March has been a good month so far for Celldex Therapeutics (NASDAQ: CLDX) shareholders. The stock is up more than 20% this month, including a big jump last week that stemmed primarily from investor anticipation of the release of pivotal results for glembatumumab vedotin (glemba) in the second quarter.
However, to keep things in perspective, this "spring forward" for Celldex only resulted in the stock price returning to close to the level at which it started 2018. But those results from the Metric study of glemba will soon be announced. Is Celldex stock about to truly skyrocket?
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Just the facts
What we know about glemba is encouraging. In the phase 2 Emerge clinical trial, the fully human monoclonal antibody-drug conjugate (ADC) produced impressive results. Glemba matched up well against investigators' choice drugs, which included several leading chemotherapies used in treating breast cancer, in treating all patients.
However, the big news was that patients with triple-negative breast cancer -- where cells test negative for estrogen receptors, progesterone receptors, and HER2 -- and high expressions of glycoprotein NMB (gpNMB) who received glemba experienced significantly higher median overall survival and progression-free survival rates. In particular, patients with 25% or more of cancer cells expressing gpNMB did especially better by taking glemba.
Based on these phase 2 results, Celldex designed its pivotal Metric clinical study to target only patients with triple-negative breast cancer meeting the 25% gpNMB threshold. In the Metric study, glemba is going head-to-head against Roche's Xeloda, one of the most powerful chemotherapies available for treating breast cancer.
We also know that glemba is built on a good foundation. For ADCs, the linker between the antibody and anti-cancer toxin is critical. A stable linker improves the safety profile of the drug and helps ensure that more of the anti-cancer payload is delivered to the cancer cell. Celldex licensed the linker and toxin used in glemba from Seattle Genetics (NASDAQ: SGEN). Similar linker and toxin technology is used in Seattle Genetics' Adcetris.
There's also no question that a huge unmet need exists in treating triple-negative breast cancer. While some forms of breast cancer, particularly HER+ breast cancer, have very effective therapies available, that's not the case with triple-negative breast cancer. Current chemotherapies are highly toxic and have limited effectiveness in controlling disease progression.
The problem for investors considering buying the stock of a clinical-stage biotech like Celldex, however, is that there's a lot that remains unknown. Good results from a smaller clinical trial don't always translate to good results in a larger study.
Celldex experienced this firsthand with its former lead candidate Rintega. Despite positive phase 2 results, the cancer immunotherapy flopped in a late-stage study after failing to increase overall survival.
Although the Emerge study for glemba included 124 patients, the impressive results for the drug came from only 10 patients with triple-negative breast cancer and high gpNMB expression. And the comparisons were against multiple therapies chosen by investigators. The Metric study enrolled 327 patients, two-thirds of whom received glemba with the other third receiving Xeloda. It's entirely possible that glemba doesn't perform nearly as well in a larger study against this single established therapy.
There's also another scenario for failure. Even if glemba proves to be more successful from an efficacy standpoint, safety issues in the Metric study could derail the drug's chances for regulatory approval. Using Seattle Genetics' linker and toxin technology employed with Adcetris should reduce the likelihood of safety issues, but there's no guarantee.
Playing the odds
So will Celldex Therapeutics skyrocket soon? Maybe, but maybe not.
I think that the market is pricing in a failure for the Metric study. Why? If glemba is successful, the drug should be able to generate peak annual sales of $500 million or more based on the number of patients with triple-negative breast cancer and the unmet need. However, even after the stock's nice run in March, Celldex's market cap is only around $400 million.
The probability of success from a pivotal study of a cancer drug is a little over 40%, according to an analysis published by the Biotechnology Innovation Organization (BIO). The chances of a cancer drug in a pivotal study ultimately winning regulatory approval are only 33%. Statistically speaking, the odds are against glemba.
However, let's look at things in a different way. If glemba proves to be successful, Celldex should be able to claim a market cap of $2 billion or more. (This assumes four times peak annual sales of around $500 million.) Using a 33% probability of winning approval from the BIO study, Celldex should be valued close to $660 million -- but it isn't. Instead, the stock is trading well below that level.
Could glemba's prospects be better than the historical probabilities from the BIO analysis? I think so. Celldex is stacking the deck a little by only targeting patients with 25% or higher gpNMB expression levels. The Seattle Genetics linker and toxin could also improve its odds somewhat compared to the broader group of experimental cancer drugs in the BIO report.
Still, though, buying a stock like Celldex is a gamble. You definitely wouldn't want to bet the ranch on the biotech. Glemba could follow in Rintega's footsteps. On the other hand, this stock could easily double or more in 2018 if the Metric results are positive. With Celldex's valuation reflecting a discount to where it probably should be trading from a probabilistic perspective, I think betting a few cows from the ranch might not be a bad idea at all.
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