Celldex Therapeutics Inc.
Annual Report 2018

Plain-text annual report

Use these links to rapidly review the document TABLE OF CONTENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission File Number 000-15006CELLDEX THERAPEUTICS, INC.(Exact name of registrant as specified in its charter)Delaware 13-3191702(State or other jurisdiction ofincorporation ororganization) (I.R.S. EmployerIdentification No.)Perryville III Building, 53 Frontage Road, Suite 220, Hampton, New Jersey 08827(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (908) 200-7500Securities registered pursuant to Section 12(b) of the Act:Title of Class: Name of Each Exchange on WhichRegistered:Common Stock, par value $.001 NASDAQ Capital MarketSecurities 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 1934during 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 filingrequirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation 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 suchfiles). 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, andwill 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, smaller reporting company, or anemerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company"in Rule 12b-2 of the Exchange Act. (Check one): If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o(Mark one) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934Large accelerated filer o Accelerated filer ý Non-accelerated filer o Smaller reporting company ýEmerging growth 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, 2018 was $79 million. Exclusion of shares held by anyperson should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the actions of the management orpolicies 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 28, 2019 was 12,439,730 shares.DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for our 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Table of ContentsCELLDEX THERAPEUTICS, INC.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2018 TABLE OF CONTENTS i Page Part I Item 1. Business 1 Item 1A. Risk Factors 23 Item 1B. Unresolved Staff Comments 52 Item 2. Properties 52 Item 3. Legal Proceedings 52 Item 4. Mine Safety Disclosures 52 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 53 Item 6. Selected Financial Data 55 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 74 Item 8. Financial Statements and Supplementary Data 75 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 107 Item 9A. Controls and Procedures 107 Item 9B. Other Information 108 Part III Item 10. Directors, Executive Officers and Corporate Governance 108 Item 11. Executive Compensation 108 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 108 Item 13. Certain Relationships and Related Transactions, and Director Independence 108 Item 14. Principal Accountant Fees and Services 109 Part IV Item 15. Exhibits, Financial Statement Schedules 110 Item 16. Form 10-K Summary 113 Signatures 114  Table of Contents Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This Annual Report on Form 10-K contains forward-lookingstatements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to ourbeliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknownrisks, uncertainties and other factors, which may be beyond our control and which may cause our actual results, performance or achievements to be materiallydifferent from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements ofhistorical 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," "pointto," "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 statementmade by us. These factors include, but are not limited to:•our dependence on product candidates, which are still in an early development stage; •our ability to successfully complete research and further development, including animal, preclinical and clinical studies, and, if we obtainregulatory approval, commercialization of our drug candidates and the growth of the markets for those drug candidates; •our ability to raise sufficient capital to fund our animal, preclinical and clinical studies and to meet our liquidity needs, on terms acceptable tous, or at all. If we are unable to raise the funds necessary to meet our liquidity needs, we may have to delay or discontinue the development ofone or more programs, discontinue or delay ongoing or anticipated clinical trials, license out programs earlier than expected, raise funds atsignificant discount or on other unfavorable terms, if at all, or sell all or part of our business; •our anticipated timing for preclinical development, regulatory submissions, commencement and completion of clinical trials and productapprovals; •our ability to negotiate strategic partnerships, where appropriate, for our drug candidates; •our ability to manage multiple clinical trials for a variety of drug candidates at different stages of development; •the cost, timing, scope and results of ongoing preclinical and clinical testing; •our expectations of the attributes of our product and development candidates, including pharmaceutical properties, efficacy, safety and dosingregimens; •the cost, timing and uncertainty of obtaining regulatory approvals for our drug candidates; •the availability, cost, delivery and quality of clinical management services provided by our clinical research organization partners; •the availability, cost, delivery and quality of clinical and commercial-grade materials produced by our own manufacturing facility or suppliedby contract manufacturers, suppliers and partners; •our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors;iiTable of Contents•our ability to develop technological capabilities, including identification of novel and clinically important targets, exploiting our existingtechnology platforms to develop new drug candidates and expand our focus to broader markets for our existing targeted immunotherapeutics; •our ability to realize the anticipated benefits from the acquisition of Kolltan; •our ability to protect our intellectual property rights, including the ability to successfully defend patent oppositions filed against a Europeanpatent related to technology we use in varlilumab, and our ability to avoid intellectual property litigation, which can be costly and divertmanagement time and attention; •our ability to develop and commercialize products without infringing the intellectual property rights of third parties; 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 anyforward-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 noobligation, 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.iiiTable of Contents PART I Item 1. BUSINESS Overview Celldex Therapeutics, Inc., which we refer to as "Celldex," "we," "us," "our" or the "Company," is a biopharmaceutical company focused on thedevelopment and commercialization of immunotherapies and other targeted biologics. Our drug candidates are derived from a broad set of complementarytechnologies which have the ability to engage the human immune system and/or directly inhibit tumors to treat specific types of cancer or other diseases.They are aimed at addressing market opportunities for which we believe current therapies are inadequate or non-existent. We are focusing our efforts and resources on the continued research and development of:•CDX-1140, an agonist human monoclonal antibody targeted to CD40, a key activator of immune response, currently being studied as a single-agent and in combination with CDX-301 in a Phase 1 dose-escalation study in multiple types of solid tumors and B cell lymphomas; •CDX-3379, a human monoclonal antibody designed to block the activity of ErbB3 (HER3), currently in an early Phase 2 study in advancedhead and neck squamous cell cancer in combination with Erbitux®; •CDX-301, a dendritic cell growth factor, currently being evaluated in a combination study with CDX-1140; and •Varlilumab, an immune modulating antibody targeting CD27 designed to enhance a patient's immune response, currently being evaluated forpotential combination with CDX-1140, especially in lymphomas which co-express CD40 and CD27 receptors. We routinely work with external parties to collaboratively advance our drug candidates. In addition to Celldex-led studies, we also have an InvestigatorInitiated Research (IIR) program with seven studies ongoing with our prioritized drug candidates. In April 2018, we announced that our Phase 2b METRIC Study of glembatumumab vedotin in metastatic triple-negative breast cancer did not meet itsprimary endpoint. Based on this result, in the second quarter of 2018, we prioritized our pipeline and evaluated our operational and workforce needs toextend our financial resources and direct them to continued pipeline advancement. As previously disclosed, in line with this initiative and to conserveresources, we discontinued development of glembatumumab vedotin, CDX-014 and CDX-1401. Our goal is to build a fully integrated, commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medicalneeds. We believe our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorableeconomic terms through advantageous commercial partnerships. This approach allows us to maximize the overall value of our technology and productportfolio while best ensuring the expeditious development of each individual product. Currently, all programs are fully owned by Celldex. Our future success depends upon many factors, including our ability, and that of any licensees and collaborators that we may have, to successfullydevelop, obtain regulatory approval for and commercialize our drug candidates. We have had no commercial revenues from sales of our drug candidates, andwe 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, ourdrug 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."1Table of ContentsClinical Development ProgramsCDX-1140 CDX-1140 is a fully human agonist monoclonal antibody targeted to CD40, a key activator of immune response, which is found on dendritic cells,macrophages and B cells and is also expressed on many cancer cells. Potent CD40 agonist antibodies have shown encouraging results in early clinicalstudies; however, systemic toxicity associated with broad CD40 activation has limited their dosing. CDX-1140 has unique properties relative to other CD40agonist antibodies: potent agonist activity is independent of Fc receptor interaction, contributing to more consistent, controlled immune activation; CD40Lbinding is not blocked, leading to potential synergistic effects of agonist activity near activated T cells in lymph nodes and tumors; and the antibody doesnot promote cytokine production in whole blood assays. CDX-1140 has shown direct anti-tumor activity in preclinical models of lymphoma. Preclinicalstudies of CDX-1140 clearly demonstrate strong immune activation effects and low systemic toxicity and support the design of the Phase 1 study to rapidlyidentify the dose for characterizing single-agent and combination activity. We initiated a Phase 1 study of CDX-1140 in November 2017. This study is expected to enroll up to approximately 180 patients with recurrent, locallyadvanced or metastatic solid tumors and B cell lymphomas. The study is designed to determine the maximum tolerated dose, or MTD, during a dose-escalation phase (0.01 to 3.0 mg/kg once every four weeks until confirmed progression or intolerance) and to recommend a dose level for further study in asubsequent expansion phase. The expansion is designed to further evaluate the tolerability and biologic effects of selected dose(s) of CDX-1140 in specifictumor types. Secondary objectives include assessments of safety and tolerability, pharmacodynamics, pharmacokinetics, immunogenicity and additionalmeasures of anti-tumor activity, including clinical benefit rate. We believe that the potential for CDX-1140 will be best defined in combination studies withother immunotherapies or conventional cancer treatments. To this end, in the second quarter of 2018, we amended the Phase 1 study protocol to also explore CDX-1140 in combination with CDX-301. Dendriticcells, which express CD40, are often rare or missing from the tumor microenvironment and are critical for initiating anti-tumor immunity. CDX-301 is beingutilized to increase the number of dendritic cells in blood and tissue available for CDX-1140 activation. CDX-1140 should, in turn, activate and mature thedendritic cells, an important step for enhancing anti-tumor immune responses. Several B cell lymphomas, including diffuse large B-cell lymphoma andfollicular lymphoma, also express both CD40 and CD27. Celldex's varlilumab is a potent CD27 agonist and has been shown to synergize with CDX-1140 inNHL models and may be evaluated in combination with CDX-1140 in the future. Interim data from the Phase 1 study were presented in November 2018 at the Society for Immunotherapy of Cancer (SITC) Annual Meeting. Seventeenpatients with solid tumors were enrolled at the time of data analysis (n=13 monotherapy; n=4 combination). Four single-agent dosing cohorts were complete(0.01; 0.03, 0.09 and 0.18 mg/kg) and enrollment to the 0.36 mg/kg monotherapy cohort was ongoing. Enrollment to the first CDX-1140/CDX-301combination cohort was also ongoing (0.09 mg/kg and 75 ug/kg, respectively). Dose dependent biological effects consistent with CD40-mediated immuneactivation were reported. CDX-1140 was well tolerated and no MTD had been reached. One patient experienced a grade 3 dose-limiting toxicity (DLT)(pneumonitis and hypoxia) at the single-agent 0.18 mg/kg dose. Per protocol, three additional patients were enrolled in the cohort and no additional DLTshave been observed in this or subsequent cohorts. While the CDX-1140 and CDX-301 combination cohort had just recently opened to enrollment at the timeof presentation, preliminary evidence of enhanced immune activation was reported with no observed DLT. Across both arms of the study, there were nosignificant drug-related changes observed in liver function tests or platelets, which have been observed with other CD40 agonists. Continued enrollment isongoing to2Table of Contentsdefine the MTD and select a dose for disease-specific expansion cohorts that will be monitored for clinical activity. We plan to present updated data from thestudy at a future medical meeting in 2019.CDX-3379 CDX-3379 is a human monoclonal antibody with half-life extension designed to block the activity of ErbB3 (HER3). We believe ErbB3 may be animportant receptor regulating cancer cell growth and survival as well as resistance to targeted therapies and is expressed in many cancers, including head andneck, thyroid, breast, lung and gastric cancers, as well as melanoma. We believe the proposed mechanism of action for CDX-3379 sets it apart from otherdrugs in development in this class due to its ability to block both ligand-independent and ligand-dependent ErbB3 signaling by binding to a unique epitope.It has a favorable pharmacologic profile, including a longer half-life and slower clearance relative to other drug candidates in this class. We believe CDX-3379 also has potential to enhance anti-tumor activity and/or overcome resistance in combination with other targeted and cytotoxic therapies to directly killtumor cells. Tumor cell death and the ensuing release of new tumor antigens has the potential to serve as a focus for combination therapy with immuno-oncology approaches, even in refractory patients. CDX-3379 has been evaluated in three Phase 1 studies for the treatment of multiple solid tumors thatexpress ErbB3 and is currently being evaluated in a Phase 2 study in combination with Erbitux in Erbitux-resistant, advanced head and neck squamous cellcarcinoma. A Phase 1a/1b study of CDX-3379 was conducted in solid tumors. The study included a single-agent, dose-escalation portion and combinationexpansion cohorts. The single-agent, dose-escalation portion of the study did not identify an MTD, and there were no dose limiting toxicities. Fourcombination arms across multiple tumor types were added to evaluate CDX-3379 with several drugs that target EGFR, HER2 or BRAF. They includecombinations with Erbitux® (n=16), Tarceva® (n=8), Zelboraf® (n=9) and Herceptin® (n=10). Patients had advanced disease and were generally heavilypretreated. Across the combination arms, the most frequent adverse events were diarrhea, nausea, rash and fatigue. Objective responses were observed in theErbitux and Zelboraf combination arms. In the Erbitux arm, there was one durable complete response in a patient with head and neck cancer, who had beenpreviously treated with Erbitux and was refractory. In the Zelboraf arm, there were two partial responses in patients who had lung cancer, one of whom hadbeen previously treated with Tafinlar® and was considered refractory, as well as an unconfirmed partial response in a patient with thyroid cancer. Initial datawere presented at the 2016 American Society of Clinical Oncology (ASCO) Annual Meeting. In April 2018, results from a window-of-opportunity study evaluating the effect of CDX-3379 on potential biomarkers in patients with head and necksquamous cell carcinoma (HNSCC) were presented at the American Association for Cancer Research (AACR) Annual Meeting. The study enrolled 12 patientswith newly diagnosed HNSCC who received two doses of CDX-3379, at a two-week interval prior to tumor resection. CDX-3379 reduced phosphorylatedErbB3 (pErbB3) levels in 83% (10/12) of patient samples, with greater than or equal to 50% decreases in 58% of patients (7/12), which met the primary studyobjective. Stable disease was observed in 92% (11/12) of patients prior to surgery, and a patient with HPV-negative disease experienced significant tumorshrinkage (92% in primary tumor; 26% in metastatic lesion). CDX-3379 was well-tolerated, and no treatment-related adverse events were observed. Preclinical data from the combination of CDX-3379 and Erbitux in xenograft models of head and neck squamous cell carcinoma were also presented atthe AACR Annual Meeting in April 2018. Combining CDX-3379 and Erbitux inhibited tumor growth more potently than Erbitux alone. Mechanistic studiesdemonstrated a reduction of PD-L1 expression from the combination.3Table of Contents We have initiated an open-label Phase 2 study in combination with Erbitux in approximately 30 patients with human papillomavirus (HPV) negative,Erbitux-resistant, advanced head and neck squamous cell carcinoma who have previously been treated with an anti-PD1 checkpoint inhibitor, a populationwith limited options and a particularly poor prognosis. We opened the study to enrollment in November 2017. The study employs a Simon two-stage designwith an interim futility analysis following enrollment of the first 13 patients. According to the study's two-stage design, if at least one patient achieves anobjective response in the first stage, enrollment may progress to the second stage. Enrollment to the first stage of the Phase 2 study (n=13) is complete. Whilea confirmed complete response has been documented, Celldex will conduct a comprehensive review, including the full data set, before making decisions onfuture development, as patients are still undergoing treatment and are eligible for evaluation. The primary objective of the study is objective response rate.Secondary objectives include assessments of clinical benefit response (CBR), duration of response (DOR), progression-free survival (PFS) and overallsurvival (OS), and safety and pharmacokinetics associated with the combination. We plan to present updated data from the study at a future medical meetingin 2019. CDX-3379 is also being studied in an investigator-sponsored study.Varlilumab Varlilumab is a fully human agonist monoclonal antibody that binds to and activates CD27, a critical co-stimulatory molecule in the immune activationcascade. We believe varlilumab works primarily by stimulating T cells, an important component of a person's immune system, to attack cancer cells.Restricted expression and regulation of CD27 enables varlilumab specifically to activate T cells, resulting in an enhanced immune response with thepotential for a favorable safety profile. In preclinical studies, varlilumab has been shown to directly kill or inhibit the growth of CD27 expressing lymphomasand leukemias in in vitro and in vivo models. Varlilumab was initially studied as a single-agent to establish a safety profile and assess immunologic andclinical activity in patients with cancer, but we believe the greatest opportunity for varlilumab is as an immune activator in combination with other agents. Single-Agent Phase 1 Study: In an open-label Phase 1 study of varlilumab in patients with selected malignant solid tumors or hematologic cancers,varlilumab demonstrated an acceptable safety profile and induced immunologic activity in patients that is consistent with both its proposed mechanism ofaction and data in preclinical models. A total of 90 patients received varlilumab in the study at multiple clinical sites in the U.S. In both the solid tumor andhematologic dose escalations, the pre-specified maximum dose level (10 mg/kg) was reached without identification of an MTD. The majority of adverseevents, or AEs, related to treatment were mild to moderate (Grade 1/2) in severity, and no significant immune-mediated adverse events typically associatedwith checkpoint blockade were observed. Durable, multi-year clinical benefit was demonstrated in select patients without additional anti-cancer therapy.Final results from the study in patients with solid tumors were published in the Journal of Clinical Oncology in April 2017. Phase 1/2 Varlilumab/Opdivo Combination Study: In 2014, we entered into a clinical trial collaboration with Bristol-Myers Squibb, or BMS, toevaluate the safety, tolerability and preliminary efficacy of varlilumab and Opdivo, BMS' PD-1 immune checkpoint inhibitor, in a Phase 1/2 study. ThePhase 1 portion of the study was initiated in January 2015 and conducted in adult patients with multiple solid tumors to assess the safety and tolerability ofvarlilumab at varying doses when administered with Opdivo. It was followed by a Phase 2 expansion to evaluate the activity of the combination in diseasespecific cohorts. Enrollment to the Phase 2 portion of the study was completed in January 2018 with cohorts in colorectal cancer (n=21), ovarian cancer(n=58), head and neck squamous cell carcinoma (n=24), renal cell carcinoma (n=14) and glioblastoma (n=22). The primary objective of the Phase 2 cohorts isobjective response rate, or ORR, except glioblastoma, where the primary objective is the rate of 12-month OS.4Table of Contents Data from the ovarian and colorectal cancer cohorts were presented in an oral presentation at the 2018 ASCO Annual Meeting. Sixty-six patients withovarian cancer were treated in the study (8 patients in Phase 1; 58 patients in Phase 2). Patients had a median of three prior lines of therapy, 91% had Stage IVdisease and 66% had PD-L1 negative tumors. The overall response rate was 14% (n=9; 7 confirmed, 2 unconfirmed) across 64 response-evaluable patients.For patients with paired tumor samples (n=24) from before and during treatment, increases in tumor expression of PD-L1 and CD8+ TIL levels were observed.These increases were associated with improved clinical outcome, including improved PFS and response rate. Forty-two patients with colorectal cancer were treated in the study (21 patients in Phase 1; 21 patients in Phase 2). Patients had a median of four priorlines of therapy, 100% had Stage IV disease and 87% had PD-L1 negative tumors. One patient had disease that was MSI-high and 21 patients had disease thatwas MSI-low/mismatch repair (MMR) proficient; MSI status for the remaining 20 patients was unknown. One patient with PD-L1 negative, MSI-high diseaseexperienced a confirmed partial response in the Phase 2 study portion. Of note, a patient with PD-L1 negative disease, initially considered MMR proficient asdetermined by standard screening laboratory analysis, achieved a near complete response in the Phase 1 portion of the study, which continued at last follow-up at 39 months. This patient's tumor had a high mutational burden and mutations in genes regulating DNA repair, which together likely contributed to theresponse. Disease control rate for the response-evaluable population was 20% (8/41). In the second quarter of 2018, we reported preliminary data from the head and neck squamous cell carcinoma (HNSCC) and renal cell carcinoma (RCC)cohorts. Twenty-seven patients with HNSCC were treated in the study (3 patients in Phase 1; 24 patients in Phase 2). Patients had a median of two prior linesof therapy, 96% had Stage IV disease, 63% had PD-L1 negative tumors and 52% had HPV positive tumors. The overall response rate was 15% (n=4confirmed) across 27 response-evaluable patients. In this small sample size, no correlation between PDL-1 status and clinical outcome was observed. Giventhe changing treatment paradigm in renal cell carcinoma, only fourteen patients with RCC were treated in the study, all in Phase 2. All patients hadexperienced prior angiogenic therapy, with a range of 1 to 4 prior treatments, 100% had Stage IV disease and 50% had PD-L1 negative tumors. 39% ofpatients experienced stable disease. Data from the GBM cohort were presented in November 2018 at the Society for Neuro-oncology (SNO) Annual Meeting. 22 patients with recurrent GBMwere treated in the study. The median duration of disease prior to study entry was 13 months. Methylation status was determined in 21 patients (n=5methylated; n=16 unmethylated). The combination was generally well-tolerated and the safety profile was consistent with that of each agent alone. Withouttaking into account MGMT status or other prognostic factors, overall results were similar to nivolumab monotherapy in recurrent GBM (OS12 = 42%). In thesubset of patients with unmethylated MGMT promoter, a durable therapeutic benefit was achieved (OS at 12 months =50%). Future development of varlilumab is focused on inclusion in internal combination studies, including potentially in the ongoing Phase 1 trial of CDX-1140, and several external investigator-initiated studies.CDX-301 CDX-301, a recombinant FMS-like tyrosine kinase 3 ligand, or Flt3L, is a hematopoietic cytokine that uniquely expands dendritic cells andhematopoietic stem cells, and in combination with other agents may potentiate anti-tumor responses. Depending on the setting, cells expanded by CDX-301promote either enhanced or permissive immunity. We believe CDX-301 may hold significant opportunity for synergistic development in combination withother proprietary molecules in our portfolio, as well as with approved or investigational therapies for the treatment of cancer.5Table of Contents A Phase 1 study of CDX-301 evaluated seven different dosing regimens of CDX-301 to determine the appropriate dose for further development based onsafety, tolerability and biological activity. The data from the study were consistent with previous clinical experience and demonstrated that CDX-301 has anacceptable safety profile to date and can mobilize dendritic cell and hematopoietic stem cell populations in healthy volunteers. The study was published inthe journal Bone Marrow Transplantation in 2015. CDX-301 is being used as a priming agent to potentially increase the number of cells available to respond to CDX-1140 in the ongoing Phase 1 trial ofCDX-1140. CDX-301 is also in clinical development for multiple cancers in ongoing investigator-sponsored and collaborative studies, including incombination with treatments that release tumor antigens, such as radiation therapy.Development StrategyImmunotherapy Platform We believe there is untapped potential in immunotherapy that can be captured through the right combination and/or sequence of therapeutic agents.Immunotherapy approaches have encountered difficulties when following standard drug development. The mechanisms of action are complex; activity isgenerally not dependent on highest tolerated dose; and patient response is highly variable. Our understanding of the immune system, cancer's effect onimmune mediated mechanisms and the impact of conventional therapies on the immune system provide a new rationale for combining therapies that maylead to significant clinical benefit for patients with cancer or other diseases. Our intent is to leverage this knowledge to develop a pipeline of products which we believe may be very effective in combination approaches. Our goalis to design and develop targeted products that maximize the efficacy of immunotherapy regimens through combinations of therapeutic agents in significantand growing markets. We establish governmental and corporate alliances to fund development when appropriate and intend to commercialize our productseither through our own direct selling efforts or, for products which we cannot develop ourselves through to commercialization, through corporate partners.This approach allows us to maximize the overall value of our technology and product portfolios while best ensuring the expeditious development of eachindividual product. 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 orregulatory proceedings and governmental approvals, adverse developments in patent or other proprietary rights, public concern about the safety of productsdeveloped by us and general economic and market conditions. See "Item 1A. Risk Factors."Partnerships We may enter into co-development and commercialization partnerships for any of our programs where appropriate. In the past, we have entered intocollaborative partnership agreements with pharmaceutical and other companies and organizations that provided financial and other resources, includingcapabilities in research, development, manufacturing, and sales and marketing, to support our research and development programs and may enter into more ofthem in the future. Partnership agreements may terminate without benefit to us if the underlying products are not fully developed. If we fail to meet our obligations underthese agreements, they could terminate, and we might need to enter into relationships with other collaborators and to spend additional time, money and othervaluable resources in the process. We cannot predict whether our collaborators will continue their development efforts or, if they do, whether their efforts willachieve success. Many of our collaborators face the same kinds of risks and uncertainties in their businesses that we face. A delay or6Table of Contentssetback to a partner will, at a minimum, delay the commercialization of any affected drug candidates, and may ultimately prevent it. Moreover, any partnercould breach its agreement with us or otherwise not use best efforts to promote our products. A partner may choose to pursue alternative technologies orproducts that compete with our technologies or drug candidates. In either case, if a partner failed to successfully develop one of our drug candidates, wewould 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 remainedcommercially viable.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 patentapplications. These license and collaboration agreements generally provide for royalty payments equal to specified percentages of product sales, annuallicense maintenance fees, continuing patent prosecution costs and potential future milestone payments to third parties upon the achievement of certaindevelopment, regulatory and/or commercial milestones. Summarized below are our significant research collaboration and license agreements for our later-stage drug candidates.Medarex, Inc. (Medarex), which was acquired by Bristol-Myers Squibb Company (BMS) Under a license agreement with Medarex, as amended, we acquired access to the UltiMab technology to develop and commercialize human antibodies toCD27, including varlilumab. We may be required to pay Medarex royalty payments in the low-to-mid single digits on any net product sales with respect tothe development and commercialization of varlilumab until the later of (i) the expiration of the last to expire applicable patent and (ii) the tenth anniversaryof the first commercial sale of such licensed product.University of Southampton, UK (Southampton) Under a license agreement with Southampton, we acquired the rights to develop human antibodies towards CD27, a potentially important target forimmunotherapy of various cancers. We may be required to pay Southampton milestones of up to approximately $1.0 million upon obtaining first approvalfor commercial sale in a first indication and royalty payments in the low-single digits on any net product sales with respect to development andcommercialization of varlilumab.Amgen Inc. (Amgen) Under a license agreement with Amgen, we acquired the exclusive rights to CDX-301 and CD40 ligand, or CD40L. CDX-301 and CD40L are immunemodulating molecules that increase the numbers and activity of immune cells that control immune responses. We may be required to pay Amgen milestonesof up to $0.9 million upon obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net productsales with respect to development and commercialization of the technology licensed from Amgen, including CDX-301.Yale University (Yale) Under a license agreement with Yale, we may be required to make a one-time payment to Yale of $3.0 million with respect to each therapeutic orprophylactic receptor tyrosine kinase (RTK) royalty-bearing product, including CDX-3379, that achieves a specified commercial milestone. In addition, wemay be required to pay a low single-digit royalty on annual worldwide net sales of each RTK royalty-bearing product, including CDX-3379. Unless earlierterminated by us or Yale, the Yale license agreement is due to expire no later than May 2038 but may expire earlier on a country-by-country basis underspecified circumstances.7Table of ContentsMedImmune, LLC (MedImmune) Under a license agreement with MedImmune, we acquired exclusive rights to specified patent rights and know-how that are controlled by MedImmuneand relate to the research, development, manufacture and commercialization of CDX-3379. We may be required to pay Medimmune up to $45.0 million uponobtaining specified regulatory and development milestones in the first indication of CDX-3379. In addition, we may be required to pay MedImmune one-time milestone payments of up to $125.0 million if specified annual net sale thresholds are met related to the first indication of CDX-3379. We may also berequired to pay MedImmune a tiered royalty on annual net sales of CDX-3379 at rates ranging from high single-digit to low teens percentages. Theseroyalties may be reduced in specified circumstances and are payable on a product-by-product and country-by-country basis until the later to occur of tenyears after the first commercial sale of the product in that country and the expiration of MedImmune's patent rights that cover the sale of the product in thatcountry. We may also be required to pay specified royalties on annual net sales of CDX-3379 at a rate in the low single digits to certain other third partiesfrom whom MedImmune licensed certain intellectual property.Competition The biotechnology and pharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Many of theproducts that we are attempting to develop and commercialize will be competing with existing therapies. Other companies are pursuing the development ofnew therapies that target the same diseases and conditions that we are targeting and may compete directly with our drug candidates. We face competitionfrom companies, major universities and research institutions in the United States and abroad, including a number of large pharmaceutical companies, as wellas firms specialized in the development and production of vaccines, adjuvants and immunotherapeutic delivery systems. Some of our competitors possesssubstantially greater financial, technical and human resources than we possess. Our competitors may utilize discovery technologies and techniques or partner with collaborators in order to develop products more rapidly orsuccessfully than us or our collaborators are able to. In addition, some competitors have significantly greater experience than we have in conductingpreclinical and nonclinical testing and human clinical trials of drug candidates, scaling up manufacturing operations and obtaining regulatory approvals ofdrugs and manufacturing facilities. Accordingly, our competitors may succeed in obtaining regulatory approval for drugs more rapidly than we do. If weobtain regulatory approval and commence commercial sales of our drug candidates, we also will compete with respect to manufacturing efficiency and salesand marketing capabilities, areas in which we currently have limited experience. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection withrespect to potentially competitive products or technologies and may establish exclusive collaborative or licensing relationships with our competitors.Moreover, technology controlled by third parties that may be advantageous to our business may be acquired or licensed by our competitors, therebypreventing us from obtaining technology on commercially reasonable terms, if at all. We will also compete for the services of third parties that may havealready developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies to target thediseases on which we have focused both in the U.S. and outside of the U.S. We also face competition in recruiting and retaining highly qualified scientific personnel and consultants and in the development and acquisition oftechnologies. Our competitive position will depend upon our ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietaryproducts or processes and secure sufficient8Table of Contentscapital resources for the often lengthy period between technological conception and commercial sales. We will require substantial capital resources tocomplete development of some or all of our drug candidates, obtain the necessary regulatory approvals and successfully manufacture and market our drugcandidates. In order to secure capital resources, we anticipate having to sell additional capital stock, which would dilute existing stockholders. We may alsoattempt to obtain funds through research grants and agreements with commercial collaborators. However, these types of funding are uncertain because theyare 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.Manufacturing We are a research and development company and have limited experience in commercial manufacturing. Our ability to conduct late-stage clinical trials,as well as manufacture and commercialize our drug candidates, depends on the ability of Contract Manufacturing Organizations (CMOs) to manufacture ourdrug candidates on a large scale at a competitive cost and in accordance with current Good Manufacturing Practices (cGMP) and U.S. and foreign regulatoryrequirements, as applicable. We also rely on CMOs for manufacturing, packaging, labeling, storing and shipping our drug products. In order for us toestablish our own commercial manufacturing facility, we would require substantial additional funds and would need to hire and retain significant additionalpersonnel and comply with cGMP regulations applicable to such a facility. The commercial manufacturing facility would also need to be licensed for theproduction of our drug candidates by the FDA. We therefore work with CMOs under established manufacturing arrangements that comply with the FDA'srequirements and other regulatory standards, although there is no assurance that the manufacturing will be successful. We operate our own cGMP manufacturing facility in Fall River, Massachusetts, to produce drug substance for our current and planned early-stageclinical trials. Our Fall River manufacturing facility has 250L and 1000L bioreactor capacity and is able to manufacture in compliance with FDA regulations,allowing us to distribute drug candidates to clinical sites in the U.S. for early-stage clinical trials. We currently manufacture CDX-1140, CDX-301 and CDX-0159 drug substance in our Fall River facility for our current and planned Phase 1 and Phase 2 clinical trials. We expect that our existing clinical supplies ofCDX-3379 and varlilumab will be sufficient to carry out our current planned clinical development. Additional manufacturing options are under review andmay involve utilization of the Fall River facility and/or a CMO. All products are then filled and packaged at CMOs. Any manufacturing failures orcompliance issues at contract manufacturers could cause delays in our Phase 1 and Phase 2 clinical studies for these drug candidates. The manufacturing processes for our drug candidates and immunotherapeutic delivery systems utilize known technologies. We believe that the drugcandidates we currently have under development can be scaled up to permit manufacture in commercial quantities. However, there can be no assurance thatwe will not encounter difficulties in scaling up the manufacturing processes. While we believe that there is currently sufficient capacity worldwide for the production of our potential products through CMOs, establishing long-termrelationships with contract manufacturers and securing multiple sources for the necessary quantities of clinical and commercial materials required can be achallenge due to increasing industry demand for CMO services. Qualifying the initial source of clinical and ultimately commercial material is a timeconsuming and expensive process due to the highly regulated nature of the pharmaceutical/biotech industry. These costs may be mitigated by the economiesof scale realized in commercial manufacture and product sales. The key difficulty in qualifying more than one source for each product is the duplicated timeand expense in doing so without the potential to mitigate these costs if the secondary source is never utilized.9Table of Contents 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 avariety 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 developinternal manufacturing capabilities or find alternate third-party manufacturers. It may not be possible to have multiple third-party manufacturers ready tosupply us with needed material at all or without incurring significant costs.Commercial Organization We have limited commercial experience in marketing, sales, distribution and product reimbursement. We have the capability to provide current andfuture market insights to our research and development organization regarding our potential drug candidates. In the future, we may choose to expand ourcommercial team and build a full-scale commercial organization which we believe could provide us the opportunity to retain marketing rights to our drugcandidates and commercialize such products ourselves where we deem appropriate or pursue strategic partnerships to develop, sell, market and distribute ourdrug candidates where we deem appropriate.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 owntechnology, both in the United States and in foreign countries that we consider important to our business. In addition, we have acquired and will seek toacquire as needed or desired, exclusive rights of others through assignment or license to complement our portfolio of patent rights. We also rely on tradesecrets, 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, includingpatent rights. We are the owner or exclusive licensee to proprietary patent positions in the areas of immunotherapy technologies, vaccine technologies,antibody technologies and complement inhibitor technology. Although we continue to pursue patent protection for our products, no assurance can be giventhat 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 tosuccessfully enforce our patent position against infringers. We routinely review our patent portfolio and adjust our strategies for prosecution andmaintenance 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 200 granted patents and national and regional patent applications in the U.S. and in major internationalterritories covering inventions relating to our business. The key patents and patent applications owned by us or licensed to us that we consider important toour business include the following (the indicated and estimated patent expiry dates are the estimated expirations if all maintenance fees and annuities arepaid when due, and do not include any possible additional terms for Patent Term Extensions (PTEs) or Supplementary Protection Certificates (SPCs), if thesemay be secured in due course):•We own a portfolio of patent applications directed to CDX-1140 and certain other anti-CD40 antibodies. These patent applications includeclaims directed to particular anti-CD40 antibody compositions of matter, including CDX-1140 compositions of matter, and methods of usingsuch antibodies. Patent applications in this portfolio are pending in the U.S., Europe, Japan, Australia, Canada, China, India, New Zealand,Republic of Korea, Russian Federation and10Table of Contentscertain other countries. If and when issued the foregoing would have estimated patent expiry dates in 2037.•We have exclusively licensed a portfolio of patents and patent applications relating to particular ErbB3 inhibitors from MedImmune. Thesepatents and patent applications include claims directed to particular anti-ErbB3 antibody compositions of matter, including CDX-3379compositions of matter, and methods of using such antibodies. Patents have been issued in the U.S., Japan, Australia, China, New Zealand andthe Russian Federation which have estimated patent expiry dates in 2032. Patent applications in this portfolio are pending in Europe, Canada,India, Republic of Korea and certain other countries, and any patents that may issue from these applications would also have estimated patentexpiry dates in 2032. •The U.S. patent for the composition of matter of CDX-301 has an estimated expiration date in 2020. •We have licensed rights from the University of Southampton under issued U.S., European and Japanese patents and under a pending patentapplication in Canada relating to the technology used in varlilumab. If and where issued and maintained to full term in due course, thesewould have estimated patent expiry dates in 2027. In July 2013, the United States Patent and Trademark Office issued a patent to theUniversity of Southampton, that we have an exclusive license to under our license agreement, which broadly supports varlilumab. The patentincludes 18 claims covering various methods of treating cancer using agonistic anti-human CD27 antibodies and relates, among other things,directly to our CD27 antibody program and therapeutic uses of varlilumab. In September 2014, two European patent oppositions were filedagainst the University of Southampton European patent, and at a hearing on November 23, 2016 the European Patent Office (EPO) revoked theEuropean patent on the ground of lack of inventive step. The University of Southampton has filed an appeal against this decision, and weintend to defend the European patent vigorously in cooperation with the University of Southampton. This EPO decision does not affect thelater filed Celldex patents and applications for varlilumab. We also have an issued U.S. patent which covers varlilumab as a composition ofmatter. If maintained to full term this patent would have an estimated patent expiry date in 2034 (including additional term due to Patent TermAdjustment). We also have corresponding patents and patent applications in the major international territories which, if and where issued andmaintained to full term in due course, would have estimated patent expiry dates in 2031. •We own a portfolio of patents and patent applications directed to CDX-0159 and other anti-KIT receptor antibodies. These patents and patentapplications include claims directed to particular anti-KIT antibody compositions of matter, including CDX-0159 compositions of matter, andmethods of using such antibodies. A patent has been issued in the U.S. which would have an estimated patent expiry date in 2034 (includingadditional term due to Patent Term Adjustment). Patents have also been issued in Europe, Japan, Australia and Singapore, and foreigncounterparts are pending in Canada, China, India, Republic of Korea, Russian Federation and certain other countries. If and where issued theforegoing would have estimated patent expiry dates ranging from 2032 to 2033. •We acquired rights to a portfolio of patents and patent applications related to the "TAM family" of RTKs (comprised of Tyro3 AXL andMerTK) receptors which are in-licensed from, or co-owned with, the Salk Institute for Biological Studies. For example, we have an exclusivelicense to two issued U.S. patents directed to TAM receptor inhibition to treat infections and to a U.S. patent application directed to methodsfor the modulation of the immune response via targeting TAM receptors. Foreign counterparts to these patents and this patent application arepending in Europe and Canada. If and where issued the foregoing would have estimated patent expiry dates in at least 2028. Furtherinternational and provisional patent applications have also recently been filed in respect of particular antibodies targeting MerTK.11 Table of Contents 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 willafford protection against competitors with similar technology. It is also possible that third parties may obtain patents or other proprietary rights that may benecessary 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 patentsthat will be sufficiently broad to prevent us from using important technology or from further developing or commercializing important drug candidates andimmunotherapeutic systems. If licenses from third parties are necessary but cannot be obtained, commercialization of the covered products might be delayedor 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 theenforceable scope of the patent claims. The validity or enforceability of a patent after its issuance by the Patent and Trademark Office can be challenged inlitigation. As a business that uses a substantial amount of intellectual property, we face a heightened risk of intellectual property litigation. If the outcome ofthe 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 orpayment. 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 thefuture. 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 bycompetitors 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 andother countries which claim subject matter potentially useful or necessary to the commercialization of our products. The ultimate scope and validity ofexisting 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 tothe 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 ourtechnology, including:•certain patents and pending patent applications in the United States and foreign countries relating to particular receptors, antigens andantigenic fragments targeted by our current drug candidates; •certain patents and pending patent applications related to particular receptors and other molecules on T-cells, dendritic cells and macrophagesthat may be useful for generating monoclonal antibodies; •certain patents held by third parties relating to antibody expression in particular types of host cells; and •certain patents and pending patent applications in the United States and foreign countries relating to anti-CD27 antibodies and/or anti-PD-L1antibodies. •We are also aware of a third-party European patent that relates to use of ErbB3 antibodies for treatment of hyperproliferative disorders,including cancer. Counterparts of this patent have also issued in Australia and Japan. As a result of an opposition proceeding, the Europeanpatent was revoked in its entirety. The owner of the European patent appealed the decision in the opposition proceeding but the appeal hasbeen rejected so that the decision to revoke the European patent stands. We continue to monitor counterparts in other jurisdictions. In addition to the patents referred to in the previous paragraphs, there may be other patent applications and issued patents belonging to competitors thatmay require us to alter our drug12Table of Contentscandidates and immunotherapeutic delivery systems, pay licensing fees or cease some of our activities. If our drug candidates conflict with patents that havebeen or may be granted to competitors, universities or others, the patent owners could bring legal action against us claiming damages and seeking to enjoinmanufacturing and marketing of the patented products. If any of these actions is successful, in addition to any potential liability for damages, we could berequired 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 suchaction 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 besignificant litigation in the biotechnology industry regarding patent and other intellectual property rights. If we become involved in that litigation, we couldconsume substantial resources.Licenses We have entered into several significant license agreements relating to technologies that are being developed by us. In general, these institutions havegranted us an exclusive worldwide license (with right to sublicense) to make, use and sell products embodying the licensed technology, subject to thereservation by the licensor of a non-exclusive right to use the technologies for non-commercial research purposes. Generally, the term of each license isthrough the expiration of the last of the patents issued with respect to the technologies covered by the license and/or a specified period from first commercialsale on a territory-by-territory basis. We have generally agreed to use reasonable efforts to develop and commercialize licensed products and to achievespecified milestones and pay license fees, milestone payments and royalties based on the net sales of the licensed products or to pay a percentage ofsublicense 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-exclusivelicense. 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 independentlydevelop substantially equivalent information and techniques or otherwise gain access to our know-how and information, or that we can meaningfully protectour rights in such unpatented technology, trade secrets and information. We require each of our employees, consultants and advisors to execute aconfidentiality agreement at the commencement of an employment or consulting relationship with us. The agreements generally provide that all inventionsconceived by the individual in the course of employment or in providing services to us and all confidential information developed by, or made known to, theindividual 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 inlimited specified circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for our information in theevent 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 U.S. Food and Drug Administration, or 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 from the FDA and comparable authorities inother countries, as applicable, for our drug candidates before we can commercialize such drugs in the U.S. and foreign jurisdictions. Product developmentwithin this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many drug candidates that initially appearpromising ultimately do not reach the13Table of Contentsmarket because they are found to be unsafe or ineffective when tested. Our inability to commercialize a product would impair our ability to earn futurerevenues.FDA Approval Process In the United States, the FDA regulates drugs and biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, the Public HealthService Act, or PHSA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal,state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicableUnited States requirements at any time during the product development process, approval process or after approval may subject an applicant to a variety ofadministrative or judicial sanctions, such as the FDA's refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold,issuance of untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals ofgovernment contracts, restitution, disgorgement of profits, civil penalties and criminal prosecution. The process required by the FDA before a drug or biological product may be marketed in the United States generally involves the following:•completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, orGLP, regulations; •submission to the FDA of an investigational new drug, or IND, application which must become effective before human clinical trials maybegin; •approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated; •performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safetyand efficacy of the proposed drug or biological product for each indication; •submission to the FDA of a new drug application, or NDA, or a biologics license application, or BLA, as applicable; •satisfactory completion of an FDA advisory committee review, if applicable; •satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliancewith cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, qualityand purity; and •FDA review and approval of the NDA or BLA. We expect that all of our clinical drug candidates will be subject to review as biological products under BLA standards. Data obtained at any stage of testing is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Moreover, duringthe regulatory process, new or changed drug approval policies may cause unanticipated delays or rejection of our product. We may not obtain necessaryregulatory approvals within a reasonable period of time, if at all, or avoid delays or other problems in testing our products. Moreover, even if we receivedregulatory approval for a product, the approval may require limitations on use, which could restrict the size of the potential market for the product.14Table of ContentsClinical Trials The FDA provides that human clinical trials may begin 30 days after receipt and review of an IND application, unless the FDA requests additionalinformation or changes to the study protocol within that period. An IND must be sponsored and filed for each of our proposed drug candidates. Authorizationto conduct clinical trials in no way assures that the FDA will ultimately approve the product. Clinical trials are generally conducted in three sequentialphases. In a Phase 1 trial, the product is given to a small number of patients to test for safety (adverse effects), determine a recommended Phase 2 dose(s) andevaluate any signals of efficacy. Phase 2 trials are conducted on a limited group of the target patient population; safety, optimal dosage and efficacy arestudied. A Phase 3 trial is performed in a large patient population, generally over a wide geographic area to provide evidence for the safety and efficacy of theproduct. The FDA maintains and exercises oversight authority throughout the clinical trial process. A product's safety and effectiveness in one clinical trial is not necessarily indicative of its safety and effectiveness in another clinical trial. Moreover, wemay not discover all potential problems with a product even after completing clinical trials on it. Some of our products and technologies have undergoneonly preclinical testing. As a result, we do not know whether they are safe or effective for humans. Also, regulatory authorities may decide, contrary to ourfindings, that a product is unsafe or not as effective in actual use as its clinical trial results indicated. This could prevent the product's widespread use, requireits withdrawal from the market or expose us to liability. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds,including a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trialat its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpectedserious harm to patients. Any such action could materially harm us. Clinical trials are critical to the success of our products but are subject to unforeseen anduncontrollable delay, including delay in enrollment of patients. Any delay in clinical trials could delay our commercialization of a product.Marketing Approval Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed informationrelating to the product's pharmacology, chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of anNDA or BLA requesting approval to market the product for one or more indications. FDA approval of the NDA or BLA is required before marketing of theproduct may begin in the United States. Under federal law, the submission of most NDAs and BLAs is additionally subject to a substantial application userfee and the sponsor of an approved NDA or BLA is also subject to annual prescription drug program fees. The FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days after receipt before accepting them for filing based on the agency'sthreshold determination that they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept anNDA or BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject toreview before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed tospecified performance goals in the review of NDAs and BLAs. Most such applications for non-priority products are reviewed within ten to twelve monthsafter filing, and most applications for priority review products, that is, drugs and biologics that the FDA determines represent a significant improvement overexisting therapy, are reviewed in six to eight months after filing. The review process may be extended by the FDA for three additional months to considercertain late-submitted information or clarification regarding information already provided in the submission. The FDA may also refer applications for noveldrugs or biological products or products that present15Table of Contentsdifficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and arecommendation as to whether the application should be approved. The FDA is not bound by the recommendations of an advisory committee, but itconsiders such recommendations carefully when making decisions. Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approvean application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assureconsistent production of the product within required specifications. In addition, before approving an NDA or BLA, the FDA will typically inspect one ormore clinical sites to assure compliance with GCP and integrity of the clinical data submitted. The testing and approval processes require substantial time, effort and financial resources, and each may take many years to complete. Data obtainedfrom clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval.The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our drugcandidates and secure necessary governmental approvals, which could delay or preclude us from marketing our products. After the FDA's evaluation of the NDA or BLA and inspection of the manufacturing facilities, the FDA may issue an approval letter or a completeresponse letter. An approval letter authorizes commercial marketing of the drug or biological product with specific prescribing information for specificindications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information inorder for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA orBLA, the FDA will resume review and may subsequently issue an approval letter. The FDA has committed to reviewing such resubmissions in two or sixmonths depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that theapplication does not satisfy the regulatory criteria for approval. Even if the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautionsbe included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug's safety afterapproval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distributionrestrictions or other risk management mechanisms, which can materially affect the potential market and profitability of the product. The FDA may prevent orlimit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to theapproved product, such as changes in indications, manufacturing changes and labeling, are subject to further testing requirements and FDA review andapproval.Special Regulatory Procedures Fast track designation—The FDA is required to facilitate the development and expedite the review of drugs and biologics that are intended for thetreatment of a serious or life-threatening disease or condition and that demonstrate the potential to address unmet medical needs. Under the fast trackprogram, the sponsor of a new drug or biologic candidate may request the FDA to designate the product for a specific indication as a fast track product,concurrent with or after the filing of the IND for the drug candidate. A drug that receives fast track designation is eligible for some or all of the following:(i) more frequent meetings with the FDA to discuss the drug's development plan and ensure collection of appropriate data needed to support drug approval;(ii) more frequent written communication from the FDA about such things as the design of the proposed clinical trials and use of biomarkers; (iii) eligibilityfor accelerated approval and priority review, if relevant criteria are met; and16Table of Contents(iv) Rolling Review, which means that a drug company can submit completed sections of its BLA or NDA for review by the FDA, rather than waiting untilevery section of the NDA or BLA is completed before the entire application can be reviewed. This rolling review is available if the applicant provides and theFDA approves a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA's time period goalfor reviewing a fast track application does not begin until the last section of the NDA or BLA is submitted. In addition, the fast track designation may bewithdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process. Priority review—Under FDA policies, a drug candidate may be eligible for priority review. The priority review program provides for expedited review oran NDA or BLA, typically within a six to eight month time frame from the time a complete application is accepted for filing. Products regulated by the FDA'sCenter for Drug Evaluation and Research, or CDER, are eligible for priority review if they provide a significant improvement compared to marketed productsin the treatment, diagnosis or prevention of a disease. Products regulated by the FDA's Center for Biologics Evaluation and Research, or CBER, are eligiblefor priority review if they provide a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious or life-threatening disease. A fast track designated drug candidate could be eligible for priority review if supported by clinical data at the time of the BLA or NDAsubmission. Accelerated approval—Under the law and the FDA's accelerated approval regulations, the FDA may approve a drug or biologic for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based on a surrogate endpoint that is reasonably likely topredict clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on thisbasis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effecton the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDAto withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subjectto prior review by the FDA. Breakthrough therapy designation—The FDA is also required to expedite the development and review of the application for approval of drugs that areintended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the drug candidate may demonstratesubstantial improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the sponsor of anew drug candidate may request that the FDA designate the drug candidate for a specific indication as a breakthrough therapy concurrent with, or after, thefiling of the IND for the drug candidate. Orphan drug designation—Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare diseaseor condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designationdoes not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA or BLA applicant to receive FDAapproval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketingperiod in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications tomarket the same drug or biologic for the same orphan indication, except in limited circumstances. Among the other benefits of orphan drug designation aretax credits for certain research and a waiver of the NDA or BLA application user fee.17Table of ContentsPediatric information Under the Pediatric Research Equity Act of 2003, an NDA, BLA or supplement to an NDA or BLA must contain data that are adequate to assess the safetyand effectiveness of the drug or biological product for the claimed indications in all relevant pediatric subpopulations, and to support dosing andadministration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of theapplicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from thepediatric data requirements. Under the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA has additional authority to take actionagainst manufacturers not adhering to pediatric study requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply toproducts with orphan drug designation.Post Approval Any drug or biological products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by theFDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising andpromotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications orother labeling claims are subject to prior FDA review and approval. The FDA may impose a number of post-approval requirements as a condition of approval of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product's safety and effectiveness aftercommercialization. Regulatory approval of oncology products often requires that patients in clinical trials be followed for long periods to determine theoverall survival benefit of the drug or biologic. In addition, drug and biologic manufacturers and other entities involved in the manufacture and distribution of approved drugs and biological productsare required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these stateagencies for compliance with cGMP requirements. The FDA was also granted new inspection authorities under FDASIA. Changes to the manufacturingprocess are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction ofany deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use.Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain cGMP compliance. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or ifproblems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events ofunanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to theapproved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks or imposition of distribution orother restrictions under a Risk Evaluation and Mitigation Strategy program. Other potential consequences include, among other things:•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; •fines, untitled and warning letters or holds on post-approval clinical trials; •refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product licenseapprovals;18Table of Contents•product seizure or detention, or refusal to permit the import or export of products; or •consent decrees, injunctions or the imposition of civil or criminal prosecution. The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs and biologics may bepromoted only for the approved indications and in accordance with the provisions of the approved label. The FDA, the Office of the Inspector General ofHealth and Human Services and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that isfound to have improperly promoted off label uses may be subject to significant liability.Biosimilars Law The Biologics Price Competition and Innovation Act of 2009, or BPCIA, amended the PHSA to provide for an abbreviated approval pathway forbiological products that demonstrate biosimilarity to a previously-approved biological product. The BPCIA establishes criteria for determining that aproduct is biosimilar to an already-licensed biologic, or reference product, and establishes a process by which an abbreviated BLA for a biosimilar product issubmitted, reviewed and approved. The BPCIA provides periods of exclusivity that protect a reference product from biosimilars competition. Under theBPCIA, the FDA may not accept a biosimilar application for review until four years after the date of first licensure of the reference product, and the biosimilarmay not be licensed until 12 years after the reference product's approval. Additionally, the BPCIA establishes procedures by which the biosimilar applicantmay provide information about its application and product to the reference product sponsor, and by which information about potentially relevant patents isshared and litigation over patents may proceed in advance of approval. The BPCIA also provides a period of exclusivity for the first biosimilar to bedetermined by the FDA to be interchangeable with the reference product. The BPCIA applies to our drug candidates and could be applied to allow approvalof biosimilars to our products. Because the BPCIA is a relatively new law, we anticipate that its contours will be defined as the statute is implemented over a period of years. This likelywill be accomplished by a variety of means, including FDA issuance of guidance documents, proposed regulations, lawsuits and the FDA's decisions in thecourse of considering specific applications. Such evolution may significantly affect the impact of the BPCIA on both reference product and biosimilarsponsors.21st Century Cures Act On December 13, 2016, Congress passed the 21st Century Cures Act, or the Cures Act. The Cures Act is designed to modernize and personalize healthcare, spur innovation and research, and streamline the discovery and development of new therapies through increased federal funding of particular programs.It authorizes increased funding for the FDA to spend on innovation projects, including for certain oncology-directed research. The new law also amends thePublic Health Service Act to reauthorize and expand funding for the National Institutes of Health. Because the Cures Act has only recently been enacted, its potential effect on our business remains unclear with the exception of a provision requiringthat we post our policies on the availability of expanded access programs for individuals. In addition, the Cures Act includes provisions that may bebeneficial to us in the future, including a requirement that the FDA assess and publish guidance on the use of novel clinical trial designs, the use of real worldevidence in applications, the availability of summary level review for supplemental applications for certain indications and the qualification of drugdevelopment tools. Because these provisions allow the FDA several years to develop these policies, their effects on us, if any, could be delayed. The Cures Act also authorizes funding for the "Cancer Moonshot" initiative. The Cancer Moonshot initiative's strategic goals encourage inter-agencycooperation and fund research and19Table of Contentsinnovation to catalyze new scientific breakthroughs, bring new therapies to patients and strengthen prevention and diagnosis. This initiative aims tostimulate drug development through the creation of a public-private partnership with 20 to 30 pharmaceutical and biotechnology companies to expeditecancer researchers' access to investigational agents and approved drugs. This partnership is designed to permit researchers to obtain drugs and othertechnologies from a preapproved "formulary" list without having to negotiate with each company for individual research projects. We will continue tomonitor these developments to assess their potential impacts on our business.Companion Diagnostic Review and Approval Our drug candidates may rely on the use of a companion diagnostic. Companion diagnostics are subject to regulation by the FDA and comparableforeign regulatory authorities as medical devices and require separate clearance or approval prior to their commercialization. Based on recent FDA guidancedocuments and the FDA's past treatment of companion diagnostics, we believe that the FDA will likely require one or more of our in vitro companiondiagnostics to obtain Premarket Approval Application, or PMA, in conjunction with approval of the related drug candidate. The receipt and timing of PMAapproval may have a significant effect on the receipt and timing of commercial approval for such drug candidates. Currently we rely on third-partycollaborators to develop companion diagnostics for our drug candidates. The PMA process is similar to the NDA and BLA processes and is costly, lengthy and uncertain. PMA applications must be supported by valid scientificevidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA's satisfactionthe safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies.As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with theQuality System Regulation, or QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. Ifthe FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvableletter, which usually contains a number of conditions that must be met in order to secure the final approval of the PMA. If the FDA's evaluation of the PMA ormanufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline thedeficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also determine thatadditional clinical trials are necessary, in which case the PMA approval may be delayed while the trials are conducted and then the data submitted in anamendment to the PMA. Furthermore, even after PMA approval is obtained, numerous regulatory requirements apply to the manufacturer of the companion diagnostic. The FDAenforces these requirements by inspection and market surveillance. These requirements include: the QSR, labeling regulations, the FDA's general prohibitionagainst promoting products for unapproved or "off label" uses, the medical device reporting regulation, and the reports of corrections and removalsregulation. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctionssuch as: fines, injunctions and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production;refusing requests for PMA of new products; and withdrawing PMAs already granted.Federal and State Fraud and Abuse, Data Privacy and Security and Transparency Laws In addition to FDA restrictions on marketing and promotion of pharmaceutical products, several other types of federal and state laws have been appliedto restrict certain marketing business practices in the biopharmaceutical and medical device industries in recent years. These laws include, without limitation,state and federal anti-kickback statutes and false claims statutes and false claims laws, data20Table of Contentsprivacy and security laws, as well as transparency laws regarding payments or other items of value provided to health care providers. Applicable state lawmay be broader in scope than federal law and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other stateprograms. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may besubject to penalties, including potentially significant criminal and civil and/or administrative penalties, damages, fines, disgorgement, imprisonment,exclusion from participation in government health care programs, contractual damages, reputational harm, administrative burdens, diminished profits andfuture earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our resultsof operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws, which may include, for instance,applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs andreporting of payments or transfers of value to health care professionals. In addition, the United States Foreign Corrupt Practices Act, or FCPA, prohibits corporations and individuals from engaging in certain activities toobtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything ofvalue to any official of another country, government staff member, political party or political candidate in an attempt to obtain or retain business or tootherwise influence a person working in that capacity. In many countries, the health care professionals we may interact with may meet the FCPA's definitionof a foreign government official.Foreign Regulation In order to market any therapeutic or diagnostic product outside of the United States, we need to comply with numerous and varying regulatoryrequirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial salesand distribution of our products. Whether or not we obtain FDA approval for a product, we need to obtain the necessary approvals by the comparableregulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process variesfrom country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval inother countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatoryapproval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Under the EU regulatory system, we will submit most of our marketing authorization applications under the centralized procedure. The centralizedprocedure is compulsory for medicines produced by biotechnology, or are for the treatment of cancer, or officially designated as 'orphan medicines.' Thecentralized procedure provides for the grant of a single marketing authorization that is valid for all EU member states. As in the United States, we may applyfor designation of a drug candidate as an orphan drug for the treatment of a specific indication in the EU before the application for marketing authorization ismade. The EMA grants orphan medicinal product designation to promote the development of products that may offer therapeutic benefits for life-threateningor chronically debilitating conditions affecting not more than five in 10,000 people in the EU. Orphan drugs in Europe enjoy economic and marketingbenefits, including a 10-year market exclusivity period for the approved indication, but not for the same product, unless another applicant can show that itsproduct is safer, more effective or otherwise clinically superior to the orphan-designated product.21Table of ContentsOther Regulatory Processes From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing thetesting, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect ourbusiness and our products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies orinterpretations will change or what the effect of such changes, if any, may be.Third-Party Payor Coverage and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. Sales of any ofour drug candidates, if approved, will depend, in part, on the extent to which the costs of the drugs will be covered by third-party payors, includinggovernment health programs such as Medicare and Medicaid, as well as commercial health insurers, such as managed care organizations. The process fordetermining reimbursement rates is separate from the payor coverage decision. Therefore, despite obtaining coverage, reimbursement rates may be lower thanexpected, which can result in larger out-of-pocket payments for the patient. In order to secure coverage and reimbursement for any drug that might be approved for sale, we need to conduct analyses and pharmaco-economicstudies in order to demonstrate the incremental medical benefit over and above the generally-accepted standard of care and cost-effectiveness of the drug. Ourdrug candidates may not be considered medically necessary, provide insufficient incremental medical benefit, or may not be deemed cost-effective. A payor'sdecision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. The containment of health care costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in thiseffort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our drugs to be cost-effective compared to other available therapies, they may not cover our drugs after approval as a benefit under their plans or, if they do, the level ofreimbursement and/or restrictions in formulary placement may be such that they would significantly limit projected sales volumes. In addition to third-partypayors, we will also need to negotiate formulary placement with hospitals, health systems and certain independent delivery networks. Such negotiations maybe more protracted than anticipated and may be compromised because of similar considerations, relating to insufficient incremental medical benefit and/orcost-effectiveness. Pricing and reimbursement schemes vary widely from country to country. For example, certain EU member states may approve a specific price andvolume for a drug product after which incremental revenues or profits need to be paid back by way of rebates. They may also institutionalize utilizationrestrictions, curb physicians' drug budgets, provide conditional reimbursement schemes that require additional evidence to be generated post-marketingauthorization, etc. The downward pressure on health care costs in general, particularly prescription drugs, has been particularly evident in EU markets, forsome time, with evidence pointing to increasing pressures on the horizon. As a result, increasingly high barriers are being erected to the pricing andreimbursement of new drugs, despite regulatory efforts to bring drugs to market sooner. In addition, cross-border trade has existed for some time in the EU,allowing pharmacies in one country to import, at a lower price, drug from another country, further exerting pricing pressures across the EU. There can be noassurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our drugs.22Table of Contents The marketability of any drugs for which we receive regulatory approval for commercial sale may suffer if third-party payors and/or hospitaladministrators fail to provide adequate coverage, reimbursement or formulary placement. Coverage policies, third-party reimbursement rates and drug pricingregulations may change in the future. In particular, uncertainty over the long term regarding the Patient Protection and Affordable Care Act, or itsreplacement in the U.S., may mean that coverage, reimbursement and pricing structures available today may be different in the future. In addition, the Statesmay continue to consider legislation of their own which could further restrict the ability to freely price drugs and/or curb utilization in the U.S. Even iffavorable coverage and reimbursement status is attained for one or more drugs for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Employees As of December 31, 2018, we employed 137 employees (133 full-time, 2 part-time and 2 interns), 17 of whom have Ph.D. and/or M.D. degrees. Of theseemployees, 116 were engaged in or directly support research and development activities. We believe that our employee relations are good. We believe thatour future success will depend in large part on our ability to attract and retain experienced and skilled employees.Research and Development We have dedicated a significant portion of our resources to our efforts to develop our drug candidates. We incurred research and development expensesof $66.4 million, $96.2 million, and $102.7 million during the years ended December 31, 2018, 2017 and 2016, respectively. We anticipate that a significantportion of our operating expenses will continue to be related to research and development in 2019 as we continue to advance our drug candidates throughclinical development.Corporate and Available Information We are incorporated in Delaware. Our website is located at http://www.celldex.com. On our website, investors can obtain, free of charge, a copy of ourAnnual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other reports and any amendments thereto filed or furnishedpursuant 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, or SEC. None of the information posted on our website is incorporated by reference into thisAnnual Report. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other informationregarding us and other companies that file materials with the SEC electronically. 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 inaddition 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 facingus, 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.23Table of ContentsRisks Related to Our Financial Condition and Capital RequirementsWe currently have no product revenue and will need to raise capital to operate our business. To date, we have generated no product revenue and cannot predict when and if we will generate product revenue. We had an accumulated deficit of$962.4 million as of December 31, 2018. Until, and unless, we complete clinical trials and further development, and receive approval from the FDA and otherregulatory authorities, for our drug candidates, we cannot sell our drugs and will not have product revenue. We expect to spend substantial funds to continuethe research, development and testing of our products that are in the preclinical and clinical testing stages of development and to prepare to commercializeproducts in anticipation of FDA approval. Therefore, for the foreseeable future, we will have to fund all of our operations and development expenditures fromcash on hand, equity or debt financings, licensing fees and grants. Additional financing will be required to meet our liquidity needs. If we do not succeed inraising additional funds on acceptable terms, we might not be able to complete planned preclinical and clinical trials or obtain approval of any drugcandidates from the FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, reduce or forego sales andmarketing efforts, forego attractive business opportunities or curtail operations. Any additional sources of financing could involve the issuance of our equitysecurities, which would have a dilutive effect on our stockholders. No assurance can be given that additional financing will be available to us when neededon acceptable terms, or at all. We cannot be certain that we will achieve or sustain profitability in the future. Failure to achieve profitability could diminish our ability to sustainoperations, pay dividends on our common stock, obtain additional required funds and make required payments on our present or future indebtedness.We expect to incur future losses and we may never become profitable. We have incurred operating losses of $156.4 million, $121.5 million and $132.9 million during 2018, 2017 and 2016, respectively, and expect to incuran operating loss in 2019 and beyond. We believe that operating losses will continue in 2019 and beyond because we are planning to incur significant costsassociated with the development of our drug candidates. During the years ended December 31, 2018, 2017 and 2016, we incurred $12.4 million,$21.1 million and $24.9 million in clinical trial expense and $4.2 million, $11.4 million and $18.3 million in contract manufacturing expense. Our net losseshave had and will continue to have an adverse effect on, among other things, our stockholders' equity, total assets and working capital. We expect that losseswill 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 atall.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 may be unable to develop and ultimately commercialize our drug candidatessuccessfully. We expect to incur significant costs as we develop our drug candidates. The continuing development and commercialization of our drug candidatesrequires additional capital beyond our current resources. As of December 31, 2018, we had cash, cash equivalents and marketable securities of $94.0 million.During the next twelve months and beyond, we will take further steps to raise additional capital to fund our liquidity needs. Our capital raising activities mayinclude, but may not be limited to, one or more of the following:•licensing of drug candidates with existing or new collaborative partners; •possible business combinations; •issuance of debt; or24Table of Contents•issuance of common stock or other securities via private placements or public offerings. While we may seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all,and 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 intofurther collaborative relationships. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significantcash payment obligations and covenants that restrict our ability to operate as a business; and licensing or strategic collaborations may result in royalties orother terms which reduce our economic potential from drug candidates under development. If we are unable to raise the funds necessary to meet our liquidityneeds, we may have to delay or discontinue the development of one or more programs, discontinue or delay ongoing or anticipated clinical trials, license outprograms earlier than expected, raise funds at significant discount or on other unfavorable terms, if at all, or sell all or part of our business.Our stockholders may be subject to substantial dilution if we elect to pay future milestone consideration to the former Kolltan stockholders in shares ofcommon stock. If we elect to pay future milestone consideration in cash we would likely need to raise additional capital. The merger agreement between us and Kolltan provides that in the event that certain specified preclinical and clinical development milestones related toKolltan's development programs and/or Celldex's development programs and certain commercial milestones related to Kolltan's drug candidates areachieved, we will be required to pay Kolltan's former stockholders milestone payments of up to $127.5 million as of December 31, 2018. These milestonepayments may be made, at our sole election, in cash, in shares of our common stock or a combination of both, although we are required to maintain a certainpercentage of the overall consideration paid in Celldex common stock to satisfy certain tax requirements under the merger agreement. We may requireadditional capital to fund any milestone payments in cash, depending on the facts and circumstances at the time such payments become due. If we elect topay the milestones in shares of our common stock, our stockholders would experience substantial dilution.U.S. federal income tax reform could adversely affect us. On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted, leading to significant changes to U.S. tax law. Among other provisions, theTCJA lowered the U.S. federal corporate income tax rate from 35% to 21%, limited the deduction for net operating losses to 80% of taxable income whileproviding that net operating loss carryovers for years after 2017 will not expire, imposed a mandatory one-time transition tax on previously deferred foreignearnings and eliminated or reduced certain income tax deductions. The Company has completed its accounting for the tax effects of the TCJA. We haverevalued our net deferred tax assets and liabilities at the newly enacted U.S. federal rate, and we recognized a tax benefit of $19.1 million during the yearended December 31, 2017 related to the TCJA. We continue to examine the impact this tax reform legislation, as well as any additional regulatory guidancethat may be issued, may have on our business.Risks Related to Development and Regulatory Approval of Drug CandidatesOur long term success depends heavily on our ability to fund and complete the research and development activities and obtain regulatory approval for ourprogram assets. Only a small minority of all research and development programs ultimately result in commercially successful drugs. Clinical failure can occur at anystage of clinical development. For example, in April 2018, we announced that our randomized, Phase 2b METRIC Study of glembatumumab vedotin inpatients with metastatic triple-negative breast cancers that overexpress gpNMB failed to meet its primary endpoint. Based on these results, we also made thedecision to discontinue the25Table of Contentsglembatumumab vedotin program across all indications. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators mayrequire us, to conduct additional clinical or preclinical trials. In addition, data obtained from trials are susceptible to varying interpretations, and regulatorsmay not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical testing and early clinical trialsdoes not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a drugcandidate. We will need substantial additional financing to complete the development of our drug candidates. Further, even if we complete the development of ourdrug candidates and gain marketing approvals from the FDA and comparable foreign regulatory authorities in a timely manner, we cannot be sure that suchdrug candidate will be commercially successful in the pharmaceutical market. If the results of clinical trials, the anticipated or actual timing of marketingapprovals, or the market acceptance of any of our drug candidates, if approved, do not meet the expectations of investors or public market analysts, themarket price of our common stock would likely decline.Our drug candidates are subject to extensive regulatory scrutiny. All of our drug candidates are at various stages of development, and our activities and drug candidates are significantly regulated by a number ofgovernmental 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 drugs and drug candidates. We or our partners must obtainregulatory approval for a drug candidate in all of these areas before we can commercialize any of our drug candidates. Product development within thisregulatory framework takes a number of years and involves the expenditure of substantial resources. This process typically requires extensive preclinical andclinical testing, which may take longer or cost more than we anticipate, and may prove unsuccessful due to numerous factors. Many drug candidates thatinitially appear promising ultimately do not reach the market because they are found to be unsafe or ineffective when tested. Companies in thepharmaceutical, biotechnology and immunotherapeutic drug industries have suffered significant setbacks in advanced clinical trials, even after obtainingpromising results in earlier trials. Our inability to commercialize a drug candidate would impair our ability to earn future revenues.If our drug candidates do not pass required tests for safety and effectiveness, we will not be able to obtain regulatory approval and derive commercialrevenue from them. In order to succeed, we will need to obtain regulatory approval for our drug candidates. The FDA has not approved any of our drug candidates for sale todate. Our drug candidates are in various stages of preclinical and clinical testing. Preclinical tests are performed at an early stage of a product's developmentand provide information about a drug candidate's safety and effectiveness on laboratory animals. Preclinical tests can last years. If a product passes itspreclinical tests satisfactorily and we determine that further development is warranted, we would file an IND application for the product with the FDA, and ifthe 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 aresatisfactory 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 testresults 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. Onceclinical testing is completed and a BLA or NDA is filed with the FDA, it may take more than a year to receive FDA approval.26 Table of Contents In all cases we must show that a drug candidate is both safe and effective before the FDA, or drug approval agencies of other countries where we intend tosell the product, will approve it for sale. Our research and testing programs must comply with drug approval requirements both in the United States and inother countries, since we are developing our drug candidates 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 underdevelopment will come through the testing process to final approval for sale, with the result that we cannot derive any commercial revenue from them afterinvesting significant amounts of capital in multiple stages of preclinical and clinical testing.Success in early clinical trials does not ensure that later clinical trials will be successful, and we cannot assure you that any of the clinical trials that wemay conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval. The results of preclinical studies and early clinical trials may not be predictive of the results of later-stage clinical trials, and interim results of a clinicaltrial do not necessarily predict final results. Preclinical and clinical data are susceptible to various interpretations and analyses, and many companies thathave believed their drug candidates performed satisfactorily in preclinical studies and early-stage clinical trials have nonetheless failed to replicate suchresults in later-stage clinical trials and subsequently failed to obtain marketing approval. Drug candidates in later-stage clinical trials may fail to show thedesired safety and efficacy despite having progressed through preclinical and initial clinical trials, even if certain analyses of primary or secondary endpointsin those early trials showed trends towards efficacy. Later-stage clinical trials with larger numbers of patients or longer durations of therapy may also revealsafety concerns that were not identified in earlier smaller or shorter trials. Our failure to demonstrate efficacy and safety data sufficient to support marketingapproval for any of our other drug candidates would substantially harm our business, prospectus, financial condition and results of operations.Product testing is critical to the success of our drug candidates but subject to delay or cancellation if we have difficulty enrolling patients. As our portfolio of drug candidates moves from preclinical testing to clinical testing, and then through progressively larger and more complex clinicaltrials, 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 largelyuncontrollable and include principally the following:•the nature of the clinical test; •the size of the patient population; •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 we may be forced to delay or terminate testing for a product.27Table of ContentsWe may have delays in commencing, enrolling and 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 any of our drug candidates in development. Clinical trials for ourproducts in development may be delayed or terminated as a result of many factors, including the following:•inability to reach agreements on acceptable terms with prospective contract research organizations (CROs) and trial sites, the terms of whichcan be subject to extensive negotiation and may vary significantly among different CROs and trial sites; •difficulty in enrolling patients in our clinical trials; •inability to maintain necessary supplies of study drug and comparator to maintain predicted enrollment rates at clinical trial sites; •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 contractmanufacturers to comply with cGMP requirements; •delays or failure to obtain clinical supply for our products necessary to conduct clinical trials from contract manufacturers, includingcommercial grade-clinical supply for our Phase 3 clinical trials; •inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs,including some that may be for the same indication as our product candidates; •drug 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 commence, enroll or complete clinical trials and obtain FDA approval for our drug candidates could have a material adverse effecton our cost to develop and commercialize, and our ability to generate revenue from, a particular drug candidate.If serious adverse or unacceptable side effects are identified during the development of our drug candidates, we may need to abandon or limit ourdevelopment of some of our drug candidates. If our drug candidates are associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that are unexpected,we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirableside effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In pharmaceutical development, manydrugs that initially show promise in early-stage testing are later found to cause side effects that prevent further development of the drug. Currently marketedtherapies for the treatment of cancer are generally limited to some extent by their toxicity. In addition some of our drug candidates would be chronictherapies or be used in pediatric populations, for which safety concerns may be particularly important. Use of our drug candidates as monotherapies may alsoresult in adverse events consistent in nature with other marketed therapies. In28Table of Contentsaddition, when used in combination with other marketed therapies, our drug candidates may exacerbate adverse events associated with the marketed therapy.We may expend our resources to pursue a particular drug candidate or indication and forgo the opportunity to capitalize on drug candidates orindications that may ultimately be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we intend to focus on developing drug candidates for specific indications that we identifyas most likely to succeed, in terms of both their potential for regulatory approval and commercialization. As a result, we may forego or delay pursuit ofopportunities with other drug candidates or for other indications that may prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending oncurrent and future research and development programs and drug candidates for specific indications may not yield any commercially viable drug candidates. Ifwe do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drugcandidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain soledevelopment and commercialization rights to the drug candidate.We may be unable to manage multiple late-stage clinical trials for a variety of drug 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 ourcurrent products. The management of late-stage clinical trials is more complex and time consuming than early-stage trials. Typically, early-stage trialsinvolve several hundred patients in no more than 10 to 30 clinical sites. Late-stage (Phase 3) trials may involve up to several thousand patients in up toseveral hundred clinical sites and may require facilities in several countries. Therefore, the project management required to supervise and control such anextensive program is substantially larger than early-stage programs. As the need for these resources is not known until some months before the trials begin, itis necessary to recruit large numbers of experienced and talented individuals very quickly. If the labor market does not allow this team to be recruitedquickly, the sponsor is faced with a decision to delay the program or to initiate it with inadequate management resources. This may result in recruitment ofinappropriate patients, inadequate monitoring of clinical investigators and inappropriate handling of data or data analysis. Consequently it is possible thatconclusions 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.Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for certain of our drug candidates could harm ourdrug development strategy and operational results. As an element of our clinical development approach, we may seek to screen and identify subsets of patients that express a certain biomarker or that havea certain genetic alteration who may derive meaningful benefit from our development drug candidates. To achieve this, one or more of our drug developmentprograms may be dependent on the development and commercialization of a companion diagnostic by us or by third-party collaborators. Companiondiagnostics are developed in conjunction with clinical programs for the associated drug candidate. Companion diagnostics are subject to regulation asmedical devices and must themselves be approved for marketing by the FDA or certain other foreign regulatory agencies before the related drug candidatemay be commercialized. The approval of a companion diagnostic as part of the product label will limit the use of the drug candidate to only those patientswho express the specific biomarker it was developed to detect. We or our third-party collaborators may also experience delays in developing a sustainable,reproducible and scalable manufacturing process or transferring that process to commercial partners or negotiating insurance29Table of Contentsreimbursement for such companion diagnostic, all of which may prevent us from completing our clinical trials or commercializing our drugs on a timely orprofitable basis, if at all. To date, the FDA has required premarket approval of all companion diagnostics for cancer therapies. We and our third-party collaborators may encounterdifficulties in developing and obtaining approval for these companion diagnostics. Any delay or failure by us or third-party collaborators to develop orobtain regulatory approval of a companion diagnostic could delay or prevent approval of our related drug candidates or, if regulatory approval is obtained,delay or limit our ability to commercialize our related drug candidates.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. Thetime required to obtain FDA and other approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon thenature 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 ourability to generate revenues from the particular drug candidate including, but not limited to, loss of patent term during the approval period. Furthermore, ifwe, or our partners, do not reach the market with our products before our competitors offer products for the same or similar uses, or if we, or our partners, arenot 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 anumber of large pharmaceutical companies, firms specialized in the development and production of vaccines, adjuvants and vaccine and immunotherapeuticdelivery systems and major universities and research institutions. Most of our competitors have substantially greater resources, more extensive experience inconducting preclinical studies and clinical testing and obtaining regulatory approvals for their products, greater operating experience, greater research anddevelopment and marketing capabilities and greater production capabilities than those of ours. These companies might succeed in obtaining regulatoryapproval for competitive products more rapidly than we can for our products, especially if we experience any delay in obtaining required regulatoryapprovals.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 andcommercialize such drug candidates, and they may not meet our expectations. We may enter into co-development and commercialization partnerships for our drug candidates where appropriate. The process of identifyingcollaborators and negotiating collaboration agreements for the licensing, development and ultimate commercialization of some of our drug candidates maycause delays and increased costs. We may not be able to enter into collaboration agreements on terms favorable to us or at all. Furthermore some of thoseagreements may give substantial responsibility over our drug candidates to the collaborator. Some collaborators may be unable or unwilling to devotesufficient resources to develop our drug candidates as their agreements require. They often face business risks similar to ours, and this could interfere withtheir efforts. Also, collaborators may choose to devote their resources to products that compete with ours. If a collaborator does not successfully develop anyone 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 soat the time and whether the product remains commercially viable.30Table of Contents 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 uponour and our collaborators' success in promoting them as superior to other treatment alternatives. We believe that our drug candidates can be proven to offerdisease treatment with notable advantages over drugs in terms of patient compliance and effectiveness. However, there can be no assurance that we will beable to prove these advantages or that the advantages will be sufficient to support the successful commercialization of our drug candidates.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 tocontinue at a rapid pace. We have many competitors in the U.S. and abroad. Our success depends upon our ability to develop and maintain a competitiveposition in the product categories and technologies on which we focus. Many of our competitors have greater capabilities, experience and financial resourcesthan we do. Competition is intense and is expected to increase as new products enter the market and new technologies become available. Our competitorsmay:•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.Risks Related to Commercialization of Our Drug CandidatesWe may face delays, difficulties or unanticipated costs in establishing sales, marketing and distribution capabilities or seeking a partnership for thecommercialization of our drug candidates, even if regulatory approval is obtained. We may choose to build a commercial organization which we believe could provide us with the strategic options to either retain full economic rights toour drug candidates or seek favorable economic terms through advantageous commercial partnerships. As a result, we may have full responsibility forcommercialization of one or more of our drug candidates if and when they are approved for sale. We currently lack sufficient marketing, sales and distributioncapabilities to carry out this strategy. If any of our drug candidates are approved by the FDA, we will need a drug sales force with technical expertise prior tothe commercialization of any of our drug candidates. We may not succeed in developing such sales and distribution capabilities, the cost of establishing suchsales and distribution capabilities may exceed any product revenue, or our direct marketing and sales efforts may be unsuccessful. We may find it necessaryto enter into strategic partnerships, co-promotion or other licensing arrangements. To the extent we enter into such strategic partnerships, co-promotion orother licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold such drugs, and some or all of the revenues wereceive will depend upon the efforts of third parties, which may not be successful and may not be within our control. If we are unable to enter into suchstrategic partnerships, co-promotion or other licensing arrangements on acceptable terms or at all, we may not be able to successfully commercialize ourexisting and future drug candidates. If we are not successful in commercializing any drug candidates, for which we obtain regulatory approval, either on ourown or through collaborations with one or more third parties, our future product revenue will suffer, and we may never achieve profitability or become unableto continue the operation of our business.31Table of ContentsIf our drug candidates for which we obtain regulatory approval do not achieve broad acceptance from physicians, patients and third-party payors, we maybe unable to generate significant revenues, if any. Even if we obtain regulatory approval for our drug candidates, our approved drugs may not gain market acceptance among physicians and patients. Webelieve that effectively marketing our drug candidates, if any of them are approved, will require substantial efforts, both prior to commercial launch and afterapproval. Physicians may elect not to prescribe our drugs, and patients may elect not to request or take them, for a variety of reasons, including:•limitations or warnings contained in a drug's FDA-approved labeling; •changes in the standard of care or the availability of alternative drugs for the targeted indications for any of our drug candidates; •limitations in the approved indications for our drug candidates; •the approval, availability, market acceptance and reimbursement for the companion diagnostic, where applicable; •demonstrated clinical safety and efficacy compared to other drugs; •significant adverse side effects; •effectiveness of education, sales, marketing and distribution support; •timing of market introduction and perceived effectiveness of competitive drugs; •cost-effectiveness; •adverse publicity about our drug candidates or favorable publicity about competitive drugs; •convenience and ease of administration of our drug candidates; and •willingness of third-party payors to reimburse for the cost of our drug candidates. If our future drugs fail to achieve market acceptance, we will not be able to generate significant revenues and may never achieve profitability.Even if any of our drug candidates receive FDA approval, the terms of the approval may limit such drug's commercial potential. Additionally, even afterreceipt of FDA approval, such drug would be subject to substantial, ongoing regulatory requirements. The FDA has complete discretion over the approval of our drug candidates. If the FDA grants approval, the scope of the approval may limit our ability tocommercialize such drug, and in turn, limit our ability to generate substantial product revenue. For example, the FDA may grant approval contingent on theperformance of costly post-approval clinical trials or subject to warnings or contraindications. Additionally, even after granting approval, the manufacturingprocesses, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for such drug will be subject toextensive and ongoing regulatory requirements. In addition, manufacturers of our drug candidates are required to comply with cGMP regulations, whichinclude requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further,regulatory authorities must inspect and approve these manufacturing facilities before they can be used to manufacture our drug candidates, and thesefacilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we ora third party discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facilitywhere the drug is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of thedrug from the market or suspension of manufacturing. If we, our32Table of Contentsdrug candidates or the manufacturing facilities for our drug candidates fail to comply with regulatory requirements of the FDA and/or other non-U.S.regulatory authorities, we could be subject to administrative or judicially imposed sanctions, including the following:•warning letters; •civil or criminal penalties and fines; •injunctions; •consent decrees; •suspension or withdrawal of regulatory approval; •suspension of any ongoing clinical studies; •voluntary or mandatory product recalls and publicity requirements; •refusal to accept or approve applications for marketing approval of new drugs; •restrictions on operations, including costly new manufacturing requirements; or •seizure or detention of drugs or import bans. The regulatory requirements and policies may change, and additional government regulations may be enacted with which we may also be required tocomply. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either inthe United States or in other countries. If we are not able to maintain regulatory compliance, we may not be permitted to market our future products and ourbusiness may suffer.Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of any of our drug candidates. If there is notsufficient reimbursement for our future drugs, it is less likely that such drugs will be widely used. Market acceptance and sales of any of our drug candidates for which we obtain regulatory approval will depend on reimbursement policies and may beaffected by future health care reform measures in both the United States and foreign jurisdictions. Government authorities and third-party payors, such asprivate health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. In addition, governmentauthorities and these third-party payors are increasingly attempting to contain health care costs by demanding price discounts or rebates and limiting boththe types and variety of drugs that they will cover and the amounts that they will pay for these drugs. In addition, we might need to conduct post-marketingstudies in order to demonstrate the cost-effectiveness of any future drugs to such payors' satisfaction. Such studies might require us to commit a significantamount of management time and financial and other resources. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services and may reflect budgetary constraintsand/or imperfections in Medicare or Medicaid data used to calculate these rates. Net prices for drugs may be reduced by mandatory discounts or rebatesrequired by government health care programs. Such legislation, or similar regulatory changes or relaxation of laws that restrict imports of drugs from othercountries, could reduce the net price we receive for any future marketed drugs. As a result, our future drugs might not ultimately be considered cost-effective. We cannot be certain that reimbursement will be available for any drug candidates that we develop. Also, we cannot be certain that reimbursementpolicies will not reduce the demand for, or the price paid for, any future drugs. If reimbursement is not available or is available on a limited basis, we may notbe able to successfully commercialize any drug candidates that we develop.33Table of ContentsOther factors could affect the demand for and sales and profitability of any drug candidates that we may commercialize in the future. In general, other factors that could affect the demand for and sales and profitability of our future drugs include, but are not limited to:•the timing of regulatory approval, if any, of competitive drugs; •our or any other of our partners' pricing decisions, as applicable, including a decision to increase or decrease the price of a drug, and thepricing decisions of our competitors; •government and third-party payor reimbursement and coverage decisions that affect the utilization of our future drugs and competing drugs; •negative safety or efficacy data from new clinical studies conducted either in the U.S. or internationally by any party, which could cause thesales of our future drugs to decrease or a future drug to be recalled; •the degree of patent protection afforded our future drugs by patents granted to or licensed by us and by the outcome of litigation involving ouror any of our licensor's patents; •the outcome of litigation involving patents of other companies concerning our future drugs or processes related to production and formulationof those drugs or uses of those drugs; •the increasing use and development of alternate therapies; •the rate of market penetration by competing drugs; and •the termination of, or change in, existing arrangements with our partners. Any of these factors could have a material adverse effect on the sales of any drug candidates that we may commercialize in the future.Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products internationally. We may seek approval for our drug candidates outside the United States and may market future products in international markets. In order to market ourfuture products in the European Economic Area, or EEA, and many other foreign jurisdictions, we must obtain separate regulatory approvals. Specifically, inthe EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, the European Medicines Agency or the competent authorities of the member states of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from thatrequired to obtain FDA approval. Clinical studies conducted in one country may not be accepted by regulatory authorities in other countries. Approval bythe FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensureapproval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country mayhave a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDAapproval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals, and even if we filewe may not receive necessary approvals to commercialize our products in any market.34 Table of ContentsIf we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operationscould materially adversely affect our business. If our drug candidates are approved for commercialization outside of the United States, we expect that we will be subject to additional risks related tointernational operations and entering into international business relationships, including:•different regulatory requirements for drug approvals; •reduced protection for intellectual property rights, including trade secret and patent rights; •unexpected changes in tariffs, trade barriers and regulatory requirements; •economic weakness, including inflation, or political instability in particular foreign economies and markets; •compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; •foreign taxes, including withholding of payroll taxes; •foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident todoing business in another country; •workforce uncertainty in countries where employment regulations are different than, and labor unrest is more common than, in the UnitedStates; •production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; •business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes,floods and fires; and •difficulty in importing and exporting clinical trial materials and study samples.Risks Related to Reliance on Third PartiesWe rely on third parties to plan, conduct and monitor our clinical tests, and their failure to perform as required would interfere with our productdevelopment. We rely on third parties to conduct a significant portion of our clinical development activities. These activities include clinical patient recruitment andobservation, clinical trial monitoring, clinical data management and analysis, safety monitoring and project management. We conduct project managementand 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 anyof these third parties is unable to perform in a quality and timely manner, and at a feasible cost, our clinical studies will face delays. Further, if any of thesethird 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.We rely on contract manufacturers over whom we have limited control. Should the cost, delivery and quality of clinical materials manufactured by us inour Fall River facility or supplied by contract manufacturers vary to our disadvantage, our business operations could suffer significant harm. We have limited experience in commercial manufacturing. We rely on CMOs to manufacture drug substance and drug product for any late-stage clinicalstudies of our drug candidates as well as for future commercial supplies. Our ability to conduct late-stage clinical trials, manufacture and commercialize ourdrug candidates, if regulatory approval is obtained, depends on the ability of such third parties to manufacture our drug candidates on a large scale at acompetitive cost and in35Table of Contentsaccordance with cGMP and foreign regulatory requirements, if applicable. We also rely on CMOs for filling, packaging, storage and shipping of drugproduct. In order for us to establish our own commercial manufacturing facility, we would require substantial additional funds and would need to hire andretain significant additional personnel and comply with extensive cGMP regulations applicable to such a facility. The commercial manufacturing facilitywould also need to be licensed for the production of our drug candidates by the FDA. Prior to approval of any drug candidate, the FDA must review and approve validation studies for drug product. The manufacturing processes for our drugcandidates and immunotherapeutic delivery systems utilize known technologies. We believe that the products we currently have under development can bescaled up to permit manufacture in commercial quantities. However, there can be no assurance that we will not encounter difficulties in scaling up themanufacturing processes. Significant scale-up of manufacturing may result in unanticipated technical challenges and may require additional validationstudies that the FDA must review and approve. CMOs may encounter difficulties in scaling up production, including problems involving raw materialsuppliers, production yields, technical difficulties, scaled-up product characteristics, quality control and assurance, shortage of qualified personnel, capacityconstraints, changing priorities within the CMOs, compliance with FDA and foreign regulations, environmental compliance, production costs anddevelopment of advanced manufacturing techniques and process controls. Any of these difficulties, if they occur and are not overcome to the satisfaction ofthe FDA or other regulatory agency, could lead to significant delays and possibly the termination of the development program for such drug candidate. Theserisks become more acute as we scale up for commercial quantities, where a reliable source of drug product becomes critical to commercial success. Thecommercial viability of any of our drug candidates, if approved, will depend on the ability of our contract manufacturers to produce drug product on a largescale. Failure to achieve this level of supply can jeopardize and prevent the successful commercialization of the drug. We operate our own cGMP manufacturing facility in Fall River, Massachusetts, to produce drug substance for our current and planned early-stageclinical trials. Our Fall River manufacturing facility has 250L and 1000L bioreactor capacity and is able to manufacture in compliance with FDA regulations,allowing us to distribute potential products to clinical sites in the U.S. for early-stage clinical trials. We currently manufacture CDX-1140, CDX-301 andCDX-0159 drug substance in our Fall River facility for our current and planned Phase 1 and Phase 2 clinical trials. We expect that our existing clinicalsupplies of CDX-3379 and varlilumab will be sufficient to carry out our current planned clinical development. Additional manufacturing options are underreview and may involve utilization of the Fall River facility and/or a CMO. All products are then filled and packaged at contract manufacturers. Anymanufacturing failures or compliance issues at contract manufacturers could cause delays in our Phase 1 and Phase 2 clinical studies for these drugcandidates. Our leading drug 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 manufacturersinvolves peculiar and increased risks, including the risk relating to the difficulty foreign manufacturers may face in complying with cGMP requirements as aresult of language barriers, lack of familiarity with cGMP or the FDA regulatory process or other causes, economic or political instability in or affecting thehome 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 contract manufacturers will be able to meet our timetable and requirements. Further, contract manufacturers must operatein compliance with cGMP and failure to do so could result in, among other things, the disruption of product supplies. As noted above, non-U.S. contractmanufacturers may face special challenges in complying with cGMP requirements, and although we are not currently dependent on non-U.S. collaborators orcontract manufacturers, we may36Table of Contentschoose 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 clinicaltrials of larger scale. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability todevelop, manufacture, sell and deliver products on a timely and competitive basis.We currently rely on third-party collaborators to develop and commercialize companion diagnostic tests for certain of our drug candidates. We do not have experience or capabilities in developing, administering, obtaining regulatory approval for, or commercializing companion diagnostictests and will need to rely in large part on third-party collaborators to perform these functions. Companion diagnostic tests are subject to regulation by theFDA and similar regulatory authorities outside of the United States as medical devices and require separate regulatory approval prior to commercialization.We are dependent on such third-party collaborators to obtain regulatory approval and commercialize such companion diagnostic tests. Such third-partycollaborators:•may not perform its obligations as expected or as required under our collaboration agreement; •may encounter production difficulties that could constrain the supply of the companion diagnostic test; •may have difficulties gaining acceptance of the use of the companion diagnostic test in the clinical community; •may not pursue commercialization of the companion diagnostic test even if they receive any required regulatory approvals; •may elect not to continue the development or commercialization of the companion diagnostic test based on changes in the third parties'strategic focus or available funding, or external factors such as an acquisition, that divert resources or create competing priorities; •may not commit sufficient resources to the marketing and distribution of the companion diagnostic test; and •may terminate their relationship with us. If such third-party collaborators fail to develop, obtain regulatory approval or commercialize the companion diagnostic test, we may not be able to enterinto arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development andcommercialization of our drug candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development orcommercialization of our drug candidates.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 drug candidates, we must share trade secrets with them. We seek to protect our proprietary technology inpart by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements orother similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. Theseagreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Ouracademic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in orderto secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in somecases we may share these rights with other parties. We also conduct joint research and development programs which may require us to share trade secrets37Table of Contentsunder the terms of research and development partnership or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discoverour trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in caseswhere we do not have proprietary or otherwise protected rights at the time of publication. A competitor's discovery of our trade secrets would impair ourcompetitive position.Risks Related to Business OperationsWe may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management. From time to time we may consider strategic transactions, including acquisitions of companies, such as our acquisition of Kolltan in the fourth quarter of2016, asset purchases and out-licensing or in-licensing of products, drug candidates or technologies. Additional potential transactions that we may considerinclude a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, businesscombinations, acquisitions of assets and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near andlong-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operationsand financial results. For example, these transactions may entail numerous operational and financial risks, including:•exposure to unknown liabilities; •disruption of our business and diversion of our management's time and attention in order to develop acquired products, drug candidates ortechnologies; •incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions; •higher than expected acquisition and integration costs; •write-downs of assets or goodwill or impairment charges; •increased amortization expenses; •difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; •impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and •inability to retain key employees of any acquired businesses. Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, anytransactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.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 abilityto develop our products. The loss of any of our executive officers could harm us. We entered into employment agreements with each of our executive officers, although anemployment agreement as a practical matter does not guarantee retention of an employee. We also depend on our scientific and clinical collaborators andadvisors, all of whom have outside commitments that may limit their availability to us. In addition, we believe that our future success will depend in largepart upon our ability to attract and retain highly skilled scientific, managerial and marketing personnel, particularly as we expand our activities in clinicaltrials, the regulatory approval process and sales and manufacturing. We routinely enter into consulting agreements with our scientific and clinicalcollaborators and advisors, key opinion leaders and heads of38Table of Contentsacademic departments in the ordinary course of our business. We also enter into contractual agreements with physicians and institutions who recruit patientsinto our clinical trials on our behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant competition for this typeof personnel from other companies, research and academic institutions, government entities and other organizations. We cannot predict our success in hiringor retaining the personnel we require for continued growth.We may expand our clinical development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing ourgrowth, which could disrupt our operations. We expect that if our drug candidates continue to progress in development, we may require significant additional investment in personnel, managementsystems and resources, particularly in the build out of our commercial capabilities. To date we have hired a core commercial team to plan for potentialcommercial launches if any of our drug candidates are approved. Over the next several years, we may experience significant growth in the number of ouremployees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage thispotential future growth, we may continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue torecruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing acompany with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualifiedpersonnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Anyinability to manage growth could delay the execution of our business plans or disrupt our operations.We may not realize the anticipated benefits of our acquisition of Kolltan. The success of the Kolltan merger will depend on, among other things, the successful development of the preclinical and clinical programs acquired fromKolltan. Following the acquisition, we decided to modify the Fc portion of CDX-0158 because approximately two-thirds of the patients in the Phase 1 dose-escalation study of CDX-0158 in patients with advanced refractory gastrointestinal stromal tumors, or GIST, and other KIT positive tumors had infusionreactions. This second-generation version, called CDX-0159, also includes modifications to increase the half-life of the antibody, giving it an additionaladvantage over CDX-0158. We are developing CDX-0159 in-house with the intention of replacing CDX-0158 in clinical development. As a result in thethird quarter of 2017, we recorded a non-cash partial impairment charge of $13.0 million related to this clinical program due to changes in projecteddevelopment and regulatory timelines. The time periods to receive approvals from the FDA and other regulatory agencies are subject to uncertainty andtherefore we will continue to evaluate the development progress for the anti-KIT program and monitor the remaining $27.0 million intangible asset for furtherimpairment. If we experience further delays or do not successfully develop the preclinical and clinical programs acquired from Kolltan, we may incur furtherimpairment charges and may not realize the anticipated benefits of the Kolltan acquisition, which would have an adverse effect on our business prospects andresults of operations.Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which couldhave a material adverse effect on our business. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDAregulations, provide accurate information to the FDA, comply with applicable privacy laws, comply with manufacturing standards we have established,comply with federal and state health care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorizedactivities to us. In particular, sales, marketing39Table of Contentsand business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing andother abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in thecourse of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct andEthics and launched a Health Care Compliance program, but it is not always possible to identify and deter employee misconduct. The precautions we take todetect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmentalinvestigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted againstus and we are not successful in defending ourselves or asserting our rights, those actions could have a significant effect on our business and results ofoperations, including the imposition of significant fines or other sanctions.We may not be able to successfully integrate our existing technology or to modify our technologies to create new immunotherapeutic drugs. If we are able to integrate our acquired assets and licensed assets with our immunotherapy technologies, we believe these assets will give ourimmunotherapeutic drugs a competitive advantage. However, if we are unable to successfully integrate licensed assets, or other technologies which we haveacquired or may acquire in the future, with our existing technologies and potential products currently under development, we may be unable to realize anybenefit from our acquisition of these assets, or other technologies which we have acquired or may acquire in the future, and we may face the loss of ourinvestment of financial resources and time in the integration process. We believe that our immunotherapy technology portfolio may offer opportunities to develop immunotherapeutic drugs that treat a variety of cancers andinflammatory and infectious diseases by stimulating a patient's immune system against those diseases. If our immunotherapy technology portfolio cannot beused to create effective immunotherapeutic drugs against a variety of diseases, we may lose all or portions of our investment in development efforts for newdrug candidates.Our internal computer systems, or those of our CROs, CMOs, or other contractors or consultants, may fail or suffer security breaches, which could result ina material disruption of our drug development programs. Despite the implementation of security measures, our internal computer systems and those of our CROs, CMOs, and other contractors and consultants arevulnerable to damage from cyberattacks, malicious intrusion, computer viruses, unauthorized access, loss of data privacy, natural disasters, terrorism, war andtelecommunication, electrical failures or other significant disruption. If such an event were to occur and cause interruptions in our operations, it could resultin a material disruption of our drug development programs and commercialization efforts. For example, the loss of clinical study data from completed orongoing clinical studies for any of our drug candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recoveror reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications or inappropriatedisclosure of confidential or proprietary information, we could incur liability and the further development or commercialization of our drug candidates couldbe delayed.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 believethat our safety procedures for handling and disposing of hazardous materials comply with the standards prescribed by applicable laws and40Table of Contentsregulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, an injured partywill likely sue us for any resulting damages with potentially significant liability. The ongoing cost of complying with environmental laws and regulations issignificant and may increase in the future.We face the risk of product liability claims, which could exceed our insurance coverage, and product recalls, each of which could deplete our cashresources. As a participant in the pharmaceutical, biotechnology and immunotherapeutic drug industries, we are exposed to the risk of product liability claimsalleging that use of our drug candidates caused an injury or harm. These claims can arise at any point in the development, testing, manufacture, marketing orsale of our drug candidates and may be made directly by patients involved in clinical trials of our products, by consumers or health care providers or byindividuals, organizations or companies selling our products. Product liability claims can be expensive to defend, even if the drug or drug candidate did notactually cause the alleged injury or harm. Insurance covering product liability claims becomes increasingly expensive as a drug candidate moves through the development pipeline tocommercialization. Under our license agreements, we are required to maintain clinical trial liability insurance coverage up to $15 million. However, there canbe 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 itnecessary under our collaborative agreements to increase our insurance coverage in the future. We may not be able to secure greater or broader productliability insurance coverage on acceptable terms or at reasonable costs when needed. Any liability for damages resulting from a product liability claim couldexceed 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 ourbusiness, financial condition and results of operations. Moreover, a product recall, if required, could generate substantial negative publicity about ourproducts and business and inhibit or prevent development of our drug candidates and, if approval is obtained, commercialization of our future drugs.Risks Related to Intellectual PropertyWe license technology from other companies to develop products, and those companies could influence research and development or restrict our use of it.In addition, if we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are importantto our business. Companies that license technologies to us that we use in our research and development programs may require us to achieve milestones or devoteminimum 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 anddevelopment programs require us to establish priorities and to allocate available resources among competing programs. From time to time we may choose toslow 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 thelicense or permit our competitors to use the technology. Termination of these licenses or reduction or elimination of our licensed rights may result in ourhaving to negotiate new or reinstated licenses with less favorable terms. Moreover, we may lose our right to market and sell any products based on thelicensed technology. The occurrence of such events could materially harm our business.41Table of ContentsOur ability to successfully develop and, if regulatory approval is obtained, commercialize our drug candidates may be materially adversely affected if weare unable to obtain and maintain effective intellectual property rights for our drug candidates and technologies. Our success depends in part on our ability to obtain and maintain patent protection and other intellectual property protection for our drug candidates andproprietary technology. We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our drugcandidates and technology that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute allnecessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of ourresearch and development output before it is too late to obtain patent protection. Our existing patents and any future patents we obtain may not besufficiently broad to prevent others from using our technologies or from developing competing drugs and technologies. Biotechnology patents involve complex legal, scientific and factual questions and are highly uncertain. To date, there is no consistent policy regardingthe 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 or our licensors seek will issue. If such patents are issued, 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 patentscould 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 ourpatents. 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 thatlicenses 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. For example, in September 2014, two European patent oppositions were filed against the University of Southampton European patent,and at a hearing on November 23, 2016 the European Patent Office (EPO) revoked the European patent on the ground of lack of inventive step. TheUniversity of Southampton has filed an appeal against this decision, and we intend to defend the European patent vigorously in cooperation with theUniversity of Southampton. This EPO decision does not affect the later filed Celldex patents and applications for varlilumab. We also have an issued U.S.patent which covers varlilumab as a composition of matter. 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 intellectualproperty rights of others on potentially unfavorable terms. If those licenses from third parties are necessary but we cannot acquire them, we would attempt todesign around the relevant technology, which would cause higher development costs and delays and may ultimately prove impracticable.We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commerciallyreasonable terms. A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our drug candidates. It may benecessary for us to use the patented or proprietary technology of a third party to commercialize our own technology or drug candidates, in which case wewould be required to obtain a license from such third party. A license to such intellectual property may not be available or may not be available oncommercially reasonable terms, which could have a material adverse effect on our business and financial condition. We are aware of a third-party European patent that relates to use of ErbB3 antibodies for treatment of hyperproliferative disorders, including cancer. Acounterpart of this patent has also issued42Table of Contentsin Japan and Australia. As a result of an opposition proceeding, the European patent was revoked in its entirety. The owner of the European patent hasappealed the decision in the opposition proceeding but the appeal has been rejected so that the decision to revoke the European patent stands. We continueto monitor counterparts in other jurisdictions. While we cannot predict whether claims will issue in these other jurisdictions or whether the scope of suchclaims would be relevant to our activities, these applications entail comparable risks to us in these other jurisdictions.We may be unable to protect the confidentiality of our trade secrets, thus harming our business and competitive position. We rely upon trade secrets, including unpatented know-how, technology and other proprietary information to develop and maintain our competitiveposition, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreementswith our employees that obligate them to assign their inventions to us. However, it is possible that technology relevant to our business will be independentlydeveloped by a person that is not a party to such an agreement. Furthermore, if the employees, consultants or collaborators that are parties to these agreementsbreach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secretsthrough such breaches or violations. Further, our trade secrets could be disclosed, misappropriated or otherwise become known or be independentlydiscovered by our competitors. In addition, intellectual property laws in foreign countries may not protect our intellectual property to the same extent as thelaws of the United States. If our trade secrets are disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverseeffect on our business.We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful. Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can beexpensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable or may refuseto stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in anylitigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantialamount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could becompromised by disclosure during this type of litigation.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business. Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our drug candidates anduse our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. Wemay become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our drugcandidates and technology. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. Ifwe are found to infringe a third-party's intellectual property rights, we could be required to obtain a license from such third-party to continue developing ourdrug candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were ableto obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, includingby court order, to cease43Table of Contentsdeveloping the infringing technology or product. In addition, we could be found liable for monetary damages. Claims that we have misappropriated theconfidential information or trade secrets of third parties can have a similar negative impact on our business.Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets. We employ individuals who were previously employed at universities or other diagnostic or biopharmaceutical companies, including our competitors orpotential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in theirwork for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosedintellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary todefend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual propertyrights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to managementand other employees.Regulatory RisksWe may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates. We may seek orphan drug designation for some of our product candidates in the United States. Regulatory authorities in some jurisdictions, includingthe United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA maydesignate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewerthan 200,000 individuals in the United States. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has suchdesignation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing applicationfor the same indication for that drug during that time period. The applicable period is seven years in the United States and ten years in Europe. The Europeanexclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so thatmarket exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation wasmaterially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. We cannot assure you that any future application for orphan drug designation with respect to any product candidate, will be granted. If we are unable toobtain orphan drug designation in the United States, we will not be eligible to obtain the period of market exclusivity that could result from orphan drugdesignation or be afforded the financial incentives associated with orphan drug designation. Even if we obtain orphan drug exclusivity for a product, thatexclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphandrug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior inthat it is shown to be safer, more effective or makes a major contribution to patient care.44Table of ContentsAny fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory review or approvalprocess, nor will it assure FDA approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify forpriority review vouchers. We may seek fast track designation for some of our product candidates or priority review of applications for approval of our product candidates. If a drugis intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for thiscondition, the drug sponsor may apply for FDA fast track designation. If a product candidate offers major advances in treatment, the FDA may designate iteligible for priority review. The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate iseligible for these designations, we cannot assure you that the FDA would decide to grant them. Even if we do receive fast track designation or priority review,we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast trackdesignation if it believes that the designation is no longer supported by data from our clinical development program.Any breakthrough therapy designation granted by the FDA for our product candidates may not lead to a faster development or regulatory review orapproval process, and it does not increase the likelihood that our product candidates will receive marketing approval. We may seek a breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, aloneor in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that thedrug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effectsobserved early in clinical development. For drugs and biologics that have been designated as breakthrough therapies, interaction and communicationbetween the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patientsplaced in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA may also be eligible for accelerated approval if the relevantcriteria are met. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets thecriteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of abreakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs consideredfor approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our productcandidates qualify as breakthrough therapies, the FDA may later decide that the products no longer meet the conditions for qualification or decide that thetime period for FDA review or approval will not be shortened.If our processes and systems are not compliant with regulatory requirements, we could be subject to delays in submitting BLAs, NDAs or restrictions onmarketing of drugs after they have been approved. We currently are developing drug candidates for regulatory approval and are in the process of implementing regulated processes and systems required toobtain and maintain regulatory approval for our drug candidates. Certain of these processes and systems for conducting clinical trials and manufacturingmaterial must be compliant with regulatory requirements before we can apply for regulatory approval for our drug candidates. These processes and systemswill be subject to continual review and periodic inspection by the FDA and other regulatory bodies. If we are unable to achieve compliance in a timelyfashion or if compliance issues are identified at any point in the development and approval process, we may experience delays in filing for regulatoryapproval for our drug45Table of Contentscandidates or delays in obtaining regulatory approval after filing. In addition, any later discovery of previously unknown problems or safety issues withapproved drugs or manufacturing processes, or failure to comply with regulatory requirements may result in restrictions on such drugs or manufacturingprocesses, withdrawal of drugs from the market, the imposition of civil or criminal penalties or a refusal by the FDA and/or other regulatory bodies to approvepending applications for marketing approval of new drugs or supplements to approved applications, any of which could have a material adverse effect on ourbusiness. In addition, we are a party to agreements that transfer responsibility for complying with specified regulatory requirements, such as filing andmaintenance of marketing authorizations and safety reporting or compliance with manufacturing requirements, to our collaborators and third-partymanufacturers. If our collaborators or third-party manufacturers do not fulfill these regulatory obligations, any drugs for which we or they obtain approvalmay be subject to later restrictions on manufacturing or sale or may even risk withdrawal, which could have a material adverse effect on our business.Even if we receive regulatory approval for a drug candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, whichmay result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements. Once regulatory approval has been granted, the approved product and its manufacturer are subject to continual review by the FDA and/or non-U.S.regulatory authorities. Any regulatory approval that we or our collaboration partners receive for our drug candidates may be subject to limitations on theindicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing follow-up studies to monitor the safetyand efficacy of the product. In addition, if the FDA and/or non-U.S. regulatory authorities approve any of our drug candidates, we will be subject to extensiveand ongoing regulatory requirements by the FDA and other regulatory authorities with regard to the labeling, packaging, adverse event reporting, storage,advertising, promotion and recordkeeping for our products. In addition, manufacturers of our drug products are required to comply with cGMP regulations,which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further,regulatory authorities must inspect and approve these manufacturing facilities before they can be used to manufacture our drug products, and these facilitiesare subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a thirdparty discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facilitywhere the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal ofthe product from the market or suspension of manufacturing. If we, our drug candidates or the manufacturing facilities for our drug candidates fail to complywith regulatory requirements of the FDA and/or other non-U.S. regulatory authorities, we could be subject to administrative or judicially imposed sanctions,including the following:•warning letters; •civil or criminal penalties and fines; •injunctions; •consent decrees; •suspension or withdrawal of regulatory approval; •suspension of any ongoing clinical studies; •voluntary or mandatory product recalls and publicity requirements; •refusal to accept or approve applications for marketing approval of new drugs;46Table of Contents•restrictions on operations, including costly new manufacturing requirements; or •seizure or detention of drugs or import bans. The regulatory requirements and policies may change and additional government regulations may be enacted with which we may also be required tocomply. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either inthe United States or in other countries. If we are not able to maintain regulatory compliance, we may not be permitted to market our future products, and ourbusiness may suffer.We may be subject, directly or indirectly, to federal and state health care fraud and abuse laws, false claims laws and health information privacy andsecurity laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. If we obtain FDA approval for any of our drug candidates and begin commercializing those products in the United States, our operations will be directly,or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statuteand the federal False Claims Act. These laws may affect, among other things, our proposed sales, marketing and education programs. In addition, we may besubject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability tooperate include:•the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering orpaying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursableunder a federal health care program, such as the Medicare and Medicaid programs; •federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities fromknowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false orfraudulent; •the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology forEconomic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose certain requirements relating to theprivacy, security and transmission of individually identifiable health information; •the federal transparency requirements under the Patient Protection and Affordable Care Act of 2010 requires manufacturers of drugs, devices,biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and othertransfers of value and physician ownership and investment interests; and •state law and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to itemsor services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of healthinformation in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thuscomplicating compliance efforts. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirelyeliminated. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we maybe subject to penalties, including exclusion from payment by federal health care programs, civil and criminal penalties, damages, fines and the curtailment orrestructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Moreover, achieving andsustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.47Table of ContentsCompliance with laws and regulations pertaining to the privacy and security of health information may be time consuming, difficult and costly,particularly in light of increased focus on privacy issues in countries around the world, including the U.S. and the EU. We are subject to various domestic and international privacy and security regulations. The confidentiality, collection, use and disclosure of personaldata, including clinical trial patient-specific information, are subject to governmental regulation generally in the country that the personal data werecollected or used. In the United States we are subject to various state and federal privacy and data security regulations, including but not limited to HIPAAand as amended in 2014 by the HITECH Act. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange ofinformation in common health care transactions, as well as standards relating to the privacy and security of individually identifiable health information,which require the adoption of administrative, physical and technical safeguards to protect such information. In the EU personal data includes any informationthat relates to an identified or identifiable natural person with health information carrying additional obligations, including obtaining the explicit consentfrom the individual for collection, use or disclosure of the information. In addition, we are subject to EU regulation with respect to protection of and cross-border transfers of such data out of the EU, and this regulation will become more stringent in May 2018 when the EU's General Data Protection Regulation(GDPR) comes into effect. Furthermore, the legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been anincreasing amount of focus on privacy and data protection issues. The United States and the EU and its member states continue to issue new privacy and dataprotection rules and regulations that relate to personal data and health information. Compliance with these laws may be time consuming, difficult and costly. If we fail to comply with applicable laws, regulations or duties relating to theuse, privacy or security of personal data we could be subject to the imposition of significant civil and criminal penalties, be forced to alter our businesspractices and suffer reputational harm.Changes in health care law and implementing regulations, including government restrictions on pricing and reimbursement, as well as health care policyand other health care payor cost-containment initiatives, may have a material adverse effect on us. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding thehealth care system and efforts to control health care costs, including drug prices, that could have a significant negative impact on our business, includingpreventing, limiting or delay regulatory approval of our drug candidates and reducing the sales and profits derived from our products once they are approved. For example, in the United States, the Patient Protection and Affordable Care Act of 2010 ("ACA") substantially changed the way health care is financedby both governmental and private insurers and significantly affects the pharmaceutical industry. Many provisions of ACA impact the biopharmaceuticalindustry, including that in order for a biopharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid programs or to besold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the drug pricing program under thePublic Health Services Act, or PHS. Since its enactment, there have been judicial and Congressional challenges and amendments to certain aspects of ACA.There is continued uncertainty about the implementation of ACA, including the potential for further amendments to the ACA and legal challenges to orefforts to repeal the ACA. We cannot be sure whether additional legislative changes will be enacted, or whether government regulations, guidance or interpretations will bechanged, or what the impact of such changes would be on the marketing approvals, sales, pricing, or reimbursement of our drug candidates or products, if any,may be.48Table of ContentsRisks Related to Our Capital StockOur 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 drug candidates. We had an accumulated deficit of $962.4 million as of December 31,2018. We expect to spend substantial funds to continue the research and development testing of our drug candidates. In anticipation of FDA approval of these products, we will need to make substantial investments to establish sales, marketing, quality control, regulatorycompliance capabilities and commercial manufacturing alliances. These investments will increase if and when any of these drug candidates receive FDAapproval. We cannot predict how quickly our lead drug candidates will progress through the regulatory approval process. As a result, we may continue to losemoney 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 sustainoperations, pay dividends on our common stock, obtain additional required funds and make required payments on our present or future indebtedness.We completed the reverse stock split in order to regain compliance with the listing requirements of NASDAQ. However, the reverse stock split may notresult in our stock price remaining compliant with the minimum price requirements of NASDAQ. Our common stock is listed on the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirementsincluding, without limitation, a requirement that our closing bid price be at least $1.00 per share. On May 29, 2018, we received a written notice fromNASDAQ indicating that we are not in compliance with the minimum bid price requirement for continued listing on the NASDAQ Global Market and,effective November 28, 2018, our common stock commenced trading on the NASDAQ Capital Market. In connection with the transfer to the NASDAQCapital Market, we were granted an additional 180 days in which to regain compliance with the minimum bid price requirement, or, until May 28, 2019. At our annual meeting of stockholders in June 2018, our stockholders approved a proposal to grant discretionary authority to our Board of Directors toamend our certificate of incorporation to effect a reverse stock split of our outstanding shares of common stock within a range of one share of common stockfor every ten shares of common stock to one share of common stock for every fifteen shares of common stock, with the exact reverse stock split ratio to bedecided by the Board of Directors. On February 8, 2019 we announced that our Board of Directors had approved a one for fifteen reverse stock split of ourissued and outstanding shares of common stock. On February 11, 2019, our common stock began trading on a split-adjusted basis on the NASDAQ CapitalMarket. On February 26, 2019, we received formal notice from NASDAQ that we had regained compliance with the minimum $1.00 bid price requirement andthe matter is now closed. There can be no assurance that in the future we will be able to maintain compliance with the minimum bid price requirement or we will otherwise be incompliance with other NASDAQ listing criteria. If we fail to maintain compliance with the minimum bid requirement or to meet the other applicablecontinued listing requirements for the NASDAQ Capital Market in the future and NASDAQ determines to delist our common stock, the delisting couldadversely affect the market price and liquidity of our common stock and reduce our ability to raise additional capital. In addition, if our common stock isdelisted from NASDAQ and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements ofcertain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stockdefined as a "penny stock" (generally, any equity security not listed on a49Table of Contentsnational securities exchange or quoted on NASDAQ that has a market price of less than $5.00 per share, subject to certain exceptions).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 2018 throughDecember 2018, the market price of our common stock has fluctuated from a high of $46.20 per share in the first quarter of 2018, to a low of $2.75 per sharein the fourth quarter of 2018 (giving retroactive effect to our recently completed one for fifteen reverse stock split). Our progress in developing andcommercializing our products, the impact of government regulations on our products and industry, the potential sale of a large volume of our common stockby stockholders, our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting usor our competitors could cause the market price of our common stock to fluctuate substantially with significant market losses. If our stockholders sell asubstantial number of shares of common stock, especially if those sales are made during a short period of time, those sales could adversely affect the marketprice of our common stock and could impair our ability to raise capital. In addition, in recent years, the stock market has experienced significant price andvolume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operatingperformance and may adversely affect the price of our common stock. Adverse changes to the price of our common stock could result in an impairment to theamount recorded to goodwill on our balance sheet. In addition, we could be subject to a securities class action litigation as a result of volatility in the price ofour 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.We completed the reverse stock split of our shares of common stock, which may reduce and may limit the market trading liquidity of the shares due to thereduced number of shares outstanding, and may potentially have an anti-takeover effect. We completed the reverse stock split of our common stock by a ratio of one for fifteen effective February 8, 2019. The liquidity of our common stockmay be adversely affected by the reverse stock split as a result of the reduced number of shares outstanding following the reverse stock split. In addition, thereverse stock split may increase the number of stockholders who own odd lots of our common stock, creating the potential for such stockholders toexperience an increase in the cost of selling their shares and greater difficulty affecting such sales. Reducing the number of outstanding shares of our commonstock through the reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, suchas our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result,there can be no assurance that the reverse stock split will result in the intended benefits, that the market price of our common stock will remain higherfollowing the reverse stock split or that the market price of our common stock will not decrease in the future. Further, since the reverse stock split was notaccompanied by a corresponding decrease in the number of shares authorized for issuance under our Third Restated Certificate of Incorporation, the relativeincrease in the number of shares authorized for issuance could, under certain circumstances, have an anti-takeover effect by enabling our Board of Directorsto issue additional shares of common stock in a transaction making it more difficult for a party to obtain control of us by tender offer or other means.If certain preclinical and clinical milestones are achieved, our stockholders may experience significant dilution as a result of milestone payments toformer Kolltan stockholders. The merger agreement pursuant to which we acquired Kolltan provides that, in the event that certain specified preclinical and clinical developmentmilestones related to Kolltan's development50Table of Contentsprograms and/or Celldex's development programs and certain commercial milestones related to Kolltan's drug candidates are achieved, we will be required topay Kolltan's stockholders milestone payments of up to $127.5 million as of December 31, 2018. These milestone payments may be made, at our soleelection, in cash, in shares of our common stock or a combination of both, subject to the provisions of the merger agreement. The number of shares of ourcommon stock issuable in connection with a milestone payment, if any, will be determined based on the average closing price per share of our common stockfor the five trading day period ending three calendar days prior to the achievement of such milestone. If we elect to issue additional shares of our commonstock, in lieu of paying cash, for such milestone payments, our stockholders may experience significant dilution.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 and research and development credit carryforwards may be subject to substantial annual limitation due to ownershipchange limitations that have occurred previously or that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, orSection 382, as well as similar state provisions. In general, an ownership change, as defined by Section 382, results from transactions increasing theownership 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, December 2009 and December 2013, we experienced a change in ownership as defined by Section 382 of the InternalRevenue Code. Historically, we have raised capital through the issuance of capital stock on several occasions which, combined with shareholders' subsequentdisposition of those shares, has resulted in three changes of control, as defined by Section 382. As a result of these ownership changes, utilization of ourFederal net operating loss carryforwards is subject to an annual limitation. Any unused annual limitation may be carried over to later years, and the amount ofthe limitation may, under certain circumstances, be subject to adjustment if the fair value of our net assets is determined to be below or in excess of the taxbasis 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 ownershipchange. Subsequent ownership changes, as defined in Section 382, could further limit the amount of net operating loss carryforwards and research anddevelopment 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) acquired businesses prior tothe acquisition, (ii) the Company on the state level, (iii) the Company since March 2015 or (iv) research and development credits. If, based on such a study,we were to determine that there has been an ownership change at any time since its formation, utilization of net operating loss or tax credit carryforwardswould be subject to an annual limitation under Section 382. Refer to Note 14, "Income Taxes," in the accompanying notes to the financial statements for additional discussion on income taxes.51Table of Contents Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES As of December 31, 2018 our significant leased properties are described below. Item 3. LEGAL PROCEEDINGS We are not currently a party to any material legal proceedings. Item 4. MINE SAFETY DISCLOSURES Not applicable.52Property Location ApproximateSquare Feet Use Lease Expiration DateHampton, New Jersey 49,600 Headquarters, Office and Laboratory July 2020(1)Needham, Massachusetts 46,700 Office and Laboratory July 2020(2)Fall River, Massachusetts 28,900 Manufacturing Facility July 2020(3)New Haven, Connecticut 17,700 Office and Laboratory October 2020(4)(1)Lease includes two renewal options of five years each. (2)Lease includes two renewal options of five years each. (3)Lease includes two renewal options of five years each. (4)Lease includes one renewal option of 18 months.Table of Contents PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Our common stock currently trades on the Nasdaq Capital Market (NASDAQ) under the symbol "CLDX." On February 8, 2019, we effected a one forfifteen reverse stock split of our common stock. As of February 28, 2019, there were approximately 209 shareholders of record of our common stock. OnFebruary 28, 2019 the closing price of our common stock, as reported by NASDAQ, was $5.32 per share. We have not paid any dividends on our commonstock since our inception and do not intend to pay any dividends in the foreseeable future.53Table of Contents CELLDEX THERAPEUTICS, INC., NASDAQ MARKET INDEX—U.S. ANDPEER GROUP INDICES The graph below compares the cumulative total stockholder return on the common stock for the period from December 31, 2013 through December 31,2018, with the cumulative return on (i) NASDAQ U.S. Benchmark TR Index and (ii) NASDAQ Pharmaceutical (Subsector) Index. The comparison assumesinvestment of $100 on December 31, 2013 in our common stock and in each of the indices and, in each case, assumes reinvestment of all dividends. Thepoints on the graph are as of December 31 of the year indicated.54 2013 2014 2015 2016 2017 2018 Celldex Therapeutics, Inc. $100 $75 $65 $15 $12 $1 NASDAQ U.S. Benchmark TR Index $100 $112 $113 $128 $155 $147 NASDAQ Pharmaceutical (Subsector) Index $100 $122 $128 $127 $151 $163 Table of Contents Item 6. SELECTED FINANCIAL DATA The following selected financial data are derived from our audited financial statements. The statement of operations data for the years endedDecember 31, 2018, 2017 and 2016 and the balance sheet data as of December 31, 2018 and 2017 have been derived from our audited financial statementsincluded in Item 8 of this Annual Report on Form 10-K. This data should be read in conjunction with our audited financial statements and related noteswhich are included elsewhere in this Annual Report on Form 10-K, and "Management's Discussion and Analysis of Financial Condition and Results ofOperations" included in Item 7 below.STATEMENTS OF OPERATIONS DATA(In thousands, except per share amounts)(Reflects one for fifteen reverse stock split effective February 8, 2019)BALANCE SHEET DATA(In thousands)55 Year Ended December 31, 2018 2017 2016 2015 2014 REVENUE: Product Development and Licensing Agreements $3,341 $3,153 $2,174 $1,442 $838 Contracts and Grants 6,197 9,590 4,612 4,038 2,748 Total Revenue 9,538 12,743 6,786 5,480 3,586 OPERATING EXPENSE: Research and Development 66,449 96,171 102,726 100,171 104,381 Other Operating Expense 99,525 38,099 36,976 34,850 21,635 Total Operating Expense 165,974 134,270 139,702 135,021 126,016 Operating Loss (156,436) (121,527) (132,916) (129,541) (122,430)Investment and Other Income, Net 4,487 4,214 4,386 2,344 4,350 Net Loss Before Income Tax Benefit $(151,949)$(117,313)$(128,530)$(127,197)$(118,080)Income Tax Benefit 765 24,282 — — — Net Loss $(151,184)$(93,031)$(128,530)$(127,197)$(118,080)Basic and Diluted Net Loss Per Common Share $(14.48)$(10.86)$(18.99)$(19.66)$(19.81)Shares Used in Calculating Basic and Diluted NetLoss Per Common Share 10,442 8,570 6,769 6,470 5,960 December 31, 2018 2017 2016 2015 2014 Working Capital* $86,477 $117,020 $160,346 $264,696 $180,494 Total Assets 155,809 315,624 383,358 337,584 248,014 Long-Term Liabilities 19,147 51,519 82,704 17,239 11,863 Accumulated Deficit (962,438) (812,517) (719,486) (590,956) (463,759)Total Stockholders' Equity 124,060 236,369 265,431 290,105 211,660 *Total current assets less total current liabilitiesTable of Contents Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On February 8, 2019 we announced that our Board of Directors had approved a one for fifteen reverse stock split of our issued and outstanding shares ofcommon stock, effective February 8, 2019. On February 11, 2019, our common stock began trading on a split-adjusted basis on the NASDAQ Capital Market.The number of authorized shares of the Company remain unchanged. Stockholders who would have otherwise been entitled to fractional shares as a result ofthe reverse stock split received a cash payment in lieu of receiving fractional shares. All share and per share amounts in this Annual Report are shown on apost-split basis.OVERVIEW We are a biopharmaceutical company focused on the development and commercialization of immunotherapies and other targeted biologics. Our drugcandidates are derived from a broad set of complementary technologies which have the ability to engage the human immune system and/or directly inhibittumors to treat specific types of cancer or other diseases. They are aimed at addressing market opportunities for which we believe current therapies areinadequate or non-existent. We are focusing our efforts and resources on the continued research and development of:•CDX-1140, an agonist human monoclonal antibody targeted to CD40, a key activator of immune response, currently being studied as a single-agent and in combination with CDX-301 in a Phase 1 dose-escalation study in multiple types of solid tumors and B cell lymphomas; •CDX-3379, a human monoclonal antibody designed to block the activity of ErbB3 (HER3), currently in an early Phase 2 study in advancedhead and neck squamous cell cancer in combination with Erbitux®; •CDX-301, a dendritic cell growth factor, currently being evaluated in a combination study with CDX-1140; and •Varlilumab, an immune modulating antibody targeting CD27 designed to enhance a patient's immune response, currently being evaluated forpotential combination with CDX-1140, especially in lymphomas which co-express CD40 and CD27 receptors. We routinely work with external parties to collaboratively advance our drug candidates. In addition to Celldex-led studies, we also have an InvestigatorInitiated Research (IIR) program with seven studies ongoing with our prioritized drug candidates. In April 2018, we announced that our Phase 2b METRIC Study of glembatumumab vedotin in metastatic triple-negative breast cancer did not meet itsprimary endpoint. Based on this result, in the second quarter of 2018, we prioritized our pipeline and evaluated our operational and workforce needs toextend our financial resources and direct them to continued pipeline advancement. As previously disclosed, in line with this initiative and to conserveresources, we discontinued development of glembatumumab vedotin, CDX-014 and CDX-1401. Our goal is to build a fully integrated, commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medicalneeds. We believe our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorableeconomic terms through advantageous commercial partnerships. This approach allows us to maximize the overall value of our technology and productportfolio while best ensuring the expeditious development of each individual product. Currently, all programs are fully owned by Celldex. The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties. Completion of clinical trials may take severalyears or more, and the length of time56Table of Contentsgenerally varies substantially according to the type, complexity, novelty and intended use of a drug candidate. It is not unusual for the clinical developmentof these types of drug candidates to each take five years or more, and for total development costs to exceed $100 million for each drug candidate. Weestimate that clinical trials of the type we generally conduct are typically completed over the following timelines: 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 trialprotocol, including, among others, the following:•the number of patients that ultimately participate in the trial; •the duration of patient follow-up that seems appropriate in view of results; •the number of clinical sites included in the trials; •the length of time required to enroll suitable patient subjects; and •the efficacy and safety profile of the drug candidate. We test potential drug candidates in numerous preclinical studies for safety, toxicology and immunogenicity. We may then conduct multiple clinicaltrials for each drug candidate. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain drug candidates in order to focusour resources on more promising drug candidates. An element of our business strategy is to pursue the discovery, research and development of a broad portfolio of drug candidates. This is intended toallow us to diversify the risks associated with our research and development expenditures. To the extent we are unable to maintain a broad range of drugcandidates, our dependence on the success of one or a few drug candidates increases. Regulatory approval is required before we can market our drug candidates as therapeutic products. In order to proceed to subsequent clinical trial stagesand to ultimately achieve regulatory approval, the regulatory agency must conclude that our clinical data demonstrate that our product candidates are safeand effective. Historically, the results from preclinical testing and early clinical trials (through Phase 2) have often not been predictive of results obtained inlater clinical trials. A number of new drugs and biologics have shown promising results in early clinical trials but subsequently failed to establish sufficientsafety 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 andcommercialization of our drug candidates. In the event that third parties take over the clinical trial process for one of our drug candidates, the estimatedcompletion 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 capitalrequirements. Our programs may also benefit from subsidies, grants, contracts or government or agency-sponsored studies that could reduce our developmentcosts. As a result of the uncertainties discussed above, among others, it is difficult to accurately estimate the duration and completion costs of our research anddevelopment projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability tocomplete our research and development projects in a timely manner or our failure to enter into57Clinical Phase EstimatedCompletionPeriodPhase 1 1 - 2 YearsPhase 2 1 - 5 YearsPhase 3 1 - 5 YearsTable of Contentscollaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. Theseuncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. Our inability toraise 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, 2018, we incurred an aggregate of $469.9 million in research and development expenses. The followingtable indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the yearsended December 31, 2018, 2017 and 2016. The amounts disclosed in the following table reflect direct research and development costs, license feesassociated with the underlying technology and an allocation of indirect research and development costs to each program.Clinical Development ProgramsCDX-1140 CDX-1140 is a fully human agonist monoclonal antibody targeted to CD40, a key activator of immune response, which is found on dendritic cells,macrophages and B cells and is also expressed on many cancer cells. Potent CD40 agonist antibodies have shown encouraging results in early clinicalstudies; however, systemic toxicity associated with broad CD40 activation has limited their dosing. CDX-1140 has unique properties relative to other CD40agonist antibodies: potent agonist activity is independent of Fc receptor interaction, contributing to more consistent, controlled immune activation; CD40Lbinding is not blocked, leading to potential synergistic effects of agonist activity near activated T cells in lymph nodes and tumors; and the antibody doesnot promote cytokine production in whole blood assays. CDX-1140 has shown direct anti-tumor activity in preclinical models of lymphoma. Preclinicalstudies of CDX-1140 clearly demonstrate strong immune activation effects and low systemic toxicity and support the design of the Phase 1 study to rapidlyidentify the dose for characterizing single-agent and combination activity. We initiated a Phase 1 study of CDX-1140 in November 2017. This study is expected to enroll up to approximately 180 patients with recurrent, locallyadvanced or metastatic solid tumors and B cell lymphomas. The study is designed to determine the maximum tolerated dose, or MTD, during a dose-escalation phase (0.01 to 3.0 mg/kg once every four weeks until confirmed progression or intolerance) and to recommend a dose level for further study in asubsequent expansion phase. The expansion is designed to further evaluate the tolerability and biologic effects of selected dose(s) of CDX-1140 in specifictumor types. Secondary objectives include assessments of safety and tolerability,58 Year EndedDecember 31, 2018 Year EndedDecember 31, 2017 Year EndedDecember 31, 2016 (In thousands) CDX-1140 $5,666 $6,909 $3,802 CDX-3379 3,778 4,167 416 CDX-301 1,927 1,294 4,053 Varlilumab 9,026 14,940 28,554 Anti-KIT Program 7,330 4,156 279 TAM 5,452 5,512 438 Glembatumumab vedotin 16,397 36,873 30,156 CDX-014 1,600 2,534 3,623 CDX-1401 455 836 4,323 Other Programs 14,818 18,950 27,082 Total R&D Expense $66,449 $96,171 $102,726 Table of Contentspharmacodynamics, pharmacokinetics, immunogenicity and additional measures of anti-tumor activity, including clinical benefit rate. We believe that thepotential for CDX-1140 will be best defined in combination studies with other immunotherapies or conventional cancer treatments. To this end, in the second quarter of 2018, we amended the Phase 1 study protocol to also explore CDX-1140 in combination with CDX-301. Dendriticcells, which express CD40, are often rare or missing from the tumor microenvironment and are critical for initiating anti-tumor immunity. CDX-301 is beingutilized to increase the number of dendritic cells in blood and tissue available for CDX-1140 activation. CDX-1140 should, in turn, activate and mature thedendritic cells, an important step for enhancing anti-tumor immune responses. Several B cell lymphomas, including diffuse large B-cell lymphoma andfollicular lymphoma, also express both CD40 and CD27. Celldex's varlilumab is a potent CD27 agonist and has been shown to synergize with CDX-1140 inNHL models and may be evaluated in combination with CDX-1140 in the future. Interim data from the Phase 1 study were presented in November 2018 at the Society for Immunotherapy of Cancer (SITC) Annual Meeting. Seventeenpatients with solid tumors were enrolled at the time of data analysis (n=13 monotherapy; n=4 combination). Four single-agent dosing cohorts were complete(0.01; 0.03, 0.09 and 0.18 mg/kg) and enrollment to the 0.36 mg/kg monotherapy cohort was ongoing. Enrollment to the first CDX-1140/CDX-301combination cohort was also ongoing (0.09 mg/kg and 75 ug/kg, respectively). Dose dependent biological effects consistent with CD40-mediated immuneactivation were reported. CDX-1140 was well tolerated and no MTD had been reached. One patient experienced a grade 3 dose-limiting toxicity (DLT)(pneumonitis and hypoxia) at the single-agent 0.18 mg/kg dose. Per protocol, three additional patients were enrolled in the cohort and no additional DLTshave been observed in this or subsequent cohorts. While the CDX-1140 and CDX-301 combination cohort had just recently opened to enrollment at the timeof presentation, preliminary evidence of enhanced immune activation was reported with no observed DLT. Across both arms of the study, there were nosignificant drug-related changes observed in liver function tests or platelets, which have been observed with other CD40 agonists. Continued enrollment isongoing to define the MTD and select a dose for disease-specific expansion cohorts that will be monitored for clinical activity. We plan to present updateddata from the study at a future medical meeting in 2019.CDX-3379 CDX-3379 is a human monoclonal antibody with half-life extension designed to block the activity of ErbB3 (HER3). We believe ErbB3 may be animportant receptor regulating cancer cell growth and survival as well as resistance to targeted therapies and is expressed in many cancers, including head andneck, thyroid, breast, lung and gastric cancers, as well as melanoma. We believe the proposed mechanism of action for CDX-3379 sets it apart from otherdrugs in development in this class due to its ability to block both ligand-independent and ligand-dependent ErbB3 signaling by binding to a unique epitope.It has a favorable pharmacologic profile, including a longer half-life and slower clearance relative to other drug candidates in this class. We believe CDX-3379 also has potential to enhance anti-tumor activity and/or overcome resistance in combination with other targeted and cytotoxic therapies to directly killtumor cells. Tumor cell death and the ensuing release of new tumor antigens has the potential to serve as a focus for combination therapy with immuno-oncology approaches, even in refractory patients. CDX-3379 has been evaluated in three Phase 1 studies for the treatment of multiple solid tumors thatexpress ErbB3 and is currently being evaluated in a Phase 2 study in combination with Erbitux in Erbitux-resistant, advanced head and neck squamous cellcarcinoma. A Phase 1a/1b study of CDX-3379 was conducted in solid tumors. The study included a single-agent, dose-escalation portion and combinationexpansion cohorts. The single-agent, dose-escalation portion of the study did not identify an MTD, and there were no dose limiting toxicities. Fourcombination arms across multiple tumor types were added to evaluate CDX-3379 with several drugs59Table of Contentsthat target EGFR, HER2 or BRAF. They include combinations with Erbitux® (n=16), Tarceva® (n=8), Zelboraf® (n=9) and Herceptin® (n=10). Patients hadadvanced disease and were generally heavily pretreated. Across the combination arms, the most frequent adverse events were diarrhea, nausea, rash andfatigue. Objective responses were observed in the Erbitux and Zelboraf combination arms. In the Erbitux arm, there was one durable complete response in apatient with head and neck cancer, who had been previously treated with Erbitux and was refractory. In the Zelboraf arm, there were two partial responses inpatients who had lung cancer, one of whom had been previously treated with Tafinlar® and was considered refractory, as well as an unconfirmed partialresponse in a patient with thyroid cancer. Initial data were presented at the 2016 American Society of Clinical Oncology (ASCO) Annual Meeting. In April 2018, results from a window-of-opportunity study evaluating the effect of CDX-3379 on potential biomarkers in patients with head and necksquamous cell carcinoma (HNSCC) were presented at the American Association for Cancer Research (AACR) Annual Meeting. The study enrolled 12 patientswith newly diagnosed HNSCC who received two doses of CDX-3379, at a two-week interval prior to tumor resection. CDX-3379 reduced phosphorylatedErbB3 (pErbB3) levels in 83% (10/12) of patient samples, with greater than or equal to 50% decreases in 58% of patients (7/12), which met the primary studyobjective. Stable disease was observed in 92% (11/12) of patients prior to surgery, and a patient with HPV-negative disease experienced significant tumorshrinkage (92% in primary tumor; 26% in metastatic lesion). CDX-3379 was well-tolerated, and no treatment-related adverse events were observed. Preclinical data from the combination of CDX-3379 and Erbitux in xenograft models of head and neck squamous cell carcinoma were also presented atthe AACR Annual Meeting in April 2018. Combining CDX-3379 and Erbitux inhibited tumor growth more potently than Erbitux alone. Mechanistic studiesdemonstrated a reduction of PD-L1 expression from the combination. We have initiated an open-label Phase 2 study in combination with Erbitux in approximately 30 patients with human papillomavirus (HPV) negative,Erbitux-resistant, advanced head and neck squamous cell carcinoma who have previously been treated with an anti-PD1 checkpoint inhibitor, a populationwith limited options and a particularly poor prognosis. We opened the study to enrollment in November 2017. The study employs a Simon two-stage designwith an interim futility analysis following enrollment of the first 13 patients. According to the study's two-stage design, if at least one patient achieves anobjective response in the first stage, enrollment may progress to the second stage. Enrollment to the first stage of the Phase 2 study (n=13) is complete. Whilea confirmed complete response has been documented, Celldex will conduct a comprehensive review, including the full data set, before making decisions onfuture development, as patients are still undergoing treatment and are eligible for evaluation. The primary objective of the study is objective response rate.Secondary objectives include assessments of clinical benefit response (CBR), duration of response (DOR), progression-free survival (PFS) and overallsurvival (OS), and safety and pharmacokinetics associated with the combination. We plan to present updated data from the study at a future medical meetingin 2019. CDX-3379 is also being studied in an investigator-sponsored study.Varlilumab Varlilumab is a fully human agonist monoclonal antibody that binds to and activates CD27, a critical co-stimulatory molecule in the immune activationcascade. We believe varlilumab works primarily by stimulating T cells, an important component of a person's immune system, to attack cancer cells.Restricted expression and regulation of CD27 enables varlilumab specifically to activate T cells, resulting in an enhanced immune response with thepotential for a favorable safety profile. In preclinical studies, varlilumab has been shown to directly kill or inhibit the growth of CD27 expressing lymphomasand leukemias in in vitro and in vivo models. Varlilumab was initially studied as a single-agent to establish a safety profile and assess immunologic andclinical activity in patients with cancer,60Table of Contentsbut we believe the greatest opportunity for varlilumab is as an immune activator in combination with other agents. Single-Agent Phase 1 Study: In an open-label Phase 1 study of varlilumab in patients with selected malignant solid tumors or hematologic cancers,varlilumab demonstrated an acceptable safety profile and induced immunologic activity in patients that is consistent with both its proposed mechanism ofaction and data in preclinical models. A total of 90 patients received varlilumab in the study at multiple clinical sites in the U.S. In both the solid tumor andhematologic dose escalations, the pre-specified maximum dose level (10 mg/kg) was reached without identification of an MTD. The majority of adverseevents, or AEs, related to treatment were mild to moderate (Grade 1/2) in severity, and no significant immune-mediated adverse events typically associatedwith checkpoint blockade were observed. Durable, multi-year clinical benefit was demonstrated in select patients without additional anti-cancer therapy.Final results from the study in patients with solid tumors were published in the Journal of Clinical Oncology in April 2017. Phase 1/2 Varlilumab/Opdivo Combination Study: In 2014, we entered into a clinical trial collaboration with Bristol-Myers Squibb, or BMS, toevaluate the safety, tolerability and preliminary efficacy of varlilumab and Opdivo, BMS' PD-1 immune checkpoint inhibitor, in a Phase 1/2 study. ThePhase 1 portion of the study was initiated in January 2015 and conducted in adult patients with multiple solid tumors to assess the safety and tolerability ofvarlilumab at varying doses when administered with Opdivo. It was followed by a Phase 2 expansion to evaluate the activity of the combination in diseasespecific cohorts. Enrollment to the Phase 2 portion of the study was completed in January 2018 with cohorts in colorectal cancer (n=21), ovarian cancer(n=58), head and neck squamous cell carcinoma (n=24), renal cell carcinoma (n=14) and glioblastoma (n=22). The primary objective of the Phase 2 cohorts isobjective response rate, or ORR, except glioblastoma, where the primary objective is the rate of 12-month OS. Data from the ovarian and colorectal cancer cohorts were presented in an oral presentation at the 2018 ASCO Annual Meeting. Sixty-six patients withovarian cancer were treated in the study (8 patients in Phase 1; 58 patients in Phase 2). Patients had a median of three prior lines of therapy, 91% had Stage IVdisease and 66% had PD-L1 negative tumors. The overall response rate was 14% (n=9; 7 confirmed, 2 unconfirmed) across 64 response-evaluable patients.For patients with paired tumor samples (n=24) from before and during treatment, increases in tumor expression of PD-L1 and CD8+ TIL levels were observed.These increases were associated with improved clinical outcome, including improved PFS and response rate. Forty-two patients with colorectal cancer were treated in the study (21 patients in Phase 1; 21 patients in Phase 2). Patients had a median of four priorlines of therapy, 100% had Stage IV disease and 87% had PD-L1 negative tumors. One patient had disease that was MSI-high and 21 patients had disease thatwas MSI-low/mismatch repair (MMR) proficient; MSI status for the remaining 20 patients was unknown. One patient with PD-L1 negative, MSI-high diseaseexperienced a confirmed partial response in the Phase 2 study portion. Of note, a patient with PD-L1 negative disease, initially considered MMR proficient asdetermined by standard screening laboratory analysis, achieved a near complete response in the Phase 1 portion of the study, which continued at last follow-up at 39 months. This patient's tumor had a high mutational burden and mutations in genes regulating DNA repair, which together likely contributed to theresponse. Disease control rate for the response-evaluable population was 20% (8/41). In the second quarter of 2018, we reported preliminary data from the head and neck squamous cell carcinoma (HNSCC) and renal cell carcinoma (RCC)cohorts. Twenty-seven patients with HNSCC were treated in the study (3 patients in Phase 1; 24 patients in Phase 2). Patients had a median of two prior linesof therapy, 96% had Stage IV disease, 63% had PD-L1 negative tumors and 52% had HPV positive tumors. The overall response rate was 15% (n=4confirmed) across 27 response-evaluable61Table of Contentspatients. In this small sample size, no correlation between PDL-1 status and clinical outcome was observed. Given the changing treatment paradigm in renalcell carcinoma, only fourteen patients with RCC were treated in the study, all in Phase 2. All patients had experienced prior angiogenic therapy, with a rangeof 1 to 4 prior treatments, 100% had Stage IV disease and 50% had PD-L1 negative tumors. 39% of patients experienced stable disease. Data from the GBM cohort were presented in November 2018 at the Society for Neuro-oncology (SNO) Annual Meeting. 22 patients with recurrent GBMwere treated in the study. The median duration of disease prior to study entry was 13 months. Methylation status was determined in 21 patients (n=5methylated; n=16 unmethylated). The combination was generally well-tolerated and the safety profile was consistent with that of each agent alone. Withouttaking into account MGMT status or other prognostic factors, overall results were similar to nivolumab monotherapy in recurrent GBM (OS12 = 42%). In thesubset of patients with unmethylated MGMT promoter, a durable therapeutic benefit was achieved (OS at 12 months =50%). Future development of varlilumab is focused on inclusion in internal combination studies, including potentially in the ongoing Phase 1 trial of CDX-1140, and several external investigator-initiated studies.CDX-301 CDX-301, a recombinant FMS-like tyrosine kinase 3 ligand, or Flt3L, is a hematopoietic cytokine that uniquely expands dendritic cells andhematopoietic stem cells, and in combination with other agents may potentiate anti-tumor responses. Depending on the setting, cells expanded by CDX-301promote either enhanced or permissive immunity. We believe CDX-301 may hold significant opportunity for synergistic development in combination withother proprietary molecules in our portfolio, as well as with approved or investigational therapies for the treatment of cancer. A Phase 1 study of CDX-301 evaluated seven different dosing regimens of CDX-301 to determine the appropriate dose for further development based onsafety, tolerability and biological activity. The data from the study were consistent with previous clinical experience and demonstrated that CDX-301 has anacceptable safety profile to date and can mobilize dendritic cell and hematopoietic stem cell populations in healthy volunteers. The study was published inthe journal Bone Marrow Transplantation in 2015. CDX-301 is being used as a priming agent to potentially increase the number of cells available to respond to CDX-1140 in the ongoing Phase 1 trial ofCDX-1140. CDX-301 is also in clinical development for multiple cancers in ongoing investigator-sponsored and collaborative studies, including incombination with treatments that release tumor antigens, such as radiation therapy.CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are described in Note 2 to the financial statements included in Item 8 of this Form 10-K. We believe our most criticalaccounting policies include accounting for business combinations, revenue recognition, intangible and long-lived assets, research and developmentexpenses 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 ourfinancial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions thatwe believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets andliabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about thefuture could materially change our reported results. We believe the following accounting policies are the most critical to us in that they are important to theportrayal of62Table of Contentsour financial statements and they require our most difficult, subjective or complex judgments in the preparation of our 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 abusiness to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Weassess the fair value of assets, including intangible assets such as IPR&D, using a variety of methods including present-value models. Each asset is measuredat fair value from the perspective of a market participant. The method used to estimate the fair values of IPR&D assets incorporates significant assumptionsregarding the estimates a market participant would make in order to evaluate an asset, including a market participant's assumptions regarding the probabilityof completing IPR&D projects, which would require obtaining regulatory approval for marketing of the associated drug candidate; a market participant'sestimates regarding the timing of and the expected costs to complete IPR&D projects; a market participant's estimates of future cash flows from potentialproduct sales; and the appropriate discount rates for a market participant. Transaction costs and restructuring costs associated with the transaction areexpensed as incurred. 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. As a result of thediscontinuation of the Glemba program, the Company evaluated goodwill for potential impairment in the first quarter of 2018. It was determined that thegoodwill asset was fully impaired and an impairment charge of $91.0 million was recorded. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We determine the fair value of thecontingent consideration based primarily on the following factors:•timing and probability of success of clinical events or regulatory approvals; •timing and probability of success of meeting clinical and commercial milestones; and •discount rates. Our contingent consideration liabilities arose in connection with our acquisition of Kolltan. On a quarterly basis, we revalue these obligations and recordincreases or decreases in their fair value as an adjustment to operating earnings. Changes to contingent consideration obligations can result from adjustmentsto discount rates, accretion of the discount rates due to the passage of time, changes in our estimates of the likelihood or timing of achieving development orcommercial milestones, changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval. The assumptions related to determining the value of contingent consideration include a significant amount of judgment, and any changes in theunderlying estimates could have a material impact on the amount of contingent consideration expense recorded in any given period.Revenue Recognition Revenues are recognized when performance obligations under agreements or contracts are satisfied, in an amount that reflects the consideration theCompany expects to be entitled to in exchange for those services.63Table of Contents The Company determines revenue recognition through the following steps:•Identification of the contract, or contracts, with a customer; •Identification of the performance obligations in the contract; •Determination of the transaction price; •Allocation of the transaction price to the performance obligations in the contract; and •Recognition of revenue when, or as, the Company satisfies a performance obligation. Revenue for the Company has historically been derived from biopharmaceutical product development agreements with collaborative partners for theresearch and development of therapeutic drug candidates. The terms of the agreements may include nonrefundable signing and licensing fees, funding forresearch, development and manufacturing, milestone payments and royalties on any product sales derived from collaborations. The Company assesses themultiple obligations typically within product development contracts to determine the distinct performance obligations and how to allocate the arrangementconsideration to each distinct performance obligation. Under product development agreements, revenue is generally recognized using a cost-to-cost measure of progress. Revenue is recognized based on thecosts incurred to date as a percentage of the total estimated costs to fulfill the contract. Incurred cost represents work performed, which corresponds with, andthereby best depicts, the transfer of control to the customer. Due to the nature of the work performed in these arrangements, the estimation of cost atcompletion is complex, subject to many variables, such as expected clinical trial costs, and requires significant judgements. Circumstances can arise thatchange original estimates of costs or progress toward completion. Any revisions to estimates are reflected in revenue on a cumulative catch-up basis in theperiod in which the change in circumstances became known. Revenue for the Company is also derived from manufacturing and research and development arrangements. The Company owns and operates a cGMPmanufacturing facility in Fall River, Massachusetts, to produce drug substance for its current and planned early-stage clinical trials. In order to utilize excesscapacity, the Company has, from time to time, entered into contract manufacturing and research and development arrangements in which services areprovided on a time-and-material basis or at a negotiated fixed-price. Revenue from time-and-material contracts is generally recognized on an output basis aslabor hours and/or direct expenses are incurred. Under fixed-price contracts, revenue is generally recognized on an output basis as progress is made towardcompletion of the performance obligations using surveys of performance completed to date.Intangible and Long-Lived Assets We evaluate the recoverability of our long-lived assets, including property and equipment, and finite-lived intangible assets when circumstancesindicate that an event of impairment may have occurred. Determination of recoverability is based on an estimate of undiscounted future cash flows resultingfrom 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 theassets, the assets are written-down to their estimated fair values. IPR&D assets acquired in a business combination initially are recorded at fair value and accounted for as indefinite-lived intangible assets. These assetsare capitalized on our balance sheets until either the project underlying them is completed or the assets become impaired. If a project is completed, thecarrying value of the related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which the project iscompleted. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value and animpairment charge is taken in the period in which the impairment occurs. Discounted cash flow models64Table of Contentsare typically used in these tests, and the models require the use of significant estimates and assumptions including but not limited to:•timing and costs to complete the in-process projects; •timing and probability of success of clinical events or regulatory approvals; •estimated future cash flows from product sales resulting from completed products and in-process projects; and •discount rates Each IPR&D asset is assessed for impairment at least annually or when impairment indicators are present. As a result of the discontinuation of the Glembaprogram, the Company concluded that the Glemba IPR&D asset was fully impaired, and a non-cash impairment charge of $11.8 million was recorded in thefirst quarter of 2018. The remaining IPR&D assets were assessed for impairment during 2018 and were determined not to be impaired. Intangible assets acquired in a business combination with a finite life are recorded at fair value and amortized over the greater of economic consumptionor on a straight-line basis over their estimated useful life. As a result of the discontinuation of the Glemba program, it was concluded that the Company'sfinite-lived intangible asset was fully impaired and a non-cash impairment charge of $6.9 million was recorded in the first quarter of 2018.Research and Development Expenses Research and development costs, including internal and contract research costs, are expensed as incurred. Research and development expenses consistmainly of clinical trial costs, manufacturing of clinical material, toxicology and other preclinical studies, personnel costs, depreciation, license fees andfunding of outside contracted research. Clinical trial expenses include expenses associated with clinical research organization, or CRO, services. Contract manufacturing expenses includeexpenses associated with contract manufacturing organization, or CMO, services. The invoicing from CROs and CMOs for services rendered can lag severalmonths. We accrue the cost of services rendered in connection with CRO and CMO activities based on our estimate of costs incurred. We maintain regularcommunication with our CROs and CMOs to assess the reasonableness of our estimates. Differences between actual expenses and estimated expensesrecorded 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, directors and non-employees based on the estimated fairvalues of the stock-based awards expected to vest at the grant date and adjust, if necessary, to reflect actual forfeitures. Our estimates of employee stockoption values rely on estimates of future uncertain events. Significant assumptions include the use of historical volatility to estimate the expected stock pricevolatility. We also estimate expected term based on historical exercise patterns. For non-employee grants, we may elect to use the contractual term as theexpected term in the option-pricing model. Actual volatility and lives of options may be significantly different from our estimates. Compensation expense forall stock-based awards to employees and directors is recognized using the straight-line method over the term of vesting or performance.65Table of ContentsRESULTS OF OPERATIONSYear Ended December 31, 2018 compared with Year Ended December 31, 2017Net Loss The $58.2 million increase in net loss for the year ended December 31, 2018, as compared to the year ended December 31, 2017, was primarily the resultof the increase in the non-cash goodwill impairment and the decrease in the non-cash income tax benefit. This effect was partially offset by the increase in thenon-cash gain on fair value remeasurement of contingent consideration and the decrease in research and development expenses.Revenue The $0.2 million increase in product development and licensing agreements revenue for the year ended December 31, 2018, as compared to the yearended December 31, 2017, was primarily due to an increase in reimbursable clinical trial expenses related to our BMS agreement. The $3.4 million decreasein contracts and grants revenue for the year ended December 31, 2018, as compared to the year ended December 31, 2017, was primarily related to a decreasein services performed under our contract manufacturing and research and development agreements with International AIDS Vaccine Initiative and FrontierBiotechnologies, Inc.66 Year EndedDecember 31, Increase/(Decrease) Increase/(Decrease) 2018 2017 $ % (In thousands) Revenues: Product Development and Licensing Agreements $3,341 $3,153 $188 6%Contracts and Grants 6,197 9,590 (3,393) (35)%Total Revenue $9,538 $12,743 $(3,205) (25)%Operating Expenses: Research and Development 66,449 96,171 (29,722) (31)%General and Administrative 19,269 25,003 (5,734) (23)%Goodwill Impairment 90,976 — 90,976 n/a Intangible Asset Impairment 18,677 13,000 5,677 44%Gain on Fair Value Remeasurement of ContingentConsideration (29,621) (800) 28,821 3,603%Amortization of Acquired Intangible Assets 224 896 (672) (75)%Total Operating Expense 165,974 134,270 31,704 24%Operating Loss (156,436) (121,527) 34,909 29%Investment and Other Income, Net 4,487 4,214 273 6%Net Loss Before Income Tax Benefit (151,949) (117,313) 34,636 30%Income Tax Benefit 765 24,282 (23,517) (97)%Net Loss $(151,184)$(93,031)$58,153 63%Table of ContentsResearch and Development Expense Research and development expenses consist primarily of (i) personnel expenses, (ii) laboratory supply expenses relating to the development of ourtechnology, (iii) facility expenses, (iv) license fees and (v) product development expenses associated with our drug candidates as follows: Personnel expenses primarily include salary, benefits, stock-based compensation and payroll taxes. The $8.4 million decrease in personnel expenses forthe year ended December 31, 2018, as compared to the year ended December 31, 2017, was primarily due to a decrease in headcount and lower stock-basedcompensation expense partially offset by severance expense of $1.0 million. We expect personnel expenses to decrease over the next twelve months due toour restructuring in April 2018. Laboratory supplies expenses include laboratory materials and supplies, services, and other related expenses incurred in the development of ourtechnology. The $0.3 million decrease in laboratory supply expenses for the year ended December 31, 2018, as compared to the year ended December 31,2017, was primarily due to lower laboratory materials and supplies purchases. We expect laboratory supplies expenses to remain relatively consistent overthe next twelve months, 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 $1.1 milliondecrease in facility expenses for the year ended December 31, 2018, as compared to the year ended December 31, 2017, was primarily due to lowerdepreciation expense. We expect facility expenses to remain relatively consistent over the next twelve months, although there may be fluctuations on aquarterly basis. License fee expenses include annual license maintenance fees and milestone payments due upon the achievement of certain development, regulatoryand/or commercial milestones. License fee expense for the year ended December 31, 2018 was consistent with the year ended December 31, 2017. We expectlicense fee expense 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 andoutside clinical drug product manufacturing. The $18.2 million decrease in product development expenses for the year ended December 31, 2018, ascompared to the year ended December 31, 2017, was primarily due to a decrease in clinical trial expenses of $8.7 million and a decrease in contractmanufacturing expenses of $7.2 million. The amount of product development expenses incurred over the next twelve months is expected to decrease due tothe discontinuation of the Glemba and CDX-014 programs and our pipeline prioritization.General and Administrative Expense The $5.7 million decrease in general and administrative expenses for the year ended December 31, 2018, as compared to the year ended December 31,2017, was primarily due to a decrease in headcount and lower commercial planning costs. We expect general and administrative expenses to remain67 Year EndedDecember 31, Increase/(Decrease) 2018 2017 $ % (In thousands) Personnel $28,045 $36,470 $(8,425) (23)%Laboratory Supplies 4,176 4,514 (338) (7)%Facility 7,531 8,617 (1,086) (13)%License Fees 692 677 15 2%Product Development 18,540 36,711 (18,171) (49)%Table of Contentsrelatively consistent over the next twelve months, although there may be fluctuations on a quarterly basis.Goodwill Impairment We recorded a non-cash goodwill impairment charge of $91.0 million during the year ended December 31, 2018 as a result of the discontinuation of theGlemba program.Intangible Asset Impairment We recorded a non-cash intangible asset impairment charge of $18.7 million on the Glemba program intangible assets during the year endedDecember 31, 2018 as a result of the discontinuation of the Glemba program. Due to the nature of IPR&D projects, the Company may experience futuredelays or failures to obtain regulatory approvals to conduct clinical trials, failures of such clinical trials or other failures to achieve a commercially viableproduct, and as a result, may recognize further impairment losses in the future.Gain on Fair Value Remeasurement of Contingent Consideration The $29.6 million gain on fair value remeasurement of contingent consideration for the year ended December 31, 2018 was due to discontinuation of theGlemba and CDX-014 programs, updated assumptions for the varlilumab program, and lower probability that milestones related to our anti-KIT programwould be triggered by our current anti-KIT program development.Amortization Expense The $0.7 million decrease in amortization expenses for the year ended December 31, 2018, as compared to the year ended December 31, 2017, was due tothe full impairment of intangible assets subject to amortization recorded in the first quarter of 2018 as a result of the discontinuation of the Glemba program.Investment and Other Income, Net The $0.3 million increase in investment and other income, net for the year ended December 31, 2018, as compared to the year ended December 31, 2017,was primarily due to higher interest rates on fixed income investments. We anticipate investment income to decrease over the next twelve months due tolower levels of cash and investment balances.Income Tax Benefit We recorded a non-cash income tax benefit of $0.8 million related to the impairment of the Glemba IPR&D assets during the year ended December 31,2018.68Table of ContentsYear Ended December 31, 2017 compared with Year Ended December 31, 2016Net Loss The $35.5 million decrease in net loss for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarily the resultof a decrease in research and development expenses and general and administrative expenses and increases in contract revenues. The non-cash income taxbenefit impacting net loss was partially offset by the non-cash in-process research and development impairment charge.Revenue The $1.0 million increase in product development and licensing agreements revenue for the year ended December 31, 2017, as compared to the yearended December 31, 2016, was primarily due to an increase in reimbursable clinical trial expenses related to our BMS agreement. The $5.0 million increasein contracts and grants revenue for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarily related to ourInternational AIDS Vaccine Initiative and Frontier Biotechnologies, Inc. agreements executed in 2017.69 Year EndedDecember 31, Increase/(Decrease) Increase/(Decrease) 2017 2016 $ % (In thousands) Revenues: Product Development and Licensing Agreements $3,153 $2,174 $979 45%Contracts and Grants 9,590 4,612 4,978 108%Total Revenue $12,743 $6,786 $5,957 88%Operating Expenses: Research and Development 96,171 102,726 (6,555) (6)%General and Administrative 25,003 35,979 (10,976) (31)%Intangible Asset Impairment 13,000 — 13,000 n/a Gain on Fair Value Remeasurement of ContingentConsideration (800) — 800 n/a Amortization of Acquired Intangible Assets 896 997 (101) (10)%Total Operating Expense 134,270 139,702 (5,432) (4)%Operating Loss (121,527) (132,916) (11,389) (9)%Investment and Other Income, Net 4,214 4,386 (172) (4)%Net Loss Before Income Tax Benefit (117,313) (128,530) (11,217) (9)%Income Tax Benefit 24,282 — 24,282 n/a Net Loss $(93,031)$(128,530)$(35,499) (28)%Table of ContentsResearch and Development Expense Research and development expenses consist primarily of (i) personnel expenses, (ii) laboratory supply expenses relating to the development of ourtechnology, (iii) facility expenses, (iv) license fees and (v) product development expenses associated with our drug candidates as follows: The $0.4 million increase in personnel expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarilydue to an increase in salaries expense and headcount related to the Kolltan acquisition partially offset by lower stock-based compensation expenses. The $0.8 million increase in laboratory supply expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, wasprimarily due to higher laboratory materials and supplies purchases. The $2.3 million increase in facility expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarilydue to the addition of our New Haven, CT facility that we acquired with the Kolltan acquisition and higher depreciation expense of $1.3 million. In March2017, we terminated our lease in Branford, CT and consolidated our Connecticut operations in our New Haven facility. The $0.9 million decrease in license fee expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was due tothe timing of certain development and/or regulatory milestones achieved by our drug candidates. The $10.1 million decrease in product development expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016,was primarily due to lower contract manufacturing and clinical trial costs of $9.9 and $7.6 million, respectively, related to varlilumab and Rintega. Thesedecreases were partially offset by increases in (i) glembatumumab vedotin contract manufacturing expenses of $2.7 million and (ii) glembatumumab vedotin,anti-KIT and CDX-3379 clinical trial costs of $3.6 million.General and Administrative Expense The $11.0 million decrease in general and administrative expenses for the year ended December 31, 2017, as compared to the year ended December 31,2016, was primarily due to lower commercial planning costs of $4.5 million, lower stock-based compensation of $1.9 million and lower severance expenserelated to the Kolltan acquisition of $2.6 million.Intangible Asset Impairment We recorded a non-cash intangible asset impairment charge of $13.0 million on the anti-KIT program intangible assets acquired from Kolltan during theyear ended December 31, 2017. This impairment charge was related to changes in projected development and regulatory timelines regarding the anti-KITprogram.70 Year EndedDecember 31, Increase/(Decrease) 2017 2016 $ % (In thousands) Personnel $36,470 $36,070 $400 1%Laboratory Supplies 4,514 3,697 817 22%Facility 8,617 6,314 2,303 36%License Fees 677 1,614 (937) (58)%Product Development 36,711 46,852 (10,141) (22)%Table of ContentsGain on Fair Value Remeasurement of Contingent Consideration The $0.8 million gain on fair value remeasurement of contingent consideration for the year ended December 31, 2017 was due to a reduction in fair valueattributed to milestones related to our anti-KIT and TAM programs, partially offset by losses related to changes in discount rates, passage of time andprobabilities affecting remaining milestones. See Note 4 to the financial statements included herein for a discussion of the contingent consideration that maybe payable related to the Kolltan acquisition.Amortization Expense Amortization expense for the year ended December 31, 2017 was relatively consistent with the year ended December 31, 2016.Investment and Other Income, Net The $0.2 million decrease in investment and other income, net for the year ended December 31, 2017, as compared to the year ended December 31, 2016,was primarily due to lower levels of cash and investment balances, partially offset by higher interest rates on fixed income investments.Income Tax Benefit We recorded a non-cash income tax benefit of $19.1 million related to decreases in net deferred tax liabilities resulting from the Tax Cuts and Jobs Act of2017 (TCJA). In addition, we recorded a non-cash income tax benefit of $5.2 million related to the partial impairment of the anti-KIT program IPR&D assets.LIQUIDITY AND CAPITAL RESOURCES 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 inmoney market mutual funds with commercial banks and financial institutions. We maintain cash balances with financial institutions in excess of insuredlimits. We do not anticipate any losses with respect to such cash balances. We invest our excess cash balances in marketable securities, including municipalbond securities, U.S. government agency securities and high-grade corporate bonds that meet high credit quality standards, as specified in our investmentpolicy. 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 andservices; and consulting, legal and other professional fees. To date, the primary sources of cash flows from operations have been payments received from ourcollaborative partners and from government entities. The timing of any new collaboration agreements, government contracts or grants and any paymentsunder these agreements, contracts or grants cannot be easily predicted and may vary significantly from quarter to quarter. At December 31, 2018, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $94.0 million. We have hadrecurring losses and incurred a loss of $151.2 million for the year ended December 31, 2018. Net cash used in operations for the year ended December 31,2018 was $75.2 million. We believe that the cash, cash equivalents and marketable securities at December 31, 2018 combined with the (i) $2.3 million in netproceeds from sales of our common stock under the Cantor agreement from January 1, 2019 through February 28, 2019 and (ii) anticipated proceeds fromfuture sales of our common stock under the Cantor agreement, are sufficient to meet estimated working capital requirements and fund planned operationsthrough 2020,71Table of Contentsalthough there is no assurance that future sales will occur. This could be impacted if we elected to pay Kolltan contingent milestones, if any, in cash. During the next twelve months, we will take further steps to raise additional capital to meet our liquidity needs. Our capital raising activities mayinclude, but may not be limited to, one or more of the following: the licensing of drug candidates with existing or new collaborative partners, possiblebusiness combinations, issuance of debt, or the issuance of common stock or other securities via private placements or public offerings. While we may seekcapital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and our negotiatingposition 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 collaborativerelationships. Additional equity financings may be dilutive to our stockholders; debt financing, if available, may involve significant cash paymentobligations and covenants that restrict our ability to operate as a business; and licensing or strategic collaborations may result in royalties or other termswhich reduce our economic potential from products under development. Our ability to continue funding our planned operations into and beyond twelvemonths from the issuance date is also dependent on the timing and manner of payment of future contingent milestones from the Kolltan acquisition, in theevent that we achieve the drug candidate milestones related to those payments. We may decide to pay those milestone payments in cash, shares of ourcommon stock or a combination thereof. If we are unable to raise the funds necessary to meet our liquidity needs, we may have to delay or discontinue thedevelopment of one or more programs, discontinue or delay ongoing or anticipated clinical trials, license out programs earlier than expected, raise funds at asignificant discount or on other unfavorable terms, if at all, or sell all or a part of our business.Operating Activities Net cash used in operating activities was $75.2 million for the year ended December 31, 2018 compared to $99.9 million for the year endedDecember 31, 2017. The decrease in net cash used in operating activities was primarily due to decreases in both general and administrative and research anddevelopment expenses. We expect that cash used in operating activities will decrease over the next twelve months primarily due to our restructuring in April2018, the discontinuation of the Glemba and CDX-014 programs, and our pipeline prioritization, although there may be fluctuations on a quarterly basis. Net cash used in operating activities was $99.9 million for the year ended December 31, 2017 compared to $113.0 million for the year endedDecember 31, 2016. The decrease in net cash used in operating activities was primarily due to an increase in revenue and decreases in both general andadministrative and research and development expenses. We have incurred and will continue to incur significant costs in the area of research and development, including preclinical and clinical trials andclinical drug product manufacturing as our drug candidates are developed. We plan to spend significant amounts to progress our current drug candidatesthrough the clinical trial processes as well as to develop additional drug candidates. As our drug candidates progress through the clinical trial process, wemay be obligated to make significant milestone payments.Investing Activities Net cash provided by investing activities was $29.8 million for the year ended December 31, 2018 compared to net cash provided by investing activitiesof $46.5 million for the year ended December 31, 2017. The decrease in net cash provided by investing activities was primarily due to net sales andmaturities of marketable securities for the year ended December 31, 2018 of $30.3 million as compared to net sales and maturities of marketable securities of$48.3 million for the year ended December 31,72Table of Contents2017. We expect that cash provided by investing activities will remain relatively consistent over the next twelve months as we decrease cash used inoperations which is funded mainly through the combination of net proceeds from the sales and maturities of marketable securities, cash provided byfinancing activities and/or new partnerships, although there may be significant fluctuations on a quarterly basis. Net cash provided by investing activities was $46.5 million for the year ended December 31, 2017 compared to net cash provided by investing activitiesof $68.9 million for the year ended December 31, 2016. The decrease in net cash provided by investing activities was primarily due to net sales andmaturities of marketable securities for the year ended December 31, 2017 of $48.3 million as compared to net sales and maturities of marketable securities of$68.9 million for the year ended December 31, 2016.Financing Activities Net cash provided by financing activities was $29.4 million for the year ended December 31, 2018 compared to $51.3 million for the year endedDecember 31, 2017. Net proceeds from stock issuances, including stock issued pursuant to employee benefit plans, were $29.4 million during the year endedDecember 31, 2018 compared to $51.3 million for the year ended December 31, 2017. Net cash provided by financing activities was $51.3 million for the year ended December 31, 2017 compared to $14.5 million for the year endedDecember 31, 2016. Net proceeds from stock issuances, including stock issued pursuant to employee benefit plans, were $51.3 million during the year endedDecember 31, 2017 compared to $14.5 million for the year ended December 31, 2016.Equity Offerings In December 2016, we filed a shelf registration statement with the Securities and Exchange Commission to register for sale any combination of the typesof securities described in the shelf registration statement up to a maximum aggregate offering price of $250.0 million. Such registration statement wasdeclared effective on February 13, 2017. In May 2016, we entered into an agreement with Cantor Fitzgerald & Co. ("Cantor") to allow us to issue and sell shares of our common stock having anaggregate offering price of up to $60.0 million from time to time through Cantor, acting as agent. In November 2017, we filed a prospectus supplementregistering the offer and sale of shares of common stock of up to an additional $75.0 million under the agreement with Cantor. During the years endedDecember 31, 2018, 2017 and 2016, we issued 2,702,660, 1,181,524 and 220,253 shares of common stock, respectively, under this controlled equity offeringsales agreement with Cantor resulting in net proceeds of $29.0 million, $51.0 million and $13.9 million, respectively, after deducting commission andoffering expenses. At December 31, 2018, we had $37.6 million remaining in aggregate gross offering price available under the Cantor agreement. FromJanuary 1, 2019 through February 28, 2019, we issued 478,785 shares of our common stock resulting in net proceeds of $2.3 million.AGGREGATE CONTRACTUAL OBLIGATIONS We have entered into license agreements whereby we have received licenses or options to license technology, specified patents and/or patentapplications. These license and collaboration agreements generally provide for royalty payments equal to specified percentages of product sales, annuallicense maintenance fees, continuing patent prosecution costs and potential future milestone payments to third parties upon the achievement of certaindevelopment, regulatory and/or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2018 suchcontingencies have not been recorded in our financial statements. We expect to incur approximately $0.3 million of license and milestone payments in 2019.73Table of Contents The following table summarizes our contractual obligations (not including contingent royalty and milestone payments as described above) atDecember 31, 2018 and the effect such obligations and commercial commitments are expected to have on our liquidity and cash flow in future years. Theseobligations, commitments and supporting arrangements represent expected payments based on current operating forecasts, which are subject to change:RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the financial statements for a discussion of recentaccounting 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 capitaluntil it is used to fund operations, including our research and development activities. None of these market-risk sensitive instruments are held for tradingpurposes. 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, andhigh-grade corporate bonds that meet high credit quality standards, as specified in our investment policy. Our investment policy seeks to manage these assetsto achieve our goals of preserving principal and maintaining adequate liquidity. Because of the short-term nature of these investments, we do not believe wehave material exposure due to market risk. The impact to our financial position and results of operations from changes in interest rates is not material. We do not utilize derivative financial instruments. The carrying amounts reflected in the balance sheet of cash and cash equivalents, accountsreceivables and accounts payable approximates fair value at December 31, 2018 due to the short-term maturities of these instruments.74 Total 2019 2020 - 2021 2022 - 2023 Thereafter (In thousands) Contractual obligations: Operating lease obligations(1) $7,788 $4,648 $3,140 $— $— Other contractual obligations(2)(3) 1,160 1,160 — — — Total contractual obligations $8,948 $5,808 $3,140 $— $— (1)Such amounts primarily consist of payments for our facility leases and do not assume the exercise of renewal terms or earlytermination provisions. (2)We enter into agreements in the normal course of business with contract research organizations for clinical trials, contractmanufacturing organizations, vendors for preclinical research studies and other services and products for operating purposes. We haveincluded obligations in the table above if the contracts are not cancelable at any time by us, generally upon 30 days prior writtennotice to the vendor. (3)In the event that certain specified preclinical and clinical development milestones related to Kolltan's development programs and/orour development programs and certain commercial milestones related to Kolltan's drug candidates are achieved, we will be required topay Kolltan's stockholders milestone payments of up to $127.5 million as of December 31, 2018, which milestone payments may bemade, at our sole election, in cash, in shares of our common stock or a combination of both, subject to NASDAQ listing requirementsand provisions of the merger agreement. Because the timing and certainty of these milestones being achieved is unknown, thesepotential future obligations are not included within the table.Table of Contents Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Celldex Therapeutics, Inc.Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Celldex Therapeutics, Inc. and its subsidiaries (the "Company") as of December 31,2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the three yearsin the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements"). We also have auditedthe Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework(2013) issued by the COSO.Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Controlover Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on theCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities lawsand the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit ofinternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.75Table of ContentsDefinition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPBoston, MassachusettsMarch 7, 2019We have served as the Company's auditor since 2008.76Table of Contents CELLDEX THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) The accompanying notes are an integral part of the financial statements.(Reflects one for fifteen reverse stock split effective February 8, 2019)77 December 31, 2018 December 31, 2017 ASSETS Current Assets: Cash and Cash Equivalents $24,310 $40,288 Marketable Securities 69,712 99,139 Accounts and Other Receivables 3,162 1,880 Prepaid and Other Current Assets 1,895 3,449 Total Current Assets 99,079 144,756 Property and Equipment, Net 6,111 10,372 Intangible Assets, Net 48,690 67,591 Other Assets 1,929 1,929 Goodwill — 90,976 Total Assets $155,809 $315,624 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $1,069 $1,715 Accrued Expenses 7,007 19,455 Current Portion of Long-Term Liabilities 4,526 6,566 Total Current Liabilities 12,602 27,736 Other Long-Term Liabilities 19,147 51,519 Total Liabilities 31,749 79,255 Commitments and Contingent Liabilities (Notes 13 and 15) Stockholders' Equity: Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; NoShares Issued and Outstanding at December 31, 2018 and 2017 — — Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 11,957,635and 9,234,693 Shares Issued and Outstanding at December 31, 2018 and 2017,Respectively 12 9 Additional Paid-In Capital 1,083,903 1,046,313 Accumulated Other Comprehensive Income 2,583 2,564 Accumulated Deficit (962,438) (812,517)Total Stockholders' Equity 124,060 236,369 Total Liabilities and Stockholders' Equity $155,809 $315,624 Table of Contents CELLDEX THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) The accompanying notes are an integral part of the financial statements.(Reflects one for fifteen reverse stock split effective February 8, 2019)78 Year EndedDecember 31, 2018 Year EndedDecember 31, 2017 Year EndedDecember 31, 2016 REVENUES: Product Development and Licensing Agreements $3,341 $3,153 $2,174 Contracts and Grants 6,197 9,590 4,612 Total Revenues 9,538 12,743 6,786 OPERATING EXPENSES: Research and Development 66,449 96,171 102,726 General and Administrative 19,269 25,003 35,979 Goodwill Impairment 90,976 — — Intangible Asset Impairment 18,677 13,000 — Gain on Fair Value Remeasurement of ContingentConsideration (29,621) (800) — Amortization of Acquired Intangible Assets 224 896 997 Total Operating Expenses 165,974 134,270 139,702 Operating Loss (156,436) (121,527) (132,916)Investment and Other Income, Net 4,487 4,214 4,386 Net Loss Before Income Tax Benefit $(151,949)$(117,313)$(128,530)Income Tax Benefit 765 24,282 — Net Loss $(151,184)$(93,031)$(128,530)Basic and Diluted Net Loss Per Common Share $(14.48)$(10.86)$(18.99)Shares Used in Calculating Basic and Diluted Net Loss perShare 10,442 8,570 6,769 COMPREHENSIVE LOSS: Net Loss $(151,184)$(93,031)$(128,530)Other Comprehensive Income (Loss): Foreign Currency Translation Adjustments — — — Unrealized Gain (Loss) on Marketable Securities 19 23 234 Comprehensive Loss $(151,165)$(93,008)$(128,296) Table of ContentsCELLDEX THERAPEUTICS, INC.STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands, except share amounts)The accompanying notes are an integral part of the financial statements.(Reflects one for fifteen reverse stock split effective February 8, 2019)79 CommonStockShares CommonStock ParValue AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome AccumulatedDeficit TotalStockholders'Equity Balance at December 31, 2015 6,579,040 7 878,747 2,307 (590,956) 290,105 Shares Issued under Stock Option andEmployee Stock Purchase Plans 10,543 — 535 — — 535 Shares Issued in Connection withCantor Agreement 220,253 — 13,946 — — 13,946 Shares Issued in Connection with theKolltan Acquisition 1,217,200 1 73,396 — — 73,397 Shares Issued in Connection withKolltan Severance 7,407 — 427 — — 427 Share-Based Compensation — — 15,317 — — 15,317 Unrealized Gains on MarketableSecurities — — — 234 — 234 Net Loss — — — — (128,530) (128,530)Consolidated Balance atDecember 31, 2016 8,034,443 8 982,368 2,541 (719,486) 265,431 Shares Issued under Stock Option andEmployee Stock Purchase Plans 11,581 — 265 — — 265 Shares Issued in Connection withCantor Agreement 1,181,524 1 51,024 — — 51,025 Shares Issued in Connection withKolltan Severance 7,145 — 344 — — 344 Share-Based Compensation — — 12,312 — — 12,312 Unrealized Gains on MarketableSecurities — — — 23 — 23 Net Loss — — — — (93,031) (93,031)Consolidated Balance atDecember 31, 2017 9,234,693 9 1,046,313 2,564 (812,517) 236,369 Shares Issued under Stock Option andEmployee Stock Purchase Plans 16,047 — 419 — — 419 Shares Issued in Connection withCantor Agreement 2,702,660 3 29,019 — — 29,022 Shares Issued in Connection withKolltan Severance 4,235 — 71 — — 71 Share-Based Compensation — — 8,081 — — 8,081 Unrealized Gains on MarketableSecurities — — — 19 — 19 Adoption of ASC 606 — — — — 1,263 1,263 Net Loss — — — — (151,184) (151,184)Consolidated Balance atDecember 31, 2018 11,957,635 $12 $1,083,903 $2,583 $(962,438)$124,060 Table of Contents CELLDEX THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) The accompanying notes are an integral part of the financial statements.80 Year EndedDecember 31, 2018 Year EndedDecember 31, 2017 Year EndedDecember 31, 2016 Cash Flows From Operating Activities: Net Loss $(151,184)$(93,031)$(128,530)Adjustments to Reconcile Net Loss to Net Cash Used inOperating Activities: Depreciation and Amortization 3,577 4,414 3,095 Amortization of Intangible Assets 224 896 997 Amortization and Premium of Marketable Securities, Net (1,048) (290) 926 Loss on Sale or Disposal of Assets 1,220 55 81 Goodwill Impairment 90,976 — — Intangible Asset Impairment 18,677 13,000 — Gain on Fair Value Remeasurement of ContingentConsideration (29,621) (800) — Non-Cash Income Tax Benefit (765) (24,282) — Stock-Based Compensation Expense 8,081 12,312 15,317 Non-Cash Expense — — 1,638 Changes in Operating Assets and Liabilities: Accounts and Other Receivables (777) (96) (814)Prepaid and Other Current Assets 1,783 793 1,320 Other Assets — 205 (89)Accounts Payable and Accrued Expenses (13,110) (8,744) (4,970)Other Liabilities (3,268) (4,363) (2,007)Net Cash Used in Operating Activities (75,235) (99,931) (113,036)Cash Flows From Investing Activities: Sales and Maturities of Marketable Securities 201,469 219,236 242,792 Purchases of Marketable Securities (171,182) (170,980) (173,925)Investment in Other — — (1,801)Cash Acquired in Kolltan Acquisition, Net — — 4,592 Acquisition of Property and Equipment (813) (1,788) (2,751)Proceeds from Sale or Disposal of Assets 342 — — Net Cash Provided by Investing Activities 29,816 46,468 68,907 Cash Flows From Financing Activities: Net Proceeds from Stock Issuances 29,022 51,025 13,946 Proceeds from Issuance of Stock from Employee Benefit Plans 419 265 536 Net Cash Provided by Financing Activities 29,441 51,290 14,482 Net Decrease in Cash and Cash Equivalents (15,978) (2,173) (29,647)Cash and Cash Equivalents at Beginning of Period 40,288 42,461 72,108 Cash and Cash Equivalents at End of Period $24,310 $40,288 $42,461 Non-cash Investing Activities Accrued construction in progress $107 $20 $159 Non-cash Supplemental Disclosure Shares issued to former Kolltan executive for settlement ofseverance $71 $344 $426 Shares issued in connection with Kolltan Acquisition $— $— $73,397 Table of Contents CELLDEX THERAPEUTICS, INC. NOTES TO 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 severalimmunotherapy technologies and other cancer-targeting biologics. The Company currently has four drug candidates in clinical development, includingCDX-1140, CDX-3379, varlilumab (also referred to as CDX-1127), and CDX-301. At December 31, 2018, the Company had cash, cash equivalents and marketable securities of $94.0 million. The Company has had recurring losses andincurred a loss of $151.2 million for the year ended December 31, 2018. Net cash used in operations for the year ended December 31, 2018 was $75.2 million.The Company believes that the cash, cash equivalents and marketable securities at March 7, 2019 will be sufficient to meet estimated working capitalrequirements and fund planned operations for at least the next twelve months from the date of issuance of these financial statements. The Board of Directors of the Company approved a one for fifteen reverse stock split of the Company's outstanding common stock, which was effectedon February 8, 2019. All share and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect tothe reverse stock split, including reclassifying an amount equal to the reduction in par value to additional paid-in capital. During the next twelve months and beyond, the Company will take further steps to raise additional capital to meet its liquidity needs. These capitalraising activities may include, but may not be limited to, one or more of the following: the licensing of drug candidates with existing or new collaborativepartners, possible business combinations, issuance of debt, or the issuance of common stock or other securities via private placements or public offerings.While the Company may seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, ifat all, and the Company's negotiating position in capital-raising efforts may worsen as existing resources are used. There is also no assurance that theCompany will be able to enter into further collaborative relationships. Additional equity financings may be dilutive to the Company's stockholders; debtfinancing, if available, may involve significant cash payment obligations and covenants that restrict the Company's ability to operate as a business; andlicensing or strategic collaborations may result in royalties or other terms which reduce the Company's economic potential from products under development.The Company's ability to continue funding its planned operations into and beyond twelve months from the issuance date is also dependent on the timing andmanner of payment of future contingent milestones from the Kolltan acquisition, in the event that the Company achieves the drug candidate milestonesrelated to those payments. The Company, at its option, may decide to pay those milestone payments in cash, shares of its common stock or a combinationthereof. If the Company is unable to raise the funds necessary to meet its liquidity needs, it may have to delay or discontinue the development of one or moreprograms, discontinue or delay ongoing or anticipated clinical trials, license out programs earlier than expected, raise funds at a significant discount or onother unfavorable terms, if at all, or sell all or a part of the Company.(2) Summary of Significant Accounting PoliciesBasis of Presentation The balance sheets and statements of operations and comprehensive loss, stockholders' equity, and cash flows, are consolidated for the years endedDecember 31, 2018 and 2017. These consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All81Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued)intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment, which is the business ofdevelopment, manufacturing and commercialization of novel therapeutics for human health care.Use of Estimates The preparation of the 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 assetsand liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results coulddiffer 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, andhighly rated corporate bonds. The Company classifies all of its marketable securities as current assets on the balance sheets because they are available-for-sale and available to fund current operations. Marketable securities are stated at fair value with unrealized gains and losses included as a component ofaccumulated other comprehensive income (loss), which is a separate component of stockholders' equity, until such gains and losses are realized. If a declinein the fair value is considered other-than-temporary, based on available evidence, the unrealized loss is reclassified from accumulated other comprehensiveincome (loss) to the statements of operations. Realized gains and losses are determined on the specific identification method and are included in investmentand other income, net.Concentration of Credit Risk and of Significant Customers and Suppliers Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, marketablesecurities and accounts receivable. The Company invests its cash, cash equivalents and marketable securities in debt instruments and interest-bearingaccounts at major financial institutions in excess of insured limits. The Company mitigates credit risk by limiting the investment type and maturity tosecurities that preserve capital, maintain liquidity and have a high credit quality. The Company has not historically experienced credit losses from itsaccounts receivable and therefore has not established an allowance for doubtful accounts. Combined revenue from BMS, Rockefeller and International AIDS Vaccine Initiative represented 86% of total Company revenue for the year endedDecember 31, 2018 and 77% of total Company revenue for the year ended December 31, 2017. Combined revenue from Rockefeller and BMS represented71% of total Company revenue for the year ended December 31, 2016. The Company relies on contract manufacturing organizations (CMO) to manufacture drug substance and drug product as well as for future commercialsupplies. The Company also relies on82Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued)CMOs for supply of raw materials as well as filling, packaging, storing and shipping our drug products. The Company relies on third-party collaborators todevelop companion diagnostic tests.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 ofobservable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company'sassumptions about how market participants would price assets and liabilities) when measuring the fair value of its assets and liabilities. These assets andliabilities 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 amarket 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 foridentical 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 orliability.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. Laboratoryequipment and office furniture and equipment are depreciated over five years, and computer equipment is depreciated over three years. Manufacturingequipment is amortized over seven to ten years. Leasehold improvements are amortized over the shorter of the estimated useful life or the non-cancelableterm of the related lease, including any renewals that are reasonably assured of occurring. Property and equipment under construction is classified asconstruction in progress and is depreciated or amortized only after the asset is placed in service. Expenditures for maintenance and repairs are charged toexpense whereas the costs of significant improvements which extend the life of the underlying asset are capitalized. Upon retirement or sale, the cost of assetsdisposed of and the related accumulated depreciation are eliminated and any resulting gain or loss is reflected in the Company's statements of operations andcomprehensive loss. 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 projectplanning, design, construction and installation phases are capitalized as part of the cost of the asset. The Company stops capitalizing these costs when theasset is substantially complete and ready for its intended use. For manufacturing property and equipment, the Company also capitalizes the cost of validatingthese assets for the underlying manufacturing process. The Company completes the capitalization of validation costs when the asset is substantially completeand ready for its intended use. Costs capitalized include incremental labor and fringe benefits, and direct consultancy services.83Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued)Other Assets Other assets include a $1.8 million non-controlling investment in a privately-held company that is accounted for under the cost method of accounting asof December 31, 2018 and 2017. The Company periodically evaluates the carrying value of the investment if significant adverse events or circumstancesindicate an impairment in value.Business Combinations The Company records the fair value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assetsacquired and liabilities assumed on the basis of their fair values at the date of acquisition. The Company assesses the fair value of assets, including intangibleassets such as in-process research and development (IPR&D), using a variety of methods including present-value models. Each asset is measured at fair valuefrom the perspective of a market participant. The method used to estimate the fair values of IPR&D assets incorporates significant assumptions regarding theestimates a market participant would make in order to evaluate an asset, including a market participant's assumptions regarding the probability of completingIPR&D projects, which would require obtaining regulatory approval for marketing of the associated drug candidate; a market participant's estimatesregarding 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. The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. The Company determinesthe fair value of the contingent consideration based primarily on the (i) timing and probability of success of clinical events or regulatory approvals;(ii) timing and probability of success of meeting clinical and commercial milestones; and (iii) discount rates. The Company's contingent considerationliabilities arose in connection with its acquisition of Kolltan. On a quarterly basis, the Company revalues these obligations and records increases or decreasesin their fair value as an adjustment to operating earnings. Changes to contingent consideration obligations can result from adjustments to discount rates,accretion of the discount rates due to the passage of time, changes in the Company's estimates of the likelihood or timing of achieving development orcommercial milestones, changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval. Theassumptions related to determining the value of contingent consideration include a significant amount of judgment, and any changes in the underlyingestimates could have a material impact on the amount of contingent consideration expense recorded in any given period.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 assetsare capitalized on the Company's balance sheets until either the project underlying them is completed or the assets become impaired. If a project iscompleted, the carrying value of the related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which theproject 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 animpairment charge is taken in the period in which the impairment occurs.84Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued) Each IPR&D asset is assessed for impairment at least annually or when impairment indicators are present. As a result of the discontinuation of the Glembaprogram, the Company concluded that the Glemba IPR&D asset was fully impaired, and a non-cash impairment charge of $11.8 million was recorded in thefirst quarter of 2018. The remaining IPR&D assets were assessed for impairment during 2018 and were determined not to be impaired. During the year endedDecember 31, 2017, the Company recorded a partial impairment charge of $13.0 million related to changes in projected development and regulatorytimelines regarding the anti-KIT program. Intangible assets acquired in a business combination with a finite life are recorded at fair value and amortized over the greater of economic consumptionor on a straight-line basis over their estimated useful life. As a result of the discontinuation of the Glemba program, it was concluded that the Company'sfinite-lived intangible asset was fully impaired and a non-cash impairment charge of $6.9 million was recorded in the first quarter of 2018.Goodwill The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated togoodwill. Goodwill is evaluated for impairment on an annual basis during the third quarter, or earlier if impairment indicators are present. The Company hasthe option 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 aquantitative single-step goodwill impairment test required under U.S. GAAP. As a result of the discontinuation of the Glemba program, the Companyevaluated goodwill for potential impairment in the first quarter of 2018. It was determined that the goodwill asset was fully impaired and an impairmentcharge of $91.0 million was recorded.Impairment of Intangible and Long-Lived Assets The Company evaluates the recoverability of its long-lived assets, including property and equipment, and intangible assets when circumstances indicatethat an event of impairment may have occurred. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from theuse 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 Revenues are recognized when performance obligations under agreements or contracts are satisfied, in an amount that reflects the consideration theCompany expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps:•Identification of the contract, or contracts, with a customer; •Identification of the performance obligations in the contract; •Determination of the transaction price; •Allocation of the transaction price to the performance obligations in the contract; and85Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued)•Recognition of revenue when, or as, the Company satisfies a performance obligation. Revenue for the Company has historically been derived from biopharmaceutical product development agreements with collaborative partners for theresearch and development of therapeutic drug candidates. The terms of the agreements may include nonrefundable signing and licensing fees, funding forresearch, development and manufacturing, milestone payments and royalties on any product sales derived from collaborations. The Company assesses themultiple obligations typically within product development contracts to determine the distinct performance obligations and how to allocate the arrangementconsideration to each distinct performance obligation. Under product development agreements, revenue is generally recognized using a cost-to-cost measure of progress. Revenue is recognized based on thecosts incurred to date as a percentage of the total estimated costs to fulfill the contract. Incurred cost represents work performed, which corresponds with, andthereby best depicts, the transfer of control to the customer. Due to the nature of the work performed in these arrangements, the estimation of cost atcompletion is complex, subject to many variables, such as expected clinical trial costs, and requires significant judgements. Circumstances can arise thatchange original estimates of costs or progress toward completion. Any revisions to estimates are reflected in revenue on a cumulative catch-up basis in theperiod in which the change in circumstances became known. Revenue for the Company is also derived from manufacturing and research and development arrangements. The Company owns and operates a cGMPmanufacturing facility in Fall River, Massachusetts, to produce drug substance for its current and planned early-stage clinical trials. In order to utilize excesscapacity, the Company has, from time to time, entered into contract manufacturing and research and development arrangements in which services areprovided on a time-and-material basis or at a negotiated fixed-price. Revenue from time-and-material contracts is generally recognized on an output basis aslabor hours and/or direct expenses are incurred. Under fixed-price contracts, revenue is generally recognized on an output basis as progress is made towardcompletion of the performance obligations using surveys of performance completed to date.Contract Assets and Liabilities The Company classifies the right to consideration in exchange for products or services transferred to a client as either a receivable or a contract asset. Areceivable is a right to consideration that is unconditional as compared to a contract asset which is a right to consideration that is conditional upon factorsother than the passage of time. The Company's contract liabilities result from arrangements where the Company has received payment in advance of performance under the contract.These amounts are included as deferred revenue within current portion of long-term liabilities on the condensed consolidated balance sheets.Research and Development Expenses Research and development costs, including internal and contract research costs, are expensed as incurred. Research and development expenses consistmainly of clinical trial costs, manufacturing of clinical material, toxicology and other preclinical studies, personnel costs, depreciation, license fees andfunding of outside contracted research.86Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued) Clinical trial expenses include expenses associated with clinical research organization, or CRO, services. Contract manufacturing expenses includeexpenses associated with contract manufacturing organization, or CMO, services. The invoicing from CROs and CMOs for services rendered can lag severalmonths. The Company accrues the cost of services rendered in connection with CRO and CMO activities based on our estimate of costs incurred. TheCompany maintains regular communication with our CROs and CMOs to assess the reasonableness of its estimates. Differences between actual expenses andestimated expenses recorded have not been material and are adjusted for in the period in which they become known.Patent Costs Patent costs are expensed as incurred. Certain patent costs are reimbursed by the Company's product development and licensing partners. Anyreimbursed 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, directors and non-employees based on theestimated fair values of the stock-based awards expected to vest at the grant date and adjust, if necessary, to reflect actual forfeitures. Compensation expensefor all stock-based awards is recognized using the straight-line method over the term of vesting or performance.Foreign Currency Translation Net unrealized gains and losses resulting from foreign currency translation are included in accumulated other comprehensive income. At December 31,2018 and 2017, accumulated other comprehensive income includes a net unrealized gain related to foreign currency translation of $2.6 million.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 liabilitiesfor the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis. Quarterly, theCompany reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that itsdeferred 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 ofchange. 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 sustainedupon 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 foreigncurrency translation adjustments and unrealized87Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued)gains and losses on marketable securities in other comprehensive loss. The statements of operations and comprehensive loss reflect total comprehensive lossfor the years ended December 31, 2018, 2017 and 2016.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 stockthat has been issued but is not yet vested. Diluted net loss per common share is based upon the weighted-average number of common shares outstandingduring the period plus additional weighted-average potentially dilutive common shares outstanding during the period when the effect is dilutive. Thepotentially 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:Newly-Adopted Accounting Pronouncements On January 1, 2018, the Company adopted the new U.S. GAAP standard "Revenue from Contracts with Customers" using a modified retrospectiveapplication method, recognizing an immaterial cumulative-effect adjustment to accumulated deficit. The Company applied the new guidance to (i) contractsnot completed as of the date of adoption and (ii) all new revenue contracts entered into after January 1, 2018. Refer to Note 12 "Revenue" for additionaldetails on this adoption and the Company's updated revenue accounting policy and disclosures. On January 1, 2018, the Company adopted a U.S. GAAP standard update "Classification of Certain Cash Receipts and Cash Payments" which clarifiesthe classification of certain cash receipts and payments in the statement of cash flows. The adoption of this new standard did not impact the Company'sconsolidated financial statements. On July 1, 2018, the Company adopted a U.S. GAAP standard that aligns the accounting for share-based payment awards issued to employees andnonemployees. Under the new guidance, the existing employee guidance is applied to nonemployee share-based transactions. The adoption of this newstandard did not have a material impact on the Company's consolidated financial statements.Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodiesthat are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issuedstandards that are not yet effective will not have a material impact on the Company's consolidated financial statements upon adoption.88 Year Ended December 31, 2018 2017 2016 Stock options 866,132 723,747 681,248 Restricted stock 3,552 6,445 3,333 869,684 730,192 684,581 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(2) Summary of Significant Accounting Policies (Continued) In February 2016, the FASB issued a new U.S. GAAP accounting standard which requires that all lessees recognize the assets and liabilities that arisefrom leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The Company will adopt the newguidance for its fiscal year beginning January 1, 2019 using the modified retrospective transition method, which requires the Company to apply the standardas of the effective date and does not require restatement of prior periods. The Company intends to elect the package of practical expedients, which will allowthe Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initialdirect costs for any existing leases. The Company also plans to make a policy election not to record short term leases on the balance sheet. Adoption of thisstandard will not have a material impact on the Company's Consolidated Statement of Operations and Comprehensive Loss or Statement of Cash Flow,however the Company expects to record a right-of-use asset of approximately $4.2 million and lease liability of approximately $4.7 million on itsConsolidated Balance Sheet related to the Company's operating leases. In June 2016, the FASB issued guidance on the Measurement of Credit Losses on Financial Instruments. The guidance requires that credit losses bereported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to creditrisks. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized costof the investment. This standard will be effective for the Company on January 1, 2020. We are currently evaluating the potential impact that this standardmay have on the Company's consolidated financial statements and related disclosures. In August 2018, the FASB issued amendments that modify certain disclosure requirements for fair value measurements. The amendments becomeeffective, including interim periods, beginning January 1, 2020. Early adoption, of all the amendments or only the provisions that eliminate or modify therequirements, is permitted. The adoption of this new guidance is not expected to have a material impact on the Company's consolidated financial statementsand related disclosures. In November 2018, the FASB issued guidance to clarify the interaction between the accounting guidance for collaborative arrangements and revenuefrom contracts with customers. The amendments become effective, including interim periods, beginning January 1, 2020. Early adoption, including adoptionin an interim period, is permitted. This guidance is required to be applied retrospectively as of the date of our adoption of the new revenue standard onJanuary 1, 2018. We are currently evaluating the timing of our adoption and the expected impact this guidance could have on our consolidated financialstatements and related disclosures.89Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(3) Accumulated Other Comprehensive Income The changes in accumulated other comprehensive income, which is reported as a component of stockholders' equity, for the year ended December 31,2018 are summarized below: No amounts were reclassified out of accumulated other comprehensive income during the years ended December 31, 2018, 2017 and 2016.(4) Fair Value Measurements The following tables set forth the Company's financial assets and liabilities subject to fair value measurements: The Company's financial assets consist mainly of cash and cash equivalents and marketable securities and are classified as Level 2 within the valuationhierarchy. The Company values its marketable securities utilizing independent pricing services which normally derive security prices from90 UnrealizedGain (Loss) onMarketableSecurities ForeignCurrency Items Total (In thousands) Balance at December 31, 2017 $(32)$2,596 $2,564 Other comprehensive gain 19 — 19 Balance at December 31, 2018 $(13)$2,596 $2,583 As ofDecember 31, 2018 Level 1 Level 2 Level 3 (In thousands) Assets: Money market funds and cash equivalents $15,755 — $15,755 — Marketable securities 69,712 — 69,712 — $85,467 — $85,467 — Liabilities: Kolltan acquisition contingent consideration $13,779 — — $13,779 $13,779 — — $13,779 As ofDecember 31, 2017 Level 1 Level 2 Level 3 (In thousands) Assets: Money market funds and cash equivalents $24,061 — $24,061 — Marketable securities 99,139 — 99,139 — $123,200 — $123,200 — Liabilities: Kolltan acquisition contingent consideration $43,400 — — $43,400 $43,400 — — $43,400 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(4) Fair Value Measurements (Continued)recently reported trades for identical or similar securities, making adjustments based on significant observable transactions. At each balance sheet date,observable market inputs may include trade information, broker or dealer quotes, bids, offers or a combination of these data sources. The following table reflects the activity for the Company's contingent consideration liabilities measured at fair value using Level 3 inputs for the yearended December 31, 2018 (in thousands): The valuation technique used to measure fair value of the Company's Level 3 liabilities, which consist of contingent consideration related to theacquisition of Kolltan in 2016 (Note 17), was primarily an income approach. As of December 31, 2018, the Company may be required to pay futureconsideration of up to $127.5 million that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestoneevents. The significant unobservable inputs used in the fair value measurement of the contingent consideration are estimates, including probability ofsuccess, discount rates and amount of time until the conditions of the milestone payments are met. During the year ended December 31, 2018, the Company recorded a $29.6 million gain on fair value remeasurement of contingent consideration,primarily due to discontinuation of the Glemba and CDX-014 programs, updated assumptions for the varlilumab program, and lower probability thatmilestones related to our anti-KIT program would be triggered by the Company's current anti-KIT program development. The Company did not have any transfers of assets or liabilities between the fair value measurement classifications during the years ended December 31,2018 and 2017.91 Other Liabilities:ContingentConsideration Balance at December 31, 2017 $43,400 Fair value adjustments included in operating expenses (29,621)Balance at December 31, 2018 $13,779  Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(5) Marketable Securities The following is a summary of marketable securities, classified as available-for-sale: The Company holds investment grade marketable securities, and none were considered to be other-than-temporarily impaired as of December 31, 2018.Marketable securities include $0.1 million and $0.3 million in accrued interest at December 31, 2018 and December 31, 2017, respectively.92 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue (In thousands) December 31, 2018 Marketable securities U.S. government and municipal obligations Maturing in one year or less $27,355 $— $(4)$27,351 Maturing after one year through three years — — — — Total U.S. government and municipal obligations $27,355 $— $(4)$27,351 Corporate debt securities Maturing in one year or less $42,370 $— $(9)$42,361 Maturing after one year through three years — — — — Total corporate debt securities $42,370 $— $(9)$42,361 Total marketable securities $69,725 $— $(13)$69,712 December 31, 2017 Marketable securities U.S. government and municipal obligations Maturing in one year or less $26,164 $3 $(9)$26,158 Maturing after one year through three years — — — — Total U.S. government and municipal obligations $26,164 $3 $(9)$26,158 Corporate debt securities Maturing in one year or less $73,007 $1 $(27)$72,981 Maturing after one year through three years — — — — Total corporate debt securities $73,007 $1 $(27)$72,981 Total marketable securities $99,171 $4 $(36)$99,139 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(6) Property and Equipment, Net Property and Equipment, Net includes the following: Depreciation and amortization expense related to property and equipment was $3.6 million, $4.4 million, and $3.1 million for the years endedDecember 31, 2018, 2017 and 2016, respectively.(7) Intangible Assets and GoodwillIntangible Assets, Net At December 31, 2018 and 2017, the Company recorded finite intangible assets of $0 and $7.1 million, respectively. Finite-lived intangible assetsconsisted solely of license rights amended under a 2009 agreement with Amgen Fremont related to developing and commercializing Glemba. As a result ofthe discontinuation of the Glemba program, the Company concluded that the finite-lived intangible asset was fully impaired and a non-cash impairmentcharge of $6.9 million was recorded in the first quarter of 2018. Amortization expense for finite intangible assets was $0.2 million, $0.9 million and$1.0 million for the years ended December 31, 2018, 2017 and 2016. At December 31, 2018 and 2017, the Company recorded indefinite-lived intangible assets of $48.7 million and $60.5 million, respectively. AtDecember 31, 2018, indefinite-lived intangible assets consist of acquired in-process research and development ("IPR&D") related to the development ofCDX-3379, the anti-KIT program and the TAM program. CDX-3379 is in Phase 2 development. The anti-KIT and TAM programs are in preclinicaldevelopment. As of December 31, 2018, no IPR&D asset had reached technological feasibility nor did any have alternative future uses. The Company performs an impairment test on IPR&D assets at least annually, or more frequently if events or changes in circumstances indicate thatIPR&D assets may be impaired. As a result of the discontinuation of the Glemba program, the Company concluded that the Glemba IPR&D asset was fullyimpaired and a non-cash impairment charge of $11.8 million was recorded in the first quarter of 2018. Due to the nature of IPR&D projects, the Company mayexperience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of such clinical trials or other failures to achieve acommercially viable product, and as a result, may recognize further impairment losses in the future.93 December 31,2018 December 31,2017 (In thousands) Laboratory Equipment $8,272 $7,770 Manufacturing Equipment 2,497 4,354 Office Furniture and Equipment 3,791 3,764 Leasehold Improvements 17,408 17,164 Construction in Progress 327 932 Total Property and Equipment 32,295 33,984 Less: Accumulated Depreciation and Amortization (26,184) (23,612)Property and Equipment, Net $6,111 $10,372 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(7) Intangible Assets and Goodwill (Continued)Goodwill At December 31, 2018 and 2017, the Company recorded goodwill of $0 and $91.0 million, respectively. The Company evaluated goodwill for potentialimpairment due to the discontinuation of the Glemba program. The carrying amount of the Company was compared to the Company's fair value. TheCompany's fair value assessment reflected a number of significant management assumptions and estimates including the Company's probability forecasts forpipeline assets, income taxes, capital expenditures, market premium and changes in working capital requirements. Changes in these assumptions and/ordiscount rates could materially impact the Company's conclusions. Through this assessment, it was determined that the carrying amount of the Companyexceeded its fair value by over $91.0 million. As such, the full goodwill asset was considered impaired and a charge of $91.0 million was recorded during thefirst quarter of 2018.(8) Accrued Expenses Accrued expenses include the following:(9) Other Long-Term Liabilities Other long-term liabilities include the following: In November 2015, December 2014 and January 2014, the Company received approval from the New Jersey Economic Development Authority andagreed to sell New Jersey tax benefits of $9.8 million, $1.9 million and $1.1 million to an independent third party for $9.2 million, $1.8 million and$1.0 million, respectively. Under the agreement, the Company must maintain a base of operations94 December 31,2018 December 31,2017 (In thousands) Accrued Payroll and Employee Benefits $4,400 $6,348 Accrued Research and Development Contract Costs 1,766 11,399 Accrued Professional Fees 620 1,408 Other Accrued Expenses 221 300 $7,007 $19,455 December 31,2018 December 31,2017 (In thousands) Net Deferred Tax Liabilities Related to IPR&D (Note 14) $3,007 $3,772 Deferred Income From Sale of Tax Benefits 4,218 6,756 Other 1,083 1,344 Contingent Milestones (Note 4) 13,779 43,400 Deferred Revenue 1,586 2,813 Total 23,673 58,085 Less Current Portion (4,526) (6,566)Long-Term Portion $19,147 $51,519 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(9) Other Long-Term Liabilities (Continued)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. During the years endedDecember 31, 2018, 2017 and 2016, the Company recorded $2.5 million, $2.7 million and $2.8 million to other income related to the sale of these taxbenefits, respectively.(10) Stockholders' EquityCommon Stock In December 2016, the Company filed a new shelf registration statement with the Securities and Exchange Commission to register for sale anycombination of the types of securities described in the shelf registration statement up to a maximum aggregate offering price of $250 million. Suchregistration statement was declared effective on February 13, 2017. In May 2016, the Company entered into an agreement with Cantor Fitzgerald & Co. ("Cantor") to allow the Company to issue and sell shares of itscommon stock having an aggregate offering price of up to $60.0 million from time to time through Cantor, acting as agent. In November 2017, the Companyfiled a prospectus supplement registering the offer and sale of shares of common stock of up to an additional $75.0 million under the agreement with Cantor.During the years ended December 31, 2018, 2017 and 2016, the Company issued 2,702,660, 1,181,524 and 220,253 shares of its common stock, respectively,under this controlled equity offering sales agreement with Cantor resulting in net proceeds to the Company of $29.0 million, $51.0 million and$13.9 million, respectively, after deducting commission and offering expenses. At December 31, 2018, the Company had $37.6 million remaining inaggregate gross offering price available under the Cantor agreement. From January 1, 2019 through February 28, 2019, the Company issued 478,785 sharesof its common stock resulting in net proceeds to the Company of $2.3 million.Convertible Preferred Stock At December 31, 2018, the Company had authorized 3,000,000 shares of preferred stock all of which have been designated Class C Preferred Stockincluding 350,000 shares which have been designated Series C-1 Junior Participating Cumulative Preferred Stock (the "Series C-1 Preferred Stock"). Noshares of Series C-1 Preferred Stock were outstanding at December 31, 2018 or 2017.(11) Stock-Based Compensation The Company has the following stock-based compensation plans: the 2004 Employee Stock Purchase Plan (the "2004 ESPP Plan") and the 2008 StockOption and Incentive Plan (the "2008 Plan").Employee Stock Purchase Plan At December 31, 2018, a total of 26,667 shares of common stock are reserved for issuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, eachparticipating employee may purchase shares of common stock through payroll deductions at a purchase price equal to 85% of the lower of the fair marketvalue of the common stock at either the beginning of the offering period or the applicable exercise date. During the years ended December 31, 2018, 2017and 2016, the Company issued 9,524,95Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(11) Stock-Based Compensation (Continued)5,359 and 3,956 shares under the 2004 ESPP Plan, respectively. At December 31, 2018, 3,666 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, asamended), non-qualified stock options, stock appreciation rights, performance share units, restricted stock and other awards of restricted stock in lieu of cashbonuses to employees, consultants and non-employee directors. At December 31, 2018, the 2008 Plan allowed for a maximum of 1,333,333 shares of common stock to be issued for grants of new awards until June 9,2025 and grants of incentive stock options until April 16, 2025. The Company's Board of Directors determines the term of each option, option price, andnumber 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. Theterm 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 exerciseprice 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 stockoptions granted to holders of more than 10% of the voting stock of the Company). Vesting of all employee and non-employee director stock option awardsmay accelerate upon a change in control as defined in the 2008 Plan. A summary of stock option activity for the year ended December 31, 2018 is as follows: The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $0.0 million, $0.0 million and$0.1 million, respectively. The weighted average grant-date fair value of stock options granted during the years ended December 31, 2018, 2017 and 2016was $6.60, $23.70 and $47.70, respectively. The total fair value of stock options vested during the years ended December 31, 2018, 2017 and 2016 was$8.0 million, $13.4 million and $17.0 million, respectively. The aggregate intrinsic value of stock options outstanding at December 31, 2018 was $0.0 million. The aggregate intrinsic value of stock options vestedand expected to vest at December 31, 2018 was $0.0 million. As of December 31, 2018, total compensation cost related to non-vested employee and96 Shares WeightedAverageExercisePricePer Share WeightedAverageRemainingContractualTerm (In Years) Options Outstanding at December 31, 2017 723,747 $141.00 6.1 Granted 338,517 $9.11 Exercised (6,967)$42.00 Canceled (189,165)$125.38 Options Outstanding at December 31, 2018 866,132 $93.70 7.1 Options Vested and Expected to Vest at December 31, 2018 846,352 $95.47 7.0 Options Exercisable at December 31, 2018 426,612 $162.83 5.1 Shares Available for Grant Under the 2008 Plan 356,913 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(11) Stock-Based Compensation (Continued)non-employee director stock options not yet recognized was approximately $6.8 million, net of estimated forfeitures, which is expected to be recognized asexpense over a weighted average period of 2.6 years.Restricted Stock A summary of restricted stock activity under the 2008 Plan for the year ended December 31, 2018 is as follows:Valuation and Expenses Information Stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016 was recorded as follows: The fair values of employee and director stock options granted during the years ended December 31, 2018, 2017 and 2016 were valued using the Black-Scholes option pricing model with the following assumptions: The Company estimates expected term based on historical exercise patterns. The Company uses its historical stock price volatility consistent with theexpected term of grant as the basis for its expected volatility assumption. The risk-free interest rate is based upon the yield of U.S. Treasury securitiesconsistent with the expected term of the option. The dividend yield assumption is based on the Company's history of zero dividend payouts and expectationthat no dividends will be paid in the foreseeable future.97 Shares WeightedAverageGrant DateFair Value(per share) Outstanding and unvested at December 31, 2017 6,445 $44.70 Granted — $— Vested (2,449)$47.94 Canceled (444)$34.83 Outstanding and unvested at December 31, 2018 3,552 $43.84 2018 2017 2016 (In thousands) Research and development $3,874 $6,693 $7,821 General and administrative 4,207 5,619 7,496 Total stock-based compensation expense $8,081 $12,312 $15,317 2018 2017 2016Expected stock price volatility 73 - 85% 75 - 77% 70 - 77%Expected option term 6.0 Years 6.0 Years 6.0 YearsRisk-free interest rate 2.8 - 3.1% 2.0 - 2.3% 1.4 - 2.3%Expected dividend yield None None None Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(12) Revenue On January 1, 2018, the Company adopted a new revenue accounting standard, "Revenue from Contracts with Customers" (ASC 606). Upon adoptionusing the modified retrospective application, the Company recognized a $1.3 million decrease to accumulated deficit, a $0.8 million decrease in deferredrevenue and $0.5 million increase in accounts receivable due to the cumulative impact of adopting ASC 606. This impact was driven by the acceleration ofrevenue using a percentage-of-completion method of accounting under ASC 606 for an open contract that had previously been accounted for using theContingency Adjusted Performance Model ("CAPM") under previous guidance. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts were not adjusted and continue tobe reported in accordance with historic accounting under previous guidance. There was not a material impact to revenues as a result of applying ASC 606 forthe year ended December 31, 2018, and there have not been significant changes to the Company's business processes, systems or internal controls as a resultof adopting the new standard. Revenue recognition remained largely unchanged under the new standard.Contract Assets and Liabilities At January 1, 2018 and December 31, 2018, the Company's right to consideration under all contracts was considered unconditional, and as such, therewere no recorded contract assets. Revenue recognized from contract liabilities as of January 1, 2018 during the year ended December 31, 2018 was $1.9 million. Revenue expected to berecognized in the future from contract liabilities as performance obligations are satisfied are not expected to be material.Product Development and Licensing Revenue The Company's primary product development and licensing revenue is associated with a clinical collaboration agreement with BMS entered into in2014 to evaluate the safety, tolerability and preliminary efficacy of varlilumab and Opdivo®, BMS's PD-1 immune checkpoint inhibitor, in a Phase 1/2study. Under this agreement, BMS made an upfront payment to Celldex of $5.0 million and provides funding for 50% of the external costs incurred by theCompany in connection with the clinical trial. The performance obligations under the collaboration agreement consist of intellectual property licenses andthe performance of research and development services. The Company determined that the performance obligations were not separately identifiable and werenot distinct (and did not have standalone value) due to the specialized nature of the services to be provided, the dependent relationship between theperformance obligations and the Company's proprietary technology that makes them uniquely qualified to perform the R&D services. Therefore, theCompany concluded that the collaboration agreement has a single identified or combined performance obligation. As of December 31, 2018, deferredrevenue related to the Company's remaining performance obligation under this arrangement is not material. The Company recorded $3.3 million,$2.8 million and $2.1 million in revenue related to this agreement during the years ended December 31, 2018, 2017 and 2016, respectively.98Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(12) Revenue (Continued)Contract and Grants Revenue In 2017, the Company entered into fixed-fee manufacturing and research and development arrangements with both the International AIDS VaccineInitiative (IAVI) and Frontier Biotechnologies, Inc (Frontier). The Company recognized $3.0 million and $6.6 million in revenue under these agreementsduring the years ended December 31, 2018 and 2017, respectively. In 2013, the Company entered into an agreement, as amended, with Rockefeller University pursuant to which the Company performs manufacturing andresearch and development services for Rockefeller University. The Company recognized $2.6 million, $2.2 million and $2.7 million in revenue for laborhours and direct costs incurred related to the Rockefeller University agreement during years ended December 31, 2018, 2017 and 2016, respectively.(13) Collaboration Agreements The Company has entered into license agreements whereby the Company has received licenses or options to license technology, specified patents orpatent applications. The Company's licensing and development collaboration agreements generally provide for royalty payments equal to specifiedpercentages of product sales, annual license maintenance fees, continuing patent prosecution costs and potential future milestone payments to third partiesupon the achievement of certain developmental, regulatory and/or commercial milestones. Nonrefundable license fee expense of $0.7 million, $0.7 millionand $1.6 million was recorded to research and development expense for the years ended December 31, 2018, 2017 and 2016, respectively.Medarex, Inc. (Medarex), which was acquired by Bristol-Myers Squibb Under a license agreement with Medarex, as amended, the Company acquired access to the UltiMab technology to develop and commercialize humanantibodies to CD27, including varlilumab. The Company may be required to pay Medarex royalty payments in the low-to-mid single digits on any netproduct sales with respect to the development and commercialization of varlilumab until the later of (i) the expiration of the last to expire applicable patentand (ii) the tenth anniversary of the first commercial sale of such licensed product.University of Southampton, UK (Southampton) Under a license agreement with Southampton, the Company acquired the rights to develop human antibodies towards CD27, a potentially importanttarget for immunotherapy of various cancers. The Company may be required to pay Southampton milestones of up to approximately $1.0 million uponobtaining first approval for commercial sale in a first indication and royalty payments in the low-single digits on any net product sales with respect todevelopment and commercialization of varlilumab.Amgen Inc. (Amgen) Under a license agreement with Amgen, the Company acquired the exclusive rights to CDX-301 and CD40 ligand, or CD40L. CDX-301 and CD40L areimmune modulating molecules that increase the numbers and activity of immune cells that control immune responses. The Company may be required to payAmgen milestones of up to $0.9 million upon obtaining first approval for commercial sale in a first indication and royalty payments in the low-single digitson any net product sales with99Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(13) Collaboration Agreements (Continued)respect to development and commercialization of the technology licensed from Amgen, including CDX-301.Yale University (Yale) Under a license agreement with Yale, the Company may be required to make a one-time payment to Yale of $3.0 million with respect to each therapeuticor prophylactic RTK royalty-bearing product, including CDX-3379, that achieves a specified commercial milestone. In addition, the Company may berequired to pay a low single-digit royalty on annual worldwide net sales of each RTK royalty-bearing product, including CDX-3379.MedImmune, LLC (MedImmune) Under a license agreement with MedImmune, the Company acquired exclusive rights to specified patent rights and know-how that are controlled byMedImmune and relate to the research, development, manufacture and commercialization of CDX-3379. The Company may be required to pay Medimmuneup to $45.0 million upon obtaining specified regulatory and development milestones in the first indication of CDX-3379. In addition, the Company may berequired to pay MedImmune one-time milestone payments of up to $125.0 million if specified annual net sale thresholds are met related to the first indicationof CDX-3379. The Company may also be required to pay MedImmune a tiered royalty on annual net sales of CDX-3379 at rates ranging from high single-digit to low teens percentages. The Company may also be required to pay specified royalties on annual net sales of CDX-3379 at a rate in the low singledigits to certain other third parties from whom MedImmune licensed certain intellectual property.(14) Income Taxes The components of income tax benefit (provision) are as follows:100 Year Ended December 31, 2018 2017 2016 (In thousands) Income Tax Benefit (Provision): Federal $22,255 $57,547 $45,518 State 6,406 (2,479) 7,268 Foreign 913 2,448 1,124 Income Tax Rate Change — (99,528) — 29,574 (42,012) 53,910 Deferred Tax Valuation Allowance (28,809) 66,294 (53,910) $765 $24,282 $— Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(14) Income Taxes (Continued) A reconciliation between the amount of reported income tax and the amount computed using the U.S. Statutory rate is as follows: Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilitiesusing future expected enacted rates. The101 2018 2017 2016 (In thousands) Pre-Tax Loss $(151,949)$(117,313)$(128,530)Loss at Statutory Rates (31,909) (39,887) (43,700)Difference in Foreign Tax Rates — 326 150 Research and Development Credits (2,056) (2,847) (5,203)State Taxes (6,406) (6,283) (7,268)Income Tax Rate Change — 99,528 — Other (1,175) (321) 2,111 Milestone Abandonment (6,220) — — Intangible Impairment 19,105 — — Recognition of APIC NOLs — (5,729) — Impact of Pass-through Entities (913) (2,775) — Change in Valuation Allowance 28,809 (66,294) 53,910 Income Tax (Benefit) Provision $(765)$(24,282)$— Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(14) Income Taxes (Continued)principal components of the deferred tax assets and liabilities at December 31, 2018 and 2017, respectively, are as follows: The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets and considered its history oflosses, ultimately concluding that it is "more likely than not" that the Company will not recognize the benefits of federal, state and foreign deferred tax assetsand, as such, has maintained a full valuation allowance on its deferred tax assets. During year ended December 31, 2017, the Company's gross deferred tax assets and corresponding valuation allowance each increased by $17.7 million.This was a one-time increase due to the adoption of a new accounting standard removing the requirement to recognize excess tax benefits from the exercise ofstock options in additional paid-in-capital when realized. On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted, leading to significant changes to U.S. tax law. Among other provisions, theTCJA lowered the U.S. federal corporate income tax rate from 35% to 21%, limited the deduction for net operating losses to 80% of taxable income whileproviding that net operating loss carryovers for years after 2017 will not expire, imposed a mandatory one-time transition tax on previously deferred foreignearnings and eliminated or reduced certain income tax deductions. As a result of the TCJA, the Company revalued its deferred tax liabilities at the new federal rate of 21%, resulting in a $6.9 million decrease and acorresponding income tax benefit. The Company also scheduled out reversals of its deferred tax assets and liabilities, determining that their reversal wouldcreate future indefinite-lived net operating losses under the TCJA. As such, the valuation allowance was reduced relating to the remaining indefinite-livedfederal deferred tax liabilities balance, leading to102 December 31,2018 December 31,2017 (In thousands) Gross Deferred Tax Assets Net Operating Loss Carryforwards $168,239 $146,228 Foreign Net Operating Loss Carryforwards 4,485 3,572 Tax Credit Carryforwards 39,761 36,458 Deferred Research and Development Expenses 76,555 79,272 Stock-based Compensation 11,977 10,718 Fixed Assets 1,761 1,305 Deferred Revenue 13 686 Accrued Expenses and Other 183 316 302,974 278,555 Gross Deferred Tax Liabilities Other Acquired Intangibles 120 (1,792)IPR&D Intangibles (12,748) (15,992)Total Deferred Tax Assets and Liabilities 290,346 260,771 Valuation Allowance (293,353) (264,543)Net Deferred Tax Liability $(3,007)$(3,772)Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(14) Income Taxes (Continued)an additional income tax benefit of $12.2 million. The Company's deferred tax asset balance was also revalued at the new 21% rate resulting in a$99.5 million decrease in the balance with a corresponding decrease to the valuation allowance. Finally, the one-time transition tax on previously deferredforeign earnings under the TCJA is not expected to impact the Company due to a net deficit in the Australian subsidiary. The Company's accounting for thetax effects of the TCJA is complete. The net deferred tax liability of $3.0 million and $3.8 million at December 31, 2018 and 2017, respectively, relates to the temporary differencesassociated with the IPR&D intangible assets acquired in previous business combinations and are not deductible for tax purposes. The Company recorded anincome tax benefit of $0.8 million during the year ended December 31, 2018 due to a decrease in deferred tax liabilities resulting from the partial impairmentof the anti-KIT program. As of December 31, 2018, the Company had federal and state net operating loss carryforwards of $636.8 million and $532.4 million, respectively, whichmay be available to offset certain future income tax liabilities and begin to expire in 2019 and 2028, respectively. Of the federal net operating losscarryforwards of $636.8 million, approximately $75 million are from 2018 and have no expiration date. As of December 31, 2018, the Company also hadfederal and state research and development tax credit carryforwards of $31.0 million and $11.1 million, respectively, which may be available to offset futureincome tax liabilities and begin to expire in 2018 and 2017, respectively. Utilization of the net operating loss carryforwards and research and credit carryforwards may be subject to a substantial annual limitation underSection 382 of the Internal Revenue Code of 1986, or Section 382, due to ownership changes that occurred previously or that could occur in the future. Theseownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, asdefined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than50% over a three-year period. The Company has estimated the amounts of net operating loss and research and development tax credit carryforwards whichwill expire unutilized as a result of its estimated annual limitations under Section 382 and has excluded those amounts from the carryforward amountsdisclosed above and in the deferred tax assets and liabilities table included in this footnote. The Company has concluded Section 382 studies through 2015for Celldex generated NOLs. The Company incurred a foreign pre-tax loss of $3.0 million and $8.2 million during the years ended December 31, 2018 and 2017, respectively.Beginning with the 2016 tax returns, the Company elected to classify the Australian entity as a disregarded entity for income tax purposes. The foreign pre-tax losses have been included with the Federal net operating loss carryforwards. As of December 31, 2018 and 2017, the Company did not have any unrecognized tax benefits. Massachusetts, New Jersey, New York, Connecticut and Australia are the jurisdictions in which the Company primarily operates or has operated and hasincome tax nexus. The Company is not currently under examination by these or any other jurisdictions for any tax year. Generally, in U.S. federal and statetaxing jurisdictions, all years which generated net operating losses and/or tax credit carryforwards remain subject to examination to the extent thosecarryforwards are utilized in a subsequent period.103 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(15) Commitments and Contingencies The Company has facility and equipment leases that expire at various dates through 2020. Certain of these facility leases contain renewal options, earlytermination provisions, and provisions that escalate the base rent payments and require the Company to pay common area maintenance costs ("CAM") duringthe lease term. The following obligations for base rent and CAM costs under facility and other non-cancelable operating leases as of December 31, 2018 donot include the exercise of renewal terms or early termination provisions (in thousands): The Company's total rent and CAM expense for all facility leases was $4.0 million, $4.1 million and $4.8 million for the years ended December 31, 2018,2017 and 2016, respectively.(16) 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 tocontribute up to 60% of their compensation or the statutory prescribed limits. The Company may make 50% matching contributions on up to 4% of aparticipant's annual salary. Benefit expense for the 401(k) Plan was $0.4 million, $0.5 million and $0.4 million for the years ended December 31, 2018, 2017and 2016, respectively.(17) Kolltan Acquisition On November 29, 2016, the Company acquired all of the share and debt interests of Kolltan Pharmaceuticals, Inc. ("Kolltan"), a clinical-stagebiopharmaceutical company, in exchange for 1,217,200 shares of the Company's common stock plus contingent consideration in the form of developmentand approval milestones. As of December 31, 2018, the Company may be required to pay future consideration of up to $127.5 million that is contingent uponthe achievement of specified development, regulatory approvals or sales-based milestone events. The Company completed this acquisition in order to gainaccess to Kolltan's antibody-based drug development programs targeting receptor tyrosine kinases (RTKs) for the treatment of cancer and other diseases withsignificant unmet needs.Purchase Price The purchase price for Kolltan was calculated based on the closing price of the Company's common stock of $60.30 per share on November 29, 2016.The Company also recorded a liability of $44.2 million which represented the initial fair value of the contingent consideration. This fair value measurementused significant unobservable inputs representing a Level 3 measurement more fully described in Note 4, Fair Value Measurements to these consolidatedfinancial statements. Subsequent changes to the fair value of the contingent consideration will be recognized as adjustments to operating1042019 $4,648 2020 3,140 2021 — 2022 — 2023 — Thereafter — Total minimum lease payments $7,788 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(17) Kolltan Acquisition (Continued)earnings. The acquisition was accounted for using the acquisition method of accounting which requires all assets acquired and liabilities assumed recognizedat their acquisition-date fair values. The total consideration transferred consisted of the following (in thousands):Allocations of Assets and Liabilities The purchase price allocation was finalized in the fourth quarter of 2017 with no adjustments made to the initial purchase price allocation. The followingtable summarizes the fair values of the assets acquired and liabilities assumed as of November 29, 2016 (in thousands): IPR&D primarily represents the initial estimated fair value of $40.0 million, $3.5 million and $18.0 million for the anti-KIT program, CDX-3379 andTAM programs, respectively, using probability adjusted discounted cash flow analyses. The expected future net cash flows for the anti-KIT program, CDX-3379 and TAM programs were based on the expectation that a Biologics License Application ("BLA") would be filed with the FDA no earlier than the end of2023, 2024 and 2028, respectively, with an expected commercial launch as promptly as practicable after necessary regulatory approvals are received. Theestimated development costs included in the expected future net cash flows were approximately $132 million combined. The deferred tax liability, net of $23.4 million primarily relates to the temporary differences associated with the IPR&D intangible assets, which are notdeductible for tax purposes. The excess of purchase price over the fair value amounts assigned to the identifiable assets acquired and liabilities assumed represents the goodwillamount resulting from the acquisition. The value of the goodwill can be attributable to the synergies related to the combined antibody-based platform and adeferred tax liability related to acquired IPR&D intangible assets. None of the goodwill is expected to be deductible for income tax purposes.105Fair value of common stock issued for upfront payment $73,397 Fair value of contingent consideration 44,200 Kolltan transaction expenses paid in cash by the Company 3,768 Total consideration transferred $121,365 Cash and cash equivalents $8,160 Other current and long-term assets 799 Property and equipment, net 2,072 In-process research and development (IPR&D) 61,690 Goodwill 82,011 Deferred tax liabilities, net (23,393)Other assumed liabilities (9,974)Total $121,365 Table of ContentsCELLDEX THERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS (Continued)(17) Kolltan Acquisition (Continued)Acquisition-Related Expenses, Including Severance The Company incurred $0.7 million in acquisition-related expenses in the consolidated statements of operations for the year ended December 31, 2016.From the acquisition date through December 31, 2016, the consolidated statements of operations also include $2.4 and $0.7 million in Kolltan relatedseverance expense within general and administrative and research and development expenses, respectively.Pro Forma Financial Information The operating results of Kolltan and pro forma adjustments including severance expense and transaction expenses of $3.1 million and $0.7 million,respectively, have been included in the accompanying consolidated financial statements from November 29, 2016 to December 31, 2016. Kolltan had norevenues from November 29, 2016 through December 31, 2016. The following unaudited pro forma financial summary is presented as if the operations of theCompany and Kolltan were combined as of January 1, 2015. The unaudited pro forma combined results are not necessarily indicative of the actual results thatwould have occurred had the acquisition been consummated at that date or of the future operations of the combined entities.(18) Selected Quarterly Financial Data (Unaudited) 106 UnauditedYears EndedDecember 31, 2016 (In thousands) Revenue $6,786 Net loss $(146,905)2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 (In thousands, except per share amounts) Total revenue $4,068 $2,763 $941 $1,764 Net loss (118,132) (16,407) (7,243) (9,402)Basic and diluted net loss per common share (12.61) (1.67) (0.66) (0.81)2017 Q1 2017 Q2 2017 Q3 2017 Q4 2017 (In thousands, except per share amounts) Total revenue $1,534 $3,829 $3,924 $3,456 Net loss (34,261) (28,566) (26,363) (3,841)Basic and diluted net loss per common share (4.19) (3.42) (3.05) (0.42)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, 2018, we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "ExchangeAct")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures wereeffective at the reasonable assurance level as of December 31, 2018. Our disclosure controls and procedures are designed to provide reasonable assurance thatinformation required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within timeperiods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our ChiefExecutive 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 financialreporting 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 ExecutiveOfficer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding thereliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accountingprinciples, 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 withgenerally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations ofmanagement and directors; and •provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that couldhave 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith 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 conductedan evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control—IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our managementconcluded that our internal control over financial reporting was effective as of December 31, 2018.107Table of Contents The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report, which is included herein.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, 2018 that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None. PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item 10 will be included in the definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, or the 2019Proxy Statement, under "Information Regarding the Current Directors and Executive Officers of Celldex Therapeutic, Inc.," "Section 16(a) BeneficialOwnership Reporting Compliance," "Code of Business Conduct and Ethics" and "The Board of Directors and Its Committees" and is incorporated herein byreference. If the 2019 Proxy Statement is not filed with the SEC within 120 days after the end of our most recent fiscal year, we will provide such informationby 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 2019 Proxy Statement under "Executive Compensation," and "CompensationCommittee Interlocks and Insider Participation," and is incorporated herein by reference. If the 2019 Proxy Statement is not filed with the SEC within120 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 2019 Proxy Statement under "Security Ownership of Certain Beneficial Owners andManagement" and "Equity Compensation Plan Information" and is incorporated herein by reference. If the 2019 Proxy Statement is not filed with the SECwithin 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 2019 Proxy Statement under "Election of Directors" and "Approval of Related PersonTransactions and Transactions with Related Persons" and is incorporated herein by reference. If the 2019 Proxy Statement is not filed with the SEC within120 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.108Table of Contents Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 will be included in the 2019 Proxy Statement under "Independent Registered Public Accounting Firm" and isincorporated herein by reference. If the 2019 Proxy Statement is not filed with the SEC within 120 days after the end of our most recent fiscal year, we willprovide such information by means of an amendment to this Annual Report on Form 10-K.109Table of Contents PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (A)The following documents are filed as part of this Form 10-K: (1)Financial Statements: 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, orbecause the information required is included in the Financial Statements or Notes thereto.(3)Exhibits:110 Incorporated by Reference toNo. Description Form andSEC File No. ExhibitNo. SECFiling Date Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession 2.1 Agreement and Plan of Merger, dated as of November 1, 2016, by andamong Kolltan Pharmaceuticals, Inc., Celldex Therapeutics, Inc.,Connemara Merger Sub 1 Inc. and Connemara Merger Sub 2 LLC. 8-K(000-15006) 2.1 11/1/16 Articles of Incorporation and By-Laws 3.1 Third Restated Certificate of Incorporation S-4(333-59215) 3.1 7/16/98 3.2 Certificate of Amendment of Third Restated Certificate ofIncorporation S-4(333-59215) 3.1 7/16/98 3.3 Second Certificate of Amendment of Third Restated Certificate ofIncorporation S-4(333-59215) 3.2 7/16/98 3.4 Third Certificate of Amendment of Third Restated Certificate ofIncorporation 10-Q(000-15006) 3.1 5/10/02 3.5 Fourth Certificate of Amendment of Third Restated Certificate ofIncorporation 8-K(000-15006) 3.1 3/11/08 3.6 Fifth Certificate of Amendment of Third Restated Certificate ofIncorporation 8-K(000-15006) 3.2 3/11/08 3.7 Sixth Certificate of Amendment of Third Restated Certificate ofIncorporation 10-Q(000-15006) 3.7 11/10/08 3.8 Amended and Restated By-Laws, dated April 7, 2014 8-K(000-15006) 3.1 4/8/14 3.9 Seventh Certificate of Amendment of Third Restated Certificate ofIncorporation 8-K(000-15006) 3.1 2/8/19 Instruments Defining the Rights of Security Holders 4.1 Specimen of Common Stock Certificate 8-K(000-15006) 4.1 2/8/19Table of Contents111 Incorporated by Reference toNo. Description Form andSEC File No. ExhibitNo. SECFiling Date 4.2 Certificate of Designations, Preferences and Rights of a Series ofPreferred Stock classifying and designating the Series C-1 JuniorParticipating Cumulative Preferred Stock 8-A(000-15006) 3.1 11/8/04 Material Contracts—Leases 10.1 Commercial Lease Agreement of May 1, 1996 between the Companyand Fourth Avenue Ventures Limited Partnership 10-Q/A(000-15006) 10.11 8/23/96 10.2 Extension of Lease Agreement of May 1, 1997 between the Companyand DIV Needham 53 LLC (successor in interest to Fourth AvenueVentures Limited Partnership) dated as of August 23, 2001 10-K(000-15006) 10.9 3/27/02 10.3 First Amendment to Lease by and between the Company and DIVNeedham 115 LLC (successor in interest to Fourth Avenue VenturesLimited Partnership) dated November 29, 2005 10-K(000-15006) 10.40 3/16/06 10.4 Second Amendment to Lease by and between the Company and DIVNeedham 115 LLC dated as of August 1, 2015 10-K/A(000-15006) 10.4 2/25/16 *10.5 Lease Agreement, by and between the Company and the MassachusettsDevelopment Finance Agency, dated as of December 22, 2003 10-Q(000-15006) 10.1 4/30/04 10.6 First Amendment to Lease between Massachusetts DevelopmentFinance Agency and the Company dated March 17, 2005 10-K/A(000-15006) 10.6 12/23/10 10.7 Second Amendment to Lease by and between the Company and theMassachusetts Development Finance Agency dated as of November 4,2005 10-K(000-15006) 10.41 3/16/06 10.8 Third Amendment to Lease between Massachusetts DevelopmentFinance Agency and the Company dated December 20, 2006 10-K/A(000-15006) 10.7 12/23/10 10.9 Fifth Amendment to Lease between Massachusetts DevelopmentFinance Agency and the Company dated October 3, 2008 10-K/A(000-15006) 10.8 12/23/10 10.10 Sixth Amendment to Lease between Massachusetts DevelopmentFinance Agency and the Company dated August 20, 2009 10-K/A(000-15006) 10.9 12/23/10 10.11 Seventh Amendment to Lease by and between the Company and theMassachusetts Development Finance Agency dated as of June 22, 2010 10-Q(000-15006) 10.1 8/5/10 10.12 Eighth Amendment to Lease by and between the Company and theMassachusetts Development Finance Agency dated as of November 1,2015 10-K/A(000-15006) 10.12 2/25/16Table of Contents112 Incorporated by Reference toNo. Description Form andSEC File No. ExhibitNo. SECFiling Date 10.13 Lease Agreement dated as of May 1, 2013 by and between CrownPerryville, LLC and the Company. 10-Q(000-15006) 10.1 5/03/13 10.14 First Amendment to Lease between Company and CrownPerryville, LLC dated as of June 17, 2015 10-Q(000-15006) 10.2 8/10/15 Material Contracts—License, Collaboration, Supply and Distribution Agreements *10.15 Research and Commercialization Agreement, as amended, dated as ofApril 6, 2004 by and among Medarex, Inc., GenPharmInternational, Inc. and the Company S-4(333-148291) 10.5 1/18/08 *10.16 Exclusive Patent and Know-How License Agreement dated as ofNovember 5, 2008 between the Company and the University ofSouthampton 10-K(000-15006) 10.47 3/2/09 *10.17 License and Assignment Agreement, between Amgen Inc. and theCompany dated March 16, 2009 10-K/A(000-15006) 10.1 12/23/10 *10.18 License Agreement between Medarex and Company datedSeptember 17, 2010 10-Q/A(000-15006) 10.3 12/23/10 *10.19 License and Option Agreement by and between MedImmune, LLC andthe Company, dated July 24, 2013, as amended by the Amendment,dated October 27, 2015 10-K(000-15006) 10.24 3/7/18 *10.20 Third Amended and Restated License Agreement by and between YaleUniversity and the Company, dated March 14, 2013, as amended bythe Amendments, dated March 21, 2014 and December 1, 2014 10-K(000-15006) 10.25 3/7/18 Material Contracts—Stock Purchase, Financing and Credit Agreements 10.21 Sales Agreement, dated May 19, 2016, by and between CelldexTherapeutics, Inc. and Cantor Fitzgerald & Co. 8-K(000-15006) 1.1 5/19/16 Material Contracts—Management Contracts and Compensatory Plans †10.22 2008 Stock Option and Incentive Plan, as amended and restated 10-K(000-15006) 10.27 3/7/18 †10.23 2004 Employee Stock Purchase Plan, as amended and restated 10-K(000-15006) 10.28 3/7/18 †10.24 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Anthony S.Marucci 8-K(000-15006) 10.1 12/29/17 †10.25 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Sam Martin 8-K(000-15006) 10.2 12/29/17 †10.26 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Tibor Keler,Ph.D. 8-K(000-15006) 10.3 12/29/17Table of Contents Item 16. FORM 10-K SUMMARY None.113 Incorporated by Reference toNo. Description Form andSEC File No. ExhibitNo. SECFiling Date †10.27 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Ronald Pepin,Ph.D. 8-K(000-15006) 10.4 12/29/17 †10.28 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and SarahCavanaugh 8-K(000-15006) 10.5 12/29/17 †10.29 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Margo Heath-Chiozzi, M.D. 8-K(000-15006) 10.6 12/29/17 †10.30 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and ElizabethCrowley 8-K(000-15006) 10.7 12/29/17 †10.31 Amended and Restated Employment Agreement, dated as of January 1,2018, by and between Celldex Therapeutics, Inc. and Richard Wright,Ph.D. 8-K(000-15006) 10.8 12/29/17 †10.32 Form of Stock Option Agreement 10-Q(000-15006) 10.1 8/08/18 †10.33 Form of Restricted Stock Award 10-K(000-15006) 10.42 3/12/10 21.1 Subsidiaries of Celldex Therapeutics, Inc. Filed herewith 23.1 Consent of PricewaterhouseCoopers LLP, an Independent RegisteredPublic Accounting Firm 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 32 Section 1350 Certifications Furnished herewith 101 XBRL Instance Document Filed herewith 101 XBRL Taxonomy Extension Schema Document Filed herewith 101 XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101 XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101 XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101 XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith *Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 24b-2 promulgated under theSecurities Exchange Act of 1934, as amended. †Indicates a management contract or compensation plan, contract or arrangement.Table of Contents SIGNATURES 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 itsbehalf by the undersigned, thereunto duly authorized. 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 andin the capacities and on the dates indicated.114 CELLDEX THERAPEUTICS, INC. By: /s/ ANTHONY S. MARUCCIDate Anthony S. MarucciMarch 7, 2019 President and Chief Executive OfficerSignature Title Date /s/ ANTHONY S. MARUCCIAnthony S. Marucci President, Chief Executive Officer, and Director(Principal Executive Officer) March 7, 2019/s/ SAM MARTINSam Martin Senior Vice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer) March 7, 2019/s/ LARRY ELLBERGERLarry Ellberger Director, Chairman of the Board of Directors March 7, 2019/s/ KEITH L. BROWNLIEKeith L. Brownlie Director March 7, 2019/s/ HERBERT J. CONRADHerbert J. Conrad Director March 7, 2019/s/ JAMES J. MARINOJames J. Marino Director March 7, 2019/s/ HARRY H. PENNER, JR.Harry H. Penner, Jr. Director March 7, 2019/s/ KAREN L. SHOOSKaren L. Shoos Director March 7, 2019QuickLinks -- Click here to rapidly navigate through this document Exhibit 21.1 SUBSIDIARIES OF CELLDEX THERAPEUTICS, INC. Name Jurisdiction ofOrganization OwnershipPercentage Celldex Australia PTY LTD Australia 100%Celldex Therapeutics Switzerland GmbH Switzerland 100%QuickLinksExhibit 21.1SUBSIDIARIES OF CELLDEX THERAPEUTICS, INC.QuickLinks -- Click here to rapidly navigate through this document Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-219867, 333-219869, 333-205694, 333-189336, 333-151728 and 333-117602) and on Form S-3 (Nos. 333-214882 and 333-215747) of Celldex Therapeutics, Inc. of our report dated March 7, 2019relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPBoston, MassachusettsMarch 7, 2019QuickLinksExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLinks -- Click here to rapidly navigate through this document Exhibit 31.1 CERTIFICATION I, Anthony S. Marucci, certify that: 1. I have reviewed this annual report on Form 10-K of Celldex Therapeutics, Inc.; 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 thestatements 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 thefinancial 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 inExchange 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)) forthe 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 thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness 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 recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant'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 arereasonably 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 internalcontrol over financial reporting.Date: March 7, 2019 By /s/ ANTHONY S. MARUCCI Name: Anthony S. Marucci Title: President and Chief Executive OfficerQuickLinksExhibit 31.1CERTIFICATIONQuickLinks -- Click here to rapidly navigate through this document Exhibit 31.2 CERTIFICATION I, Sam Martin, certify that: 1. I have reviewed this annual report on Form 10-K of Celldex Therapeutics, Inc.; 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 thestatements 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 thefinancial 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 inExchange 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)) forthe 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 thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness 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 recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant'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 arereasonably 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 internalcontrol over financial reporting.Date: March 7, 2019 By /s/ SAM MARTIN Name: Sam Martin Title: Senior Vice President and Chief FinancialOfficerQuickLinksExhibit 31.2CERTIFICATIONQuickLinks -- Click here to rapidly navigate through this document Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER ANDCHIEF FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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, inhis 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 theperiod ended December 31, 2018 (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 ofoperations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K. A signedoriginal of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commissionor its staff upon request. This certification shall not be deemed "filed" for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the SecuritiesAct of 1933 or the Exchange Act.Date: March 7, 2019 By: /s/ ANTHONY S. MARUCCI Name: Anthony S. Marucci Title: President and Chief Executive OfficerDate: March 7, 2019 By: /s/ SAM MARTIN Name: Sam Martin Title: Senior Vice President and Chief FinancialOfficerQuickLinksExhibit 32CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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