilities. These assets and
liabilities are classified into one of three levels of the following fair value hierarchy as defined by U.S. GAAP:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market
in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices in active markets for similar assets or liabilities and quoted prices for
identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on the Company's assessment of the assumptions that market participants would use in pricing the asset or liability.
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over five years and computer equipment is depreciated over three years. Manufacturing
equipment is amortized over seven to ten years. Leasehold improvements are amortized over the shorter of the estimated useful life or the non-cancelable term
of the related lease, including any renewals that are reasonably assured of occurring. Property and equipment under construction is classified as construction
in progress and is depreciated or amortized only after the asset is placed in service. Expenditures for maintenance and repairs are charged to expense whereas
the costs of significant improvements which extend the life of the underlying asset are capitalized. Upon retirement or sale, the cost of assets disposed of and
the related accumulated depreciation are eliminated and any resulting gain or loss is reflected in the Company's consolidated statements of operations.
The treatment of costs to construct property and equipment depends on the nature of the costs and the stage of construction. Costs incurred in the project
planning, design, construction and installation phases are capitalized as part of the cost of the asset. The Company stops capitalizing these costs when the asset
is substantially complete and ready for its intended use. For manufacturing property and equipment, the Company also capitalizes the cost of validating these
assets for the underlying manufacturing process. The Company completes the capitalization of validation costs when the asset is substantially complete and
ready for its intended use. Costs capitalized include incremental labor and fringe benefits, and direct consultancy services.
Business Combinations
The Company records the fair value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired
and liabilities assumed on the basis of their fair values at the date of acquisition. The Company assesses the fair value of assets, including
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
intangible assets such as in-process research and development (IPR&D), using a variety of methods including present value models. Each asset is measured at
fair value from the perspective of a market participant. The method used to estimate the fair values of IPR&D assets incorporates significant assumptions
regarding the estimates a market participant would make in order to evaluate an asset, including a market participant's assumptions regarding the probability
of completing IPR&D projects, which would require obtaining regulatory approval for marketing of the associated drug candidate; a market participant's
estimates regarding the timing of and the expected costs to complete IPR&D projects; a market participant's estimates of future cash flows from potential
product sales; and the appropriate discount rates for a market participant. Transaction costs and restructuring costs associated with the transaction are
expensed as incurred.
Intangible Assets
IPR&D assets acquired in a business combination initially are recorded at fair value and accounted for as indefinite-lived intangible assets. These assets
are maintained on the Company's consolidated balance sheets until either the project underlying them is completed or the assets become impaired. If a project
is completed, the carrying value of the related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which the
project is completed. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value and an
impairment charge is taken in the period in which the impairment occurs. IPR&D assets will be tested for impairment on an annual basis during the third
quarter, or earlier if impairment indicators are present.
Intangible assets acquired in a business combination with a finite life are recorded at fair value and amortized over the greater of economic consumption
or on a straight-line basis over their estimated useful life.
Goodwill
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill.
Goodwill is evaluated for impairment on an annual basis during the third quarter, or earlier if impairment indicators are present.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets, including property and equipment, and intangible assets when circumstances indicate
that an event of impairment may have occurred. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the
assets are written-down to their estimated fair values.
Revenue Recognition
The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company has entered into and in the future may enter into biopharmaceutical product development agreements with collaborative partners for the
research and development of therapeutic drug products. The terms of the agreements may include nonrefundable signing and licensing fees, funding for
research, development and manufacturing, milestone payments and royalties on any product sales derived from collaborations. These multiple element
arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. In
accounting for these transactions, the Company allocates revenue to the various elements based on their fair value. The fair value of a revenue generating
element can be based on current selling prices offered by the Company or another party for current products or the Company's best estimate of a selling price
for future products. Revenue allocated to an individual element is recognized when all other revenue recognition criteria are met for that element.
These collaborative and other agreements may contain milestone payments. Revenues from milestones, if they are considered substantive, are recognized
upon successful accomplishment of the milestones. Determining whether a milestone is substantive involves judgment, including an assessment of the
Company's involvement in achieving the milestones and whether the amount of the payment is commensurate to the Company's performance. If not
considered substantive, milestones are initially deferred and recognized over the remaining performance obligation.
Payments received to fund certain research activities are recognized as revenue in the period in which the research activities are performed. Revenue
from contracts and grants is recognized as the services are performed and recorded as effort is expended on the contracted work and billed to the government
or the Company's contractual partner. Payments received in advance that are related to future performance are deferred and recognized as revenue when the
research projects are performed. During the year ended December 31, 2010, the Company recorded $1.7 million to other income related to IRS Qualifying
Therapeutic Discovery Grants because the grant arrangement was not part of the Company's on-going operations.
Product royalty revenue consists of payments received from licensees for a portion of sales proceeds from products that utilize the Company's licensed
technologies and are recognized when the amount of and basis for such royalty payments are reported to the Company in accurate and appropriate form and in
accordance with the related license agreement.
Research and Development Expenses
Research and development costs, including internal and contract research costs, are expensed as incurred. Research and development expenses consist
mainly of clinical trial costs, manufacturing of clinical material, toxicology and other studies, personnel costs, depreciation, license fees and funding of
outside research.
Clinical trial expenses include expenses associated with clinical research organizations (CRO). The invoicing from CROs for services rendered can lag
several months. We accrue the cost of services rendered in connection with CRO activities based on our estimate of site management, monitoring costs, and
project management costs. We maintain regular communication with our CROs to gauge the reasonableness of our estimates. Differences between actual
clinical trial expenses and estimated clinical trial expenses recorded have not been material and are adjusted for in the period in which they become known.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Patent Costs
Patent costs are expensed as incurred. Certain patent costs are reimbursed by the Company's product development and licensing partners. Any
reimbursed patent costs are recorded as product development and licensing agreement revenues in the Company's financial statements.
Stock-Based Compensation
The Company records stock-based compensation expense for all stock-based awards made to employees and directors based on the estimated fair values
of the stock-based awards expected to vest at the grant date and is adjusted, if necessary, to reflect actual forfeitures. Compensation expense for all stock-
based awards to employees and directors is recognized using the straight-line method over the term of vesting or performance.
The Company records stock-based compensation expense for stock options granted to non-employees based on the fair value of the stock options which
is re-measured over the vesting term resulting in periodic adjustments to stock-based compensation expense.
Foreign Currency Translation
Net unrealized gains and losses resulting from foreign currency translation are included in other comprehensive income (loss). At December 31, 2011
and December 31, 2010, accumulated other comprehensive income includes a net unrealized gain related to foreign currency translation of $2.6 million. In
2011, the Company's foreign subsidiary voluntarily liquidated in order to consolidate the Company's foreign operations into Celldex Therapeutics, Inc.
Income Taxes
The Company uses the asset and liability method to account for income taxes, including the recognition of deferred tax assets and deferred tax liabilities
for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis. Quarterly, the
Company reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that its
deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company's tax provision in the period of
change.
The Company records uncertain tax positions in the financial statements only if it is more likely than not that the uncertain tax position will be sustained
upon examination by the taxing authorities. The Company records interest and penalties related to uncertain tax positions in income tax expense.
Comprehensive Loss
Comprehensive loss is comprised of net loss and certain changes in stockholders' equity that are excluded from net loss. The Company includes foreign
currency translation adjustments and unrealized gains and losses on marketable securities in other comprehensive loss. In December 2011, the Company
adopted a new U.S. GAAP accounting standard which requires an entity to present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements.
This new standard eliminates the option to present components of other
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
comprehensive income as part of the statement of equity. The adoption of this new standard did not have a material effect on the Company's operating results
or financial position. The consolidated statements of operations and comprehensive loss reflect total comprehensive loss for the years ended December 31,
2011, 2010 and 2009. There were no significant reclasses to income during the years ended December 31, 2011, 2010 and 2009.
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:
Stock options
Convertible debt
Restricted stock
Recent Accounting Pronouncements
Year Ended December 31,
2011
2010
2009
4,459,034
—
6,000
4,465,034
4,019,982
353,563
9,338
4,382,883
3,576,159
353,563
16,000
3,945,722
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 September 2011, the FASB amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to
assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step
goodwill impairment test required under current accounting standards. This guidance will be effective for the Company's fiscal year ending December 30,
2012. The Company does not expect the adoption of this new standard to have a material effect on its operating results or financial position.
In May 2011, the FASB issued a new 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. This new standard is effective on a
prospective basis for annual and interim reporting periods beginning on or after December 15, 2011. The adoption of this standard is not expected to have a
material impact on the Company's operating results or financial position.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) BUSINESS COMBINATIONS
Acquisition of CuraGen Corporation (CuraGen)
On October 1, 2009, the Company acquired CuraGen, a former publicly-traded company. Following the CuraGen acquisition, the financial statements
reflect the financial position, results of operation and cash flows of the combined companies. In connection with the CuraGen acquisition, effective October 1,
2009, the Company (i) issued 15,722,713 shares of common stock of the Company, or 0.2739 shares, in exchange for each share of outstanding CuraGen
common stock, plus cash in lieu of fractional shares (the "CuraGen Exchange Ratio"), (ii) assumed the obligations under CuraGen's 2007 Stock Plan (the
"CuraGen 2007 Plan") and each outstanding option to purchase common stock (a "CuraGen Stock Option") granted under the CuraGen 2007 Plan and
(iii) assumed the $12.5 million in 4% convertible subordinated debt due February 15, 2011 (the "CuraGen Debt").
The transaction was accounted for under the acquisition method of accounting. The acquisition-date fair value of the consideration transferred consisted
of the fair value of the Company's common stock issued of $85.4 million and fair value of CuraGen Stock Options that were attributed to precombination
service of $2.9 million. Of the CuraGen Stock Options assumed, all but 1%, were immediately vested upon closing in accordance with the terms of the stock
option agreements and employment agreements.
The Company recorded the fair value of acquired assets and liabilities to net tangible assets, intangible assets, goodwill and a severance obligation. The
difference between the aggregate consideration transferred and the fair value of assets acquired and liabilities assumed was recorded to goodwill. This
goodwill relates to synergies from the CuraGen acquisition and a deferred tax liability related to acquired IPR&D intangible assets. None of the goodwill is
expected to be deductible for income tax purposes. The following table summarizes the fair values of the assets acquired and liabilities assumed at the
acquisition date (in thousands):
Cash and cash equivalents
Marketable securities
Identifiable intangible assets:
IPR&D
Amgen Amendment
TopoTarget Agreement
Other current and long-term assets
Goodwill
CuraGen Debt
Net deferred tax liability
Other assumed liabilities
Total
$
$
51,654
18,638
11,800
14,500
2,400
756
8,965
(11,503)
(5,190)
(3,778)
88,242
The values assigned to the intangible assets acquired, including the IPR&D, were determined based on fair market value using a risk adjusted discounted
cash flow approach. The values assigned to IPR&D related to the development of CDX-011. At the date of acquisition, CDX-011 had not yet reached
technological feasibility nor did it have any alternative future use. In December 2011, the Company completed enrollment in a randomized Phase 2b
controlled study for CDX-011 in patients with heavily pre-treated, advanced breast cancer. The Company expects to incur approximately
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) BUSINESS COMBINATIONS (Continued)
$1.4 million in 2012 on the Phase 2b study. Estimated revenues from CDX-011 are expected to be generated by 2016. The remaining acquired intangible
assets arising from the acquisition are being amortized on a straight line basis over their estimated lives. The net deferred tax liability primarily relates to the
temporary differences associated with the IPR&D intangible assets, which are not deductible for tax purposes.
In connection with the CuraGen acquisition, effective October 1, 2009, the Company, CuraGen, and The Bank of New York Mellon (the "Trustee")
amended the CuraGen Debt to provide that the CuraGen Debt shall be convertible into 353,563 shares of the Company's common stock at the rate of
28.27823 shares of the Company's common stock per $1,000 principal amount of notes, or $35.36 per share. The initial carrying value of the CuraGen Debt
was accreted ratably, over the term of the CuraGen Debt, to $12.5 million due at maturity. Interest expense on the CuraGen Debt was $0.2 million,
$1.2 million and $0.3 million for the years ended December 31, 2011, 2010 and 2009 and included $0.1 million, $0.7 million and $0.2 million in discount
accretion, respectively. In February 2011, the Company paid the Trustee $12.8 million to satisfy all outstanding principal and accrued interest related to the
CuraGen Debt.
CuraGen employees who did not receive offers of employment were terminated upon the consummation of the CuraGen acquisition. These employees
were eligible for severance payments upon termination of employment under certain circumstances, including following the CuraGen acquisition. U.S. GAAP
requires severance obligations that are incurred by the acquiree for the benefit of the acquirer to be recognized as an expense in the post-combination period.
Because the offer of employment was at the option of the Company, the Company has deemed the CuraGen Severance to be at its benefit. Accordingly, the
Company recorded $3.3 million and $0.9 million in CuraGen severance expenses to general and administrative and research and development, respectively, in
the consolidated statements of operations for the year ended December 31, 2009. In addition, the Company incurred $2.9 million in acquisition-related
expenses including investment banking, legal, accounting, and valuation services in the consolidated statements of operations for the year ended
December 31, 2009.
(4) FAIR VALUE MEASUREMENTS
The following tables set forth the Company's financial assets subject to fair value measurements:
Money market funds and cash equivalents
Marketable securities
As of
December 31, 2011
Level 1
(In thousands)
Level 2
Level 3
$
$
$
11,038 $
41,413
52,451 $
11,038
— $
11,038 $
—
41,413
41,413
—
—
—
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) FAIR VALUE MEASUREMENTS (Continued)
Money market funds and cash equivalents
Marketable securities
As of
December 31, 2010
Level 1
(In thousands)
Level 2
Level 3
$
$
$
10,975 $
39,811
50,786 $
10,975
— $
10,975 $
—
39,811
39,811
—
—
—
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 drive 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. Based on current
market interest rates available to the Company for long-term liabilities with similar terms and maturities, the Company believes the fair value approximates
the carrying value of the principal portion of the Term Loan and note payable at December 31, 2011.
(5) MARKETABLE SECURITIES
A summary of marketable securities is shown below:
December 31, 2011
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less
Maturing after one year through three years
Total U.S. government and municipal obligations
Corporate debt securities
Maturing in one year or less
Maturing after one year through three years
Total corporate debt securities
Total marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Fair
Value
$
$
$
$
$
19,993
10,808
30,801
5,817
4,730
10,547
41,348
$
$
$
$
$
20
122
142
3
2
5
147
$ — $ 20,013
6
10,924
6 $ 30,937
$
$
$
$
5,816
4 $
72
4,660
76 $ 10,476
82 $ 41,413
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) MARKETABLE SECURITIES (Continued)
December 31, 2010
Marketable securities
U.S. government and municipal obligations
Maturing in one year or less
Maturing after one year through three years
Total U.S. government and municipal obligations
Corporate debt securities
Maturing in one year or less
Maturing after one year through three years
Total corporate debt securities
Total marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Fair
Value
$
$
$
$
$
14,836
11,428
26,264
11,798
1,594
13,392
39,656
$
$
$
$
$
35
103
138
18
1
19
157
$ — $ 14,871
11,531
$ — $ 26,402
—
$
$
$
2 $ 11,814
—
1,595
2 $ 13,409
2 $ 39,811
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 December 31, 2011.
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment include the following:
Laboratory Equipment
Manufacturing Equipment
Office Furniture and Equipment
Leasehold Improvements
Construction in Progress
Total Property and Equipment
Less Accumulated Depreciation and Amortization
December 31, 2011
December 31, 2010
(In thousands)
$
$
2,630
1,999
1,314
13,280
240
19,463
(10,370)
9,093
$
$
2,942
1,418
1,299
13,244
703
19,606
(8,774)
10,832
Depreciation and amortization expense related to property and equipment was $2.2 million, $2.7 million and $2.6 million for the years ended
December 31, 2011, 2010 and 2009, respectively.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) INTANGIBLE ASSETS AND GOODWILL
Intangible assets, net of accumulated amortization, and goodwill are as follows:
December 31, 2011
Estimated
Life
Cost
Accumulated
Amortization Net
Cost
(In thousands)
December 31, 2010
Accumulated
Amortization Net
Intangible Assets:
Indefinite $11,800 $
— $11,800 $11,800 $
— $11,800
IPR&D
Amgen
Amendment 16 years 14,500
TopoTarget
Core
Agreement — 2,400
4.5 –
11 years 1,948
Technology
(2,018) 12,482 14,500
(1,121) 13,379
(2,400)
— 2,400
(2,057)
343
(1,307)
641 1,948
(1,040)
908
Strategic
Partner
Agreement —
630
(630)
—
630
(224)
406
Total Intangible
Assets
Goodwill
$31,278 $ (6,355)$24,923 $31,278 $ (4,442)$26,836
— $ 8,965
— $ 8,965 $ 8,965
Indefinite $ 8,965
The estimated fair value attributed to the April 2008 agreement (TopoTarget Agreement) between the Company (as a successor to CuraGen) and
TopoTarget A/S (TopoTarget) relates to the Company's rights under the TopoTarget Agreement to receive up to $6 million in either potential commercial
milestone payments related to future net sales of Belinostat or 10% of any sublicense income received by TopoTarget (TopoTarget Payments). In February
2010, TopoTarget entered into a co-development and commercialization agreement for Belinostat with Spectrum Pharmaceuticals, Inc. which resulted in the
Company's receipt of $3.0 million of the TopoTarget Payments. The Company recorded this cash receipt as Other Income for the year ended December 31,
2010.
During the year ended December 31, 2011, the Company recorded an impairment loss of $0.3 million in Strategic Partnership Agreement to amortization
of intangible asset expense due to the Company's termination of rights to intellectual property underlying that Strategic Partnership Agreement. During the
year ended December 31, 2010, the Company wrote-off $0.2 million in Core Technology to amortization of intangible asset expense. In January 2009, the
Company entered into a purchase agreement with Lohmann Animal Health International ("LAHI") to sell its poultry vaccines assets to LAHI. Under the
purchase agreement, LAHI paid an upfront fee of $0.8 million and agreed to pay potential milestone payments. During the year ended December 31, 2009, the
Company recorded a gain of $0.6 million related to the LAHI Agreement based on the upfront fee less the net book value of the related asset.
Amortization expense for intangible assets was $1.9 million, $3.1 million and $0.9 million for the years ended December 31, 2011, 2010 and 2009,
respectively. The estimated future amortization expense of intangible assets as of December 31, 2011, for the next five years is as follows (in thousands):
2012
2013
2014
2015
2016
$
81
1,089
1,014
1,014
1,014
994
Table of Contents
CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) ACCRUED EXPENSES
Accrued expenses include the following:
Accrued Royalty and License Fees
Accrued Payroll and Employee Benefits
Accrued Research and Development Contract Costs
Accrued Professional Fees
Other Accrued Expenses
(9) OTHER LONG-TERM LIABILITIES
Other long-term liabilities include the following:
Deferred Rent
Severance
Net Deferred Tax Liability
Deferred Income from Sale of Tax Benefits
Loan Payable
Other
Total
Less Current Portion
Long-Term Portion
Sale of Tax Benefits
December 31,
2011
December 31,
2010
(In thousands)
$
$
1,179
2,145
3,035
297
352
7,008
$
$
826
1,925
1,218
449
518
4,936
December 31, 2011
December 31, 2010
(In thousands)
$
$
435
—
4,661
510
527
52
6,185
(219)
5,966
$
$
450
685
4,661
—
581
32
6,409
(818)
5,591
In January 2011, the Company received approval from the New Jersey Economic Development Authority and agreed to sell New Jersey tax benefits
worth $0.6 million (consisting of R&D tax credits) to an independent third party for $0.5 million. Under the agreement, the Company must maintain a base of
operations in New Jersey for five years or the tax benefits must be paid back on a pro-rata basis based on the number of years completed. The Company is
recognizing the $0.5 million over five years starting in 2012.
Loan Payable
In December 2003, the Company entered into a lease with the Massachusetts Development Finance Agency whereby the Company received a loan to
finance the build-out of its manufacturing facility in Fall River, Massachusetts. Principal and interest payments on the loan are due monthly using
82
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) OTHER LONG-TERM LIABILITIES (Continued)
an amortization period of 15 years and interest accrues at a rate of 5.5% per annum. The Company is obligated to repay the following principal amounts for
the loan as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total
(10) TERM LOAN
$
$
51
58
60
63
66
229
527
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 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 December 31, 2011, the Company believes it is in compliance
with the Loan Agreement.
83
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(10) TERM LOAN (Continued)
CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2011 and 2010, the Company had $0.2 million in capitalized deferred financing costs incurred in connection with the Term Loan and is
amortizing these costs over the original term of the Term Loan to interest expense. Interest expense on the Term Loan including the accretion of the Payment
Fee and amortization of the deferred financing costs was $1.6 million for the year ended December 31, 2011.
The Company is obligated to repay the following principal amounts for the Term Loan (including Payment Fee) as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total
(11) STOCKHOLDERS' EQUITY
Common Stock
$
$
3,971
5,744
5,735
—
—
—
15,450
In April 2010, the Company 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 shelf registration statement up to a dollar amount of $150 million. The shelf registration became effective on April 22,
2010.
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 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. In January 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 will have 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.
In May 2011, the Company issued 11,500,000 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 1,500,000 shares of common stock. The net proceeds to the Company were $33.7 million, after deducting
underwriting fees and offering expenses.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) STOCKHOLDERS' EQUITY (Continued)
In February 2012, the Company issued 10,500,000 shares of its common stock in an underwritten public offering. The net proceeds to the Company were
$37.7 million, after deducting underwriting fees and estimated offering expenses. The Company has granted the underwriters a 30-day option to purchase up
to an aggregate of 1,575,000 additional shares of common stock to cover overallotments, if any.
Convertible Preferred Stock
At December 31, 2011, the Company had authorized 3,000,000 shares of preferred stock all of which have been designated Class C Preferred Stock
including 350,000 shares which have been designated Series C-1 Junior Participating Cumulative Preferred Stock (the "Series C-1 Preferred Stock").
Shareholder Rights Plan
The Company's Board has adopted a Shareholder Rights Plan, as set forth in the Shareholder Rights Agreement, as amended, between the Company and
Computershare Trust Company, N.A., as Rights Agent (the "Rights Agreement"). Pursuant to the terms of the Rights Agreement, the Board declared a
dividend distribution of one Preferred Stock Purchase Right (a "Right") for each outstanding share of the Company's common stock. Each Right, which
expires in November 2014, entitles their holder to purchase from the Company one ten-thousandth of a share (a "Unit") of Series C-1 Preferred Stock at a cash
exercise price of $35.00 per Unit, subject to adjustment. The Rights will trade separately from the common stock and will become exercisable only when a
person or group has acquired 15% or more of the outstanding common stock or upon the commencement by a person or group of a tender offer that would
result in such person or group acquiring 15% or more of the outstanding common stock other than as a result of repurchases of stock by the Company or
certain inadvertent actions by a shareholder. In the event a person or group acquires 15% or more of the outstanding common stock each holder of a Right
(except for any such person or group) would be entitled to receive upon exercise sufficient Units of Series C-1 Preferred Stock to equal a value of two times
the exercise price of the Right. In the event the Company is acquired in a merger or other business combination transaction or if 50% or more of the
Company's assets or earning power is sold, each holder of a Right (except for any such person or group described above) would receive upon exercise
common stock of the acquiring company with a value equal to two times the exercise price of the Right.
85
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) STOCK-BASED COMPENSATION
The Company has the following stock-based compensation plans: the 2004 Employee Stock Purchase Plan (the "2004 ESPP Plan"), the 2008 Stock
Option and Incentive Plan (the "2008 Plan"), Celldex Research's 2005 Equity Incentive Plan (the "Celldex Research 2005 Plan") and the CuraGen 2007 Plan.
There are no shares available for future grant under the Celldex Research 2005 Plan and CuraGen 2007 Plan.
Employee Stock Purchase Plan
At December 31, 2011, a total of 62,500 shares of common stock are reserved for issuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, each
participating employee may purchase up to 250 shares of common stock per year, through payroll deductions, at a purchase price equal to 85% of the lower of
the fair market value of the common stock at either the beginning of the offering period or the applicable exercise date. During the years ended December 31,
2011 and 2010, the Company issued 6,627 and 5,897 shares under the 2004 ESPP Plan, respectively. At December 31, 2011, 44,382 shares were available for
issuance under the 2004 ESPP Plan.
Employee Stock Option and Incentive Plan
The 2008 Plan permits the granting of incentive stock options (intended to qualify as such under Section 422A of the Internal Revenue Code of 1986, as
amended), non-qualified stock options, stock appreciation rights, performance share units, restricted stock and other awards of restricted stock in lieu of cash
bonuses to employees, consultants and non-employee directors.
At December 31, 2011, the 2008 Plan allowed for a maximum of 3,900,000 shares of common stock to be issued for grants of Stock Options and other
Awards made prior to March 7, 2018 and grants of Incentive Stock Options made prior to October 20, 2017. The Company's board of directors determines the
term of each option, option price, and number of shares for which each option is granted and the rate at which each option vests. Options generally vest over a
period not to exceed four years. The term of each option cannot exceed ten years (five years for options granted to holders of more than 10% of the voting
stock of the Company) and the exercise price of stock options cannot be less than the fair market value of the common stock at the date of grant (110% of fair
market value for incentive stock options granted to holders of more than 10% of the voting stock of the Company). Vesting of all employee and non-employee
director stock option awards is accelerated upon a change in control as defined in the 2008 Plan.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) STOCK-BASED COMPENSATION (Continued)
A summary of stock option activity for the year ended December 31, 2011 is as follows:
Options Outstanding at December 31, 2010
Granted
Exercised
Canceled
Options Outstanding at December 31, 2011
Options Vested and Expected to Vest at December 31, 2011
Options Exercisable at December 31, 2011
Shares Available for Grant under the 2008 Plan
Shares
Weighted
Average
Exercise
Price
Per Share
4,019,982 $ 6.93
942,884 $ 2.90
(61,627) $ 2.50
(442,205) $ 7.51
4,459,034 $ 6.08
4,412,254 $ 6.11
2,818,895 $ 7.16
953,111
Weighted
Average
Remaining
Contractual
Term (In Years)
6.6
6.9
6.9
5.9
The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010 and 2009 was $0.03 million, $1.0 million and
$0.3 million, respectively. The weighted average grant-date fair value of stock options granted during the years ended December 31, 2011, 2010 and 2009 was
$1.83, $2.82 and $5.29, respectively. The total fair value of stock options vested during the years ended December 31, 2011, 2010 and 2009 was $2.6 million,
$2.5 million and $2.6 million, respectively.
The aggregate intrinsic value of stock options outstanding at December 31, 2011 was $0.03 million. The aggregate intrinsic value of stock options vested
and expected to vest at December 31, 2011 was $0.03 million. As of December 31, 2011, total compensation cost related to non-vested employee and non-
employee director stock options not yet recognized was approximately $3.3 million, net of estimated forfeitures, which is expected to be recognized as
expense over a weighted average period of 2.5 years.
Restricted Stock
A summary of restricted stock activity under the 2008 Plan for the year ended December 31, 2011 is as follows:
Outstanding and unvested at December 31, 2010
Granted
Vested
Canceled
Outstanding and unvested at December 31, 2011
Shares
9,338
12,000
(15,338)
—
Weighted
Average
Grant Date
Fair Value
(per share)
$
$
$
3.96
3.24
3.68
—
3.24
87
6,000
$
Table of Contents
CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) STOCK-BASED COMPENSATION (Continued)
Valuation and Expenses Information
Stock-based compensation expense for the years ended December 31, 2011, 2010 and 2009 was recorded as follows:
Research and development
General and administrative
Total stock-based compensation expense
2011
2010
(In thousands)
2009
$
$
1,412 $
930
2,342 $
1,625 $
1,177
2,802 $
1,383
1,675
3,058
The fair values of employee and non-employee director stock options granted during the years ended December 31, 2011, 2010 and 2009 were valued
using the Black-Scholes option-pricing model with the following assumptions:
Expected stock price volatility
Expected option term
Risk-free interest rate
Expected dividend yield
(13) SIGNIFICANT REVENUE ARRANGEMENTS
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Year Ended
December 31, 2009
68 – 70%
6.0 Years
1.4 – 2.9%
None
65 – 67%
6.2 Years
1.8 – 3.2%
None
65 – 68%
5.5 – 6.3 Years
1.8 – 3.4%
None
A summary of the Company's significant revenue contracts and arrangements follows:
GlaxoSmithKline plc (Glaxo) and Paul Royalty Fund II, L.P. (PRF)
In 1997, the Company entered into an agreement with Glaxo to collaborate on the development and commercialization of the Company's oral rotavirus
strain and Glaxo assumed responsibility for all subsequent clinical trials and all other development activities. The Company's licensed-in the rotavirus strain
that was used to develop Glaxo's Rotarix rotavirus vaccine in 1995 and owes a license fee of 30% to Cincinnati Children's Hospital Medical Center (CCH) on
net royalties received from Glaxo. The Company is 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.
In May 2005, the Company entered into an agreement whereby an affiliate of PRF purchased a 70% interest in the milestone payments and net royalties
the Company will receive on 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. The
Company's 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. Product royalty revenue and royalty expense related to the Company's retained interest in Rotarix was
$9.1 million, $6.4 million and $7.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
88
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) SIGNIFICANT REVENUE ARRANGEMENTS (Continued)
Pfizer Inc. (Pfizer)
In April 2008, the Company and Pfizer entered into a License and Development Agreement (the "Pfizer Agreement") under which Pfizer was granted an
exclusive worldwide license to rindopepimut. Under the Pfizer Agreement, Pfizer made an upfront payment to the Company of $40 million and made a
$10 million equity investment in the Company. The Pfizer Agreement also provided for reimbursement by Pfizer of all costs incurred by the Company in
connection with the collaboration since the effective date.
The Company had determined that its performance obligations under this collaboration should be accounted for as a single unit of accounting. The
Company's deliverables under this collaboration primarily included an exclusive license to rindopepimut, research and development services as required under
the collaboration and participation in the joint clinical development committee. The Company had estimated that its expected performance period under the
collaboration would be 9.5 years based on an assessment of the period over which the Company would have met its performance obligations under the
collaboration. The $40 million up-front payment and research and development reimbursements were initially recorded as deferred revenue and recognized as
revenue over this 9.5 year period.
In November 2010, the Pfizer Agreement was terminated (the "Pfizer Termination") and all rights to rindopepimut were returned to the Company. Pfizer
did not provide a reason for termination. As a result of the Pfizer Termination, the Company recognized the remaining deferred revenue related to the Pfizer
Agreement to product development and licensing agreement revenue during the year ended December 31, 2010. The Company recorded $39.9 million and
$5.2 million in product development and licensing agreement revenue under the Pfizer Agreement during the years ended December 31, 2010 and 2009,
respectively. The Company incurred and invoiced Pfizer reimbursable costs related to the Pfizer collaboration of $0.8 million and $3.2 million for the years
ended December 31, 2010 and 2009, respectively. Effective with the Pfizer Termination, Pfizer is no longer funding the development of rindopepimut.
In connection with the Pfizer Agreement, the Company paid a total of $6.9 million in sublicense fees to Duke University and Thomas Jefferson
University. The Company recorded these deferred sublicense fees to other assets in the consolidated balance sheets and was amortizing them to royalty
expense over the 9.5-year performance period. As a result of the Pfizer Termination, the Company recognized the remaining deferred costs related to the
Pfizer Agreement to royalty expense during year ended December 31, 2010. The Company recorded $5.7 million and $0.7 million in royalty expense related
to these deferred sublicense fees during the years ended December 31, 2010 and 2009, respectively.
Rockefeller University (Rockefeller)
The Company has provided research and development support to Rockefeller on the development of their vaccine, DCVax-001, which the Company
refers to as CDX-2401, aimed at providing protection from infection with HIV, the virus known to cause AIDS. Payments to the Company are made on a time
and materials basis. The Company recorded grant revenue from Rockefeller of $0.2 million and $1.8 million for the years ended December 31, 2010 and
2009, respectively.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) COLLABORATION AGREEMENTS
The Company has entered into license agreements whereby the Company has received licenses or options to license technology, specified patents or
patent applications. The Company's licensing and development collaboration agreements generally provide for royalty payments equal to specified
percentages of product sales, annual license maintenance fees, continuing patent prosecution costs and potential future milestone payments to third parties
upon the achievement of certain developmental, regulatory and/or commercial milestones. Nonrefundable license fee expense was $1.4 million, $1.0 million
and $0.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Medarex, Inc., a subsidiary of Bristol-Myers Squibb (Medarex)
Medarex, a former related party, and the Company have entered into the following agreements, each of which was approved by a majority of its
independent directors who did not have an interest in the transaction. These agreements include:
•
•
An Assignment and License Agreement, as amended, (Assignment and License Agreement) that provides for the assignment of certain patent
and other intellectual property rights and a license to certain Medarex technology related to the Company's APC Targeting Technology and an
anti-mannose receptor product; and
A Research and Commercialization Agreement, as amended, (Research and Commercialization Agreement) that provides the Company with
certain rights to obtain exclusive commercial licenses to proprietary monoclonal antibodies raised against certain antigens utilizing the Medarex
UltiMAb technology platform for generating antibodies.
Under the terms of the Assignment and License Agreement, the Company may be required to pay royalties in the low-single digits on any net product
sale of a Licensed Royalty-Bearing Product or Anti-Mannose Product to Medarex until the later of (i) the expiration of the last to expire applicable patent and
(ii) the tenth anniversary of the first commercial sale of such licensed product. Under the terms of the Research and Commercialization Agreement, the
Company may be required to pay milestones of up to $7.0 million upon obtaining first approval for commercial sale in a first indication of a product
containing a licensed antibody and royalty payments in the low- to mid-single digits on any net product sales to Medarex with respect to the development of
any products containing such licensed antibodies until the later of (i) the expiration of the last to expire applicable patent and (ii) the tenth anniversary of the
first commercial sale of such licensed product. In September 2010, the Company exercised an option under the Research and Commercialization Agreement,
whereby it licensed from Medarex access to the UltiMab technology to develop and commercialize human antibodies to CD27, including CDX-1127.
Rockefeller University (Rockefeller)
In November 2005, the Company and Rockefeller entered into a license agreement for the exclusive worldwide rights to human DEC-205 receptor, with
the right to sublicense the technology. The license grant is exclusive except that Rockefeller may use and permit other nonprofit organizations to use the
human DEC-205 receptor patent rights for educational and research purposes. The Company may be required to pay milestones of up to $3.9 million upon
obtaining first approval for commercial sale in a first indication of a product targeting the licensed receptor and royalty payments in the low- to mid-single
digits on any net product sales to Rockefeller with respect to development and commercialization of the human DEC-205 receptor.
90
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) COLLABORATION AGREEMENTS (Continued)
Duke University Brain Tumor Cancer Center (Duke)
In September 2006, the Company and Duke entered into a license agreement that gave the Company access and reference to the clinical data generated
by Duke and its collaborators in order for the Company to generate its own filing with the FDA relating to rindopepimut. The Company may be required to
pay milestone of up to $1.0 million upon obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any
net product sales to Duke with respect to development and commercialization of rindopepimut.
Ludwig Institute for Cancer Research (Ludwig)
In October 2006, the Company and Ludwig entered into an agreement for the nonexclusive rights to certain cancer tumor targets for use in combination
with the Company's APC Targeting Technology. The term of the agreement is for ten years. The Company may be required to pay milestones of up to
$1.0 million upon obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to
Ludwig with respect to development and commercialization of the technology licensed from Ludwig.
Alteris Therapeutics, Inc. (Alteris)
In October 2005, the Company completed the acquisition of the assets of Alteris, including the EGFRvIII molecule. The Company may be required to
pay Alteris up to $5.0 million upon obtaining the first approval for commercial sale of a product containing EGFRvIII, including rindopepimut.
Thomas Jefferson University (TJU)
In connection with our acquisition of the assets of Alteris, the Company obtained the rights to two exclusive license agreements with TJU dated February
2003 related to the EGFRvIII tumor antigen. Under Under these licenses, the Company may be required to pay milestones of up to $3.0 million upon
obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to TJU with respect to
development and commercialization of rindopepimut.
3M Company
In June 2008, the Company and 3M Company entered into a license agreement for the exclusive worldwide rights to access 3M Company's proprietary
Immune Response Modifier, Resiquimod, (and additional Toll-Like Receptor 7/8 agonists (TLR)) for clinical study with the Company's proprietary APC
Targeting Technology, for use as vaccine adjuvants, with the right to sublicense the technology. The Company may be required to pay milestones of up to
$3.8 million upon obtaining first approval for commercial sale of each product using this vaccine adjuvant and royalty payments in the low-single digits on
any net product sales to 3M Company with respect to development and commercialization of the technology licensed from 3M Company.
University of Southampton, UK (Southampton)
In November 2008, the Company entered into a license agreement with Southampton to develop human antibodies towards CD27, a potentially
important target for immunotherapy of various cancers.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) COLLABORATION AGREEMENTS (Continued)
The Company may be required to pay milestones of up to approximately $1.4 million upon obtaining first approval for commercial sale in a first indication
and royalty payments in the low-single digits on any net product sales to Southampton with respect to development and commercialization of CDX-1127
Amgen Inc. (Amgen)
In March 2009, the Company entered into a license agreement with Amgen to expand its Precision Targeted Immunotherapy Platform by acquiring
exclusive rights to CDX-301 and CD40 ligand (CD40L). CDX-301 and CD40L are immune modulating molecules that increase the numbers and activity of
immune cells that control immune responses. The Company may be required to pay milestones of up to $1.3 million upon obtaining first approval for
commercial sale in a first indication and royalty payments in the low-single digits on any net product sales to Amgen with respect to development and
commercialization of the technology licensed from Amgen, including CDX-301.
Seattle Genetics, Inc. (Seattle Genetics)
In connection with the CuraGen acquisition, the Company assumed the license agreement between CuraGen and Seattle Genetics whereby CuraGen
acquired the rights to proprietary antibody-drug conjugate (ADC) technology for use with the Company's proprietary antibodies for the potential treatment of
cancer. The Company may be required to pay milestones of up to $7.5 million upon obtaining first approval for commercial sale in a first indication and
royalty payments in the mid-single digits on any net product sales to Seattle Genetics with respect to development and commercialization of the ADC
technology, including CDX-011.
(15) INCOME TAXES
The components of income tax expense attributable to continuing operations consist of the following:
Income tax benefit (provision):
Year Ended December 31,
2011
2010
(In thousands)
2009
Federal
State
Foreign
Expiration of Net Operating Losses and Research & Development Tax Credits
Deferred tax valuation allowance
3,131
84
$ 16,204 $ 1,512 $12,750
779 (1,757)
107
126
(411) (13,924) (3,992)
19,008 (11,526) 7,127
(19,008) 11,526 (6,598)
529
$
— $
— $
Included in the state tax provision above for the year ended December 31, 2009 is the effect of a rate decrease on the deferred tax asset and liabilities
offset by a $0.5 million tax benefit due to non-cash tax consequences of the CuraGen acquisition.
92
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) INCOME TAXES (Continued)
A reconciliation between the amount of reported income tax and the amount computed using the U.S. Statutory rate of 34% follows:
Pre-tax book income (loss)
2011
2010
(In thousands)
2009
$(44,799)$ (2,533)$(37,054)
Loss at Statutory Rates
Research and Development Credits
State Taxes
Other
Expiration of Net Operating Losses and Research & Development Tax Credits
Change in Valuation Allowance
Income tax (benefit) provision
(15,213)
(1,498)
(1,736)
(779)
(3,131)
661
717
411 13,924
19,008 (11,526)
— $
— $
$
(838) (12,571)
(1,456)
1,757
1,151
3,992
6,598
(529)
Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities
using future expected enacted rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred
tax assets will not be realized.
The principal components of the deferred tax assets and liabilities at December 31, 2011 and 2010, respectively, are as follows:
December 31,
2011
December 31,
2010
(In thousands)
$
Gross Deferred Tax Assets
Net Operating Loss Carryforwards
Tax Credit Carryforwards
Deferred Expenses
Stock-based Compensation
Fixed Assets
Accrued Expenses and Other
Gross Deferred Tax Liabilities
Other Acquired Intangibles
IPR&D Intangibles
Deferred License Costs and Other
Total Deferred Tax Assets and Liabilities
Deferred Tax Assets Valuation Allowance
Net Deferred Tax Asset (Liability)
$
93
58,802
20,285
31,002
3,184
2,029
197
115,499
(4,878)
(4,661)
—
(9,539)
105,960
(110,621)
(4,661)
$
$
50,228
17,998
23,705
3,066
1,957
311
97,265
(5,615)
(4,661)
(37)
(10,313)
86,952
(91,613)
(4,661)
Table of Contents
(15) INCOME TAXES (Continued)
CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net deferred tax liability of $4.7 million at December 31, 2011 and 2010 relates to the temporary differences associated with the IPR&D intangible
assets acquired in the CuraGen acquisition, which are not deductible for tax purposes.
As of December 31, 2011, the Company had the following federal net operating loss (NOL) carryforwards:
•
•
•
•
Prior to the merger of the Company and AVANT, $33.0 million was generated by the Company which expire at various dates starting in 2023
and going through 2028;
Prior to the merger of the Company and AVANT, $132.4 million, net of expirations and utilization, was generated by AVANT which expire at
various dates starting in 2012 and going through 2028. NOLs of $0.8 million were utilized in 2009. $13.0 million and $12.1 million in NOLs
expired in 2011 and 2010, respectively;
Following the merger of the Company and AVANT, $73.9 million was generated by the combined company which expire at various dates
starting in 2028 and going through 2031; and
Prior to its acquisition by the Company, $518.3 million was generated by CuraGen.
In general, an ownership change, as defined by Section 382 of the Internal Revenue Code, results from transactions increasing the ownership of certain
shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Such ownership changes can
significantly limit the amount of NOL carryforwards that may be utilized in future periods. The Company currently expects that it is not more likely than not
that the CuraGen loss carryforwards may be utilized and, as such, no related asset has been recorded for such losses. The Company has not completed an
analysis of losses generated by AVANT, however, the Company believes it is remote that $92 million of the AVANT loss carryforwards may be utilized in
future periods and there may be substantial limitations on the Company's ability to use the remaining losses of $40.4 million. Following the merger of the
Company and AVANT, the Company experienced changes in ownership as defined by Section 382 in June 2009 and December 2009. Further, prior to the
AVANT merger, the Company as a stand alone company experienced a change in ownership in October 2007. As a result of the ownership change in October
2007, utilization of the Company's NOLs prior to October 2007 is subject to an annual limitation of $4.5 million on $28.3 million of NOLs generated before
that date. As a result of the ownership changes in June 2009 and December 2009, there is an annual limitation amount of $6.0 million on $67.7 million NOLs.
Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be subject to adjustment
if the fair value of the Company's net assets are determined to be below or in excess of the tax basis of such assets at the time of the ownership change, and
such unrealized loss or gain is recognized during the five-year period after the ownership change.
Similar to the AVANT and CuraGen NOL carryforwards above, the Company believes that it is not more likely than not that federal and state research
and development credits ("R&D credit") of $20.8 million and $14.4 million, respectively, will be utilized in the future periods. Further, the Company's ability
to use the state NOL carryforwards of approximately $88.7 million and the remaining federal and state R&D credit carryforwards of approximately
$14.0 million and $9.2 million, respectively, may be substantially limited. These state NOLs and federal and state credits expire at various dates starting in
2012 going through 2031. The Company has not yet completed a study of these
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(15) INCOME TAXES (Continued)
CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
credits to substantiate the amounts. Until a study is completed, no amounts are being presented as an uncertain tax position.
Subsequent ownership changes, as defined in Section 382, could further limit the amount of net operating loss carryforwards and research and
development credits that can be utilized annually to offset future taxable income.
The Company applies the authoritative guidance on account for and disclosure of uncertainty in income tax positions which requires the Company to
determine whether an income tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. For income tax positions meeting the more likely than not threshold, the tax
amount recognized in the financial statements is reduced to the largest benefit that has a greater than fifty perfect likelihood of being realized upon the
ultimate settlement with the relevant taxing authority. At December 31, 2011 and 2010, we had no unrecognized tax benefits. A full valuation allowance has
been provided against our deferred tax assets and liabilities and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation
allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required.
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 completed an examination by the Internal Revenue Service with respect to 2008 which resulted in no change to our 2008 tax return. The Company
is not currently under examination by any other 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
December 31, 2011 against the Company's net deferred tax assets.
(16) COMMITMENTS AND CONTINGENCIES
The Company has facility and equipment leases that expire at various dates through 2017. Certain of these facility leases contain renewal options, early
termination provisions, and provisions that escalate the base rent payments and require the Company to pay common area maintenance costs (CAM) during
the lease term. The Company entered into a letter of credit facility with a national U.S. financial institution which is collateralized by a security deposit for the
leased facility in Phillipsburg, New Jersey. The Company recorded restricted cash related to this security deposit of $0.2 million to other assets in the
consolidated balance sheets at December 31, 2011 and December 31, 2010.
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CELLDEX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) COMMITMENTS AND CONTINGENCIES (Continued)
The following obligations for base rent and CAM costs under facility and other non-cancelable operating leases as of December 31, 2011 do not include
the exercise of renewal terms or early termination provisions (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total minimum lease payments
$
$
2,405
2,414
2,445
2,503
2,400
1,014
13,181
The Company's total rent and CAM expense for all facility leases was $2.5 million for the years ended December 31, 2011, 2010 and 2009.
(17) RETIREMENT SAVINGS PLAN
The Company maintains a 401(k) Plan which is available to substantially all employees. Under the terms of the 401(k) Plan, participants may elect to
contribute up to 15% of their compensation, or the statutory prescribed limits. The Company may make 50% matching contributions on up to 4% of a
participant's annual salary. Benefit expense for the 401(k) Plan was $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2011, 2010
and 2009, respectively.
(18) SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
2011
Total revenue
Net loss
Basic and diluted net loss per common share
Q1 2011
Q2 2011
Q3 2011
Q4 2011
(In thousands, except per share amounts)
$
2,516 $
1,952 $
2,363 $
(10,059)
(0.31)
(10,236)
(0.27)
(11,772)
(0.27)
2,433
(12,732)
(0.29)
2010
Total revenue
Net (loss) income
Basic net (loss) income per common share
Diluted net (loss) income per common share
Q1 2010
Q2 2010
Q3 2010
Q4 2010
(In thousands, except per share amounts)
$
3,713 $
(6,582)
(0.21)
(0.21)
2,951 $
(9,525)
(0.30)
(0.30)
2,408 $
(9,087)
(0.28)
(0.28)
37,721
22,661
0.71
0.70
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Table of Contents
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2011, 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 December 31, 2011. 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.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive
Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting
principles, and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations of
management and directors; and
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could
have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31, 2011.
The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report, which is included herein.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended December 31, 2011 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item 10 will be included in the definitive Proxy Statement for our 2012 Annual Meeting of Stockholders, or the 2012
Proxy Statement, under "Information Regarding the Current Directors and Executive Officers of Celldex Therapeutic, Inc.," "Section 16(a) Beneficial
Ownership Reporting Compliance," "Code of Business Conduct and Ethics" and "The Board of Directors and Its Committees" and is incorporated herein by
reference. If the 2012 Proxy Statement is not filed with the SEC within 120 days after the end of our most recent fiscal year, we will provide such information
by means of an amendment to this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in the 2012 Proxy Statement under "Executive Compensation," and "Compensation Committee
Interlocks and Insider Participation," and is incorporated herein by reference. If the 2012 Proxy Statement is not filed with the SEC within 120 days after the
end of our most recent fiscal year, we will provide such information by means of an amendment to this Annual Report on Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item 12 will be included in the 2012 Proxy Statement under "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" and is incorporated herein by reference. If the 2012 Proxy Statement is not filed with the SEC
within 120 days after the end of our most recent fiscal year, we will provide such information by means of an amendment to this Annual Report on Form 10-
K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 will be included in the 2012 Proxy Statement under "Election of Directors" and "Approval of Related Person
Transactions and Transactions with Related Persons" and is incorporated herein by reference. If the 2012 Proxy Statement is not filed with the SEC within
120 days after the end of our most recent fiscal year, we will provide such information by means of an amendment to this Annual Report on Form 10-K.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 will be included in the 2012 Proxy Statement under "Independent Registered Public Accounting Firm" and is
incorporated herein by reference. If the 2012 Proxy Statement is not filed with the SEC within 120 days after the end of our most recent fiscal year, we will
provide such information by means of an amendment to this Annual Report on Form 10-K.
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Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A)
The following documents are filed as part of this Form 10-K:
(1)
Financial Statements:
PART IV
The Financial Statements and Supplementary Data are included in Part II Item 8 of this report.
(2)
Financial Statement Schedules:
Schedules are omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial Statements or Notes thereto.
(3)
Exhibits:
No.
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 Agreement and Plan of Merger, dated as of October 19, 2007, by and among AVANT,
Description
Celldex Merger Corporation, and Celldex Therapeutics, Inc.
Incorporated by Reference to
SEC
Form and
Filing Date
SEC File No.
Exhibit
No.
8-K
(000-15006)
2.1 10/22/07
2.2
Agreement and Plan of Merger, dated as of May 28, 2009, by and among Celldex
Therapeutics, Inc., CuraGen Corporation and Cottrell Merger Sub, Inc.
8-K
(000-15006)
2.1
5/29/09
Articles of Incorporation and By-Laws
3.1 Third Restated Certificate of Incorporation
3.2
Certificate of Amendment of Third Restated Certificate of Incorporation
3.3
Second Certificate of Amendment of Third Restated Certificate of Incorporation
3.4
Third Certificate of Amendment of Third Restated Certificate of Incorporation
3.5
Fourth Certificate of Amendment of Third Restated Certificate of Incorporation
3.6
Fifth Certificate of Amendment of Third Restated Certificate of Incorporation
3.7
Amended and Restated By-Laws as of March 14, 2007
Instruments Defining the Rights of Security Holders
4.1 Specimen of Common Stock Certificate
4.2
Shareholder Rights Agreement dated November 5, 2004
99
S-4
(333-59215)
3.1 7/16/98
S-4
(333-59215)
S-4
(333-59215)
10-Q
(000-15006)
8-K
(000-15006)
8-K
(000-15006)
10-K
(000-15006)
3.1
7/16/98
3.2
7/16/98
3.1
5/10/02
3.1
3/11/08
3.2
3/11/08
3.5
3/18/08
S-3
(000-15006)
4.17 4/5/10
8-A
(000-15006)
4.1
11/8/04
Table of Contents
No.
Description
4.3 Amendment No. 1 to Shareholder Rights Agreement dated October 19, 2007
4.4
Amendment No. 2 to Shareholder Rights Agreement dated March 7, 2008
4.5
Certificate of Designations, Preferences and Rights of a Series of Preferred Stock
classifying and designating the Series C-1 Junior Participating Cumulative Preferred
Stock
Material Contracts—Leases
10.1 Commercial Lease Agreement of May 1, 1996 between the Company and Fourth
Avenue Ventures Limited Partnership
10.2
Extension of Lease Agreement of May 1, 1997 between the Company and DIV
Needham 53 LLC (successor in interest to Fourth Avenue Ventures Limited
Partnership) dated as of August 23, 2001
Incorporated by Reference to
SEC
Form and
Filing Date
SEC File No.
10.1 10/22/07
8-A/A
(000-15006)
Exhibit
No.
8-A/A
(000-15006)
8-A
(000-15006)
10.1
3/7/08
3.1
11/8/04
10-Q/A
(000-15006)
10-K
(000-15006)
10.11 8/23/96
10.9
3/27/02
10.3
First Amendment to Lease by and between the Company and DIV Needham 53 LLC
dated November 29, 2005
10-K
(000-15006)
10.40
3/16/06
*10.4
Lease Agreement, by and between the Company and the Massachusetts Development
Finance Agency, dated as of December 22, 2003
10-Q
(000-15006)
10.1
4/30/04
10.5
First Amendment to Lease between Massachusetts Development Finance Agency and
the Company dated March 17, 2005
10-K/A
(000-15006)
10.6
12/23/10
10.6
Second Amendment to Lease by and between the Company and the Massachusetts
Development Finance Agency dated as of November 4, 2005
10-K
(000-15006)
10.41
3/16/06
10.7
Third Amendment to Lease between Massachusetts Development Finance Agency and
the Company dated December 20, 2006
10-K/A
(000-15006)
10.7
12/23/10
10.8
Fifth Amendment to Lease between Massachusetts Development Finance Agency and
the Company dated October 3, 2008
10-K/A
(000-15006)
10.8
12/23/10
10.9
Sixth Amendment to Lease between Massachusetts Development Finance Agency and
the Company dated August 20, 2009
10-K/A
(000-15006)
10.9
12/23/10
10.10
Seventh Amendment to Lease by and between the Company and the Massachusetts
Development Finance Agency dated as of June 22, 2010
10-Q
(000-15006)
10.1
8/5/10
10.11
Lease Agreement dated as of October 21, 2005 by and between Phillipsburg
Associates, L.P. and the Company.
S-4
(333-148291)
10.10
1/18/08
100
Table of Contents
No.
Description
10.12 First Amendment to Lease between Phillipsburg Associates, L.P. and the Company
dated October 11, 2010
Incorporated by Reference to
SEC
Form and
Filing Date
SEC File No.
10.1 12/23/10
10-Q/A
(000-15006)
Exhibit
No.
10.13
Subordination, Non-Disturbance and Attornment Agreement between Bank of
America and the Company dated October 11, 2010
10-Q/A
(000-15006)
10.2
12/23/10
Material Contracts—License, Collaboration, Supply and Distribution Agreements
*10.14 License Agreement between the Company and SmithKline Beecham PLC dated as of
December 1, 1997
10.15
Amendment Agreement, dated January 9, 2003, between the Company and
SmithKline Beecham PLC
10-K
(000-15006)
10-K/A
(000-15006)
10.20 3/28/00
10.21
9/12/03
10.16
License and Clinical Trials Agreement, effective as of February 27, 1995, between the
Company and the James N. Gamble Institute of Medical Research
10-K/A
(000-15006)
10.23
9/12/03
10.17
Amendment Agreement between Cincinnati Children's Hospital Medical Center and
the Company dated November 17, 2003
10-K/A
(000-15006)
10.10
12/23/10
10.18
License Agreement, dated as of November 25, 1988, by and among The Johns
Hopkins University, Brigham and Women's Hospital and the Company
10-K/A
(000-15006)
10.28
9/12/03
10.19
Purchase Agreement, dated as of May 16, 2005, by and between the Company and
PRF Vaccine Holdings LLC
8-K
(000-15006)
10.1
5/18/05
10.20
Amendment Agreement to Purchase Agreement between the Company and PRF
Vaccine Holdings LLC, dated as of March 14, 2006
8-K
(000-15006)
10.1
3/15/06
*10.21
Exclusive License Agreement dated February 1, 2003 by and between Thomas
Jefferson University and the Company
S-4
(333-148291)
10.1
1/18/08
*10.22
Amendment to License Agreement between Thomas Jefferson University and the
Company dated March 27, 2008
10-K/A
(000-15006)
10.12
12/23/10
*10.23
License Agreement dated as of November 1, 2005 by and between The Rockefeller
University and the Company
S-4
(333-148291)
10.2
1/18/08
*10.24
License Agreement dated September 1, 2006 by and between Duke University and the
Company
S-4
(333-148291)
10.3
1/18/08
10.25
Amendment to License Agreement between Duke University and the Company dated
April 2, 2008
10-K/A
(000-15006)
10.5
12/23/10
*10.26
License Agreement between Duke University, The Johns Hopkins University and the
Company dated December 31, 2003
10-K/A
(000-15006)
10.11
12/23/10
101
Table of Contents
No.
Description
*10.27 Amendment to License Agreement between Duke University, The Johns Hopkins
University and the Company dated April 2, 2008
Incorporated by Reference to
SEC
Form and
Filing Date
SEC File No.
10.13 12/23/10
10-K/A
(000-15006)
Exhibit
No.
*10.28
Assignment and License Agreement, as amended, dated April 6, 2004 by and among
Medarex, Inc., GenPharm International, Inc. and the Company
S-4
(333-148291)
10.4
1/18/08
*10.29
Research and Commercialization Agreement, as amended, dated as of April 6, 2004
by and among Medarex, Inc., GenPharm International, Inc. and the Company
S-4
(333-148291)
10.5
1/18/08
*10.30
Supply Agreement dated August 18, 2006 by and between the Company and Biosyn
S-4
(333-148291)
10.9
1/18/08
*10.31
Research Collaboration and Commercialization Agreement effective October 20, 2006
between the Company and the Ludwig Institute for Cancer Research
10-K
(000-15006)
10.45
3/2/09
*10.32
Vaccine Adjuvant License and Collaboration Agreement dated on May 30, 2008
between the Company and 3M Innovation Properties Company
10-K
(000-15006)
10.46
3/2/09
*10.33
Exclusive Patent and Know-How License Agreement dated as of November 5, 2008
between the Company and the University of Southampton
10-K
(000-15006)
10.47
3/2/09
*10.34
License and Assignment Agreement, between Amgen Inc. and the Company dated
March 16, 2009
10-K/A
(000-15006)
10.1
12/23/10
*10.35
Collaboration Agreement dated June 18, 2004 between Seattle Genetics and CuraGen
*10.36
Second Restated Collaboration Agreement dated April 12, 2004 and amended
October 19, 2004 between Abgenix Inc. and CuraGen
10-K
(000-15006)
10-K
(000-15006)
10.27
3/12/10
10.28
3/12/10
10.37
Amgen Letter Agreement, by and between CuraGen and Amgen Fremont, Inc. dated
May 2, 2009
10-K
(000-15006)
10.29
3/12/10
*10.38
Transfer and Termination Agreement, dated as of April 21, 2008 by and between
TopoTarget A/S and CuraGen
10-K
(000-15006)
10.30
3/12/10
*10.39
License Agreement between Medarex and Company dated September 17, 2010
10-Q/A
(000-15006)
10.3
12/23/10
10.40
Master Services Agreement dated March 29, 2010 by and between the Company and
Prologue Research International, Inc. (Prologue)
10-Q
(000-15006)
10.2
11/3/11
10.41
Amendment to Master Services Agreement dated July 6, 2011 by and between the
Company and Novella Clinical Inc. (formerly known as Prologue)
10-Q
(000-15006)
10.3
11/3/11
102
Table of Contents
No.
Description
Incorporated by Reference to
SEC
Form and
Filing Date
SEC File No.
Exhibit
No.
Material Contracts—Stock Purchase, Financing and Credit Agreements
10.42 Loan and Security Agreement, dated as of December 30, 2010, by and among Celldex
Therapeutics, Inc., Celldex Research Corporation and MidCap Financial, LLC.
8-K
(000-15006)
10.1.1 1/6/11
10.43
Promissory Note issued by Celldex Therapeutics, Inc. and Celldex Research
Corporation to MidCap Financial, LLC.
10.44
Joinder and First Loan Modification Agreement, dated as of March 7, 2011, by and
among Celldex Therapeutics, Inc., Celldex Research Corporation, MidCap Funding
V, LLC and General Electric Capital Corporation.
10.45
Promissory Note issued by Celldex Therapeutics, Inc. and Celldex Research
Corporation to General Electric Capital Corporation.
10.46
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.
8-K
(000-15006)
10-K
(000-15006)
10-K
(000-15006)
8-K
(000-15006)
10.1.2
1/6/11
10.53
3/9/11
10.54
3/9/11
10.1
3/7/12
10.47
Sales Agreement, dated January 6, 2011, between Celldex Therapeutics, Inc. and
Cantor Fitzgerald & Co.
8-K
(000-15006)
10.1.3
1/6/11
Material Contracts—Management Contracts and Compensatory Plans
†10.48
2008 Stock Option and Incentive Plan, as amended and restated
†10.49
2004 Employee Stock Purchase Plan, as amended and restated
10-K
(000-15006)
10-K
(000-15006)
10.34
3/12/10
10.35
3/12/10
†10.50
Employment Agreement, dated January 6, 2009, by and between the Company and
Avery W. Catlin
8-K
(000-15006)
10.1
1/8/09
†10.51
Employment Agreement, dated January 6, 2009, by and between the Company and
Thomas Davis, MD
8-K
(000-15006)
10.2
1/8/09
†10.52
Employment Agreement, dated January 6, 2009, by and between the Company and
Tibor Keler, Ph.D.
8-K
(000-15006)
10.3
1/8/09
†10.53
Amended and Restated Employment Agreement, dated January 6, 2009, by and
between the Company and Anthony S. Marucci.
8-K
(000-15006)
10.4
1/8/09
†10.54
Amended and Restated Employment Agreement, dated July 1, 2011, by and between
the Company and Ronald A. Pepin, Ph.D.
8-K
(000-15006)
10.1
7/6/11
†10.55
Form of Stock Option Agreement
103
8-K
(000-15006)
10.1
1/25/10
Table of Contents
No.
Description
†10.56 CuraGen 2007 Stock Incentive Plan, amended and restated
†10.57
Form of Restricted Stock Award
21.0
List of Subsidiaries
23.1
Consent of PricewaterhouseCoopers LLP, an Independent Registered Public
Accounting Firm
Incorporated by Reference to
Form and
SEC File No.
10-K
(000-15006)
SEC
Filing Date
10.41 3/12/10
Exhibit
No.
10-K
(000-15006)
10.42
3/12/10
Filed herewith
Filed herewith
31.1
Certification of President and Chief Executive Officer
Filed herewith
31.2
Certification of Senior Vice President and Chief Financial Officer
Filed herewith
Furnished herewith
32
Section 1350 Certifications
+101
XBRL Instance Document
+102
XBRL Taxonomy Extension Schema Document
+103
XBRL Taxonomy Extension Calculation Linkbase Document
+104
XBRL Taxonomy Extension Definition Linkbase Document
+105
XBRL Taxonomy Extension Label Linkbase Document
+106
XBRL Taxonomy Extension Presentation Linkbase Document
*
†
+
Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended.
Indicates a management contract or compensation plan, contract or arrangement.
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.
104
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
CELLDEX THERAPEUTICS, INC.
By:
/s/ ANTHONY S. MARUCCI
Date
March 8, 2012
Anthony S. Marucci
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature
Title
/s/ ANTHONY S. MARUCCI
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Date
March 8, 2012
Anthony S. Marucci
/s/ AVERY W. CATLIN
Avery W. Catlin
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
March 8, 2012
/s/ LARRY ELLBERGER
Director, Chairman of the Board of Directors
March 8, 2012
Larry Ellberger
/s/ HERBERT J. CONRAD
Director
March 8, 2012
Herbert J. Conrad
/s/ GEORGE O. ELSTON
Director
March 8, 2012
George O. Elston
/s/ HARRY H. PENNER, JR.
Director
March 8, 2012
Harry H. Penner, Jr.
/s/ TIMOTHY M. SHANNON, M.D.
Director
March 8, 2012
Timothy M. Shannon, M.D.
/s/ KAREN L. SHOOS
Director
March 8, 2012
Karen L. Shoos
105
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LIST OF SUBSIDIARIES
Name
Celldex Research Corporation Delaware
State of Incorporation
Exhibit 21.0
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Exhibit 21.0
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-151728, 333-117602 and 333-162423) and on
Form S-3 (No. 333-165899) of Celldex Therapeutics, Inc. of our report dated March 8, 2012 relating to the financial statements and the effectiveness of
internal control over financial reporting, which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 8, 2012
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Exhibit 23.1
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I, Anthony S. Marucci, certify that:
1. I have reviewed this annual report on Form 10-K of Celldex Therapeutics, Inc.;
CERTIFICATION
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 8, 2012
By:
/s/ ANTHONY S. MARUCCI
Name:
Title:
Anthony S. Marucci
President and Chief Executive Officer
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I, Avery W. Catlin, certify that:
1. I have reviewed this annual report on Form 10-K of Celldex Therapeutics, Inc.;
CERTIFICATION
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 8, 2012
By:
/s/ AVERY W. CATLIN
Name:
Title:
Avery W. Catlin
Senior Vice President and
Chief Financial Officer
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Exhibit 31.2
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in
his capacity as an officer of Celldex Therapeutics, Inc. (the "Company"), that, to his knowledge, the Annual Report of the Company on Form 10-K for the
period ended December 31, 2011 (the "Form 10-K"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. §78m or 78o(d)) and that the information contained in such report fairly presents, in all material respects, the financial condition and results of
operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K. A signed
original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
Date: March 8, 2012
By:
/s/ ANTHONY S. MARUCCI
Name:
Title:
Anthony S. Marucci
President and Chief Executive Officer
Date: March 8, 2012
By:
/s/ AVERY W. CATLIN
Name:
Title:
Avery W. Catlin
Senior Vice President and
Chief Financial Officer
This certification shall be not be deemed "filed" for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act.
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Exhibit 32