Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

OR

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number:  0-15006

 

CELLDEX THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

No. 13-3191702

(State or other jurisdiction of incorporation or

 

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

organization)

 

 

 

119 Fourth Avenue, Needham, Massachusetts 02494

(Address of principal executive offices) (Zip Code)

 

(781) 433-0771

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o No x

 

As of October 31, 2011, 44,147,214 shares of common stock, $.001 par value per share, were outstanding.

 

 

 



Table of Contents

 

CELLDEX THERAPEUTICS, INC.

 

FORM 10-Q

 

Quarter Ended September 30, 2011

 

Table of Contents

 

 

Page

Part I—Financial Information

 

 

 

Item 1. Unaudited Financial Statements

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010

3

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

4

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

5

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4. Controls and Procedures

29

 

 

Part II — Other Information

 

 

 

Item 1. Legal Proceedings

29

 

 

Item 1A. Risk Factors

29

 

 

Item 6. Exhibits

30

 

 

Signatures

31

 

 

Exhibit Index

32

 

2



Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

 

CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands, except share and per share amounts)

 

 

 

September 30, 2011

 

December 31, 2010

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and Cash Equivalents

 

$

13,097

 

$

21,287

 

Marketable Securities

 

49,677

 

39,811

 

Accounts and Other Receivables

 

204

 

324

 

Prepaid and Other Current Assets

 

1,404

 

1,525

 

Total Current Assets

 

64,382

 

62,947

 

Property and Equipment, Net

 

9,539

 

10,832

 

Intangible Assets, Net

 

25,214

 

26,836

 

Other Assets

 

348

 

363

 

Goodwill

 

8,965

 

8,965

 

Total Assets

 

$

108,448

 

$

109,943

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts Payable

 

$

457

 

$

931

 

Accrued Expenses

 

5,966

 

4,936

 

Current Portion of Long-Term Liabilities

 

264

 

818

 

Current Portion of Term Loan

 

4,091

 

1,111

 

Convertible Subordinated Debt

 

 

12,412

 

Total Current Liabilities

 

10,778

 

20,208

 

Term Loan, less Current Portion

 

11,015

 

8,889

 

Other Long-Term Liabilities

 

5,981

 

5,591

 

Total Liabilities

 

27,774

 

34,688

 

 

 

 

 

 

 

Commitments and Contingent Liabilities

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares Authorized; No Shares Issued and Outstanding at September 30, 2011 and December 31, 2010

 

 

 

Common Stock, $.001 Par Value; 297,000,000 Shares Authorized; 44,147,214 and 32,055,382 Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, respectively

 

44

 

32

 

Additional Paid-In Capital

 

270,250

 

232,679

 

Accumulated Other Comprehensive Income

 

2,654

 

2,751

 

Accumulated Deficit

 

(192,274

)

(160,207

)

Total Stockholders’ Equity

 

80,674

 

75,255

 

Total Liabilities and Stockholders’ Equity

 

$

108,448

 

$

109,943

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3



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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,
2011

 

September 30,
2010

 

September 30,
2011

 

September 30,
2010

 

REVENUE:

 

 

 

 

 

 

 

 

 

Product Development and Licensing Agreements

 

$

40

 

$

1,371

 

$

65

 

$

4,117

 

Contracts and Grants

 

5

 

 

5

 

220

 

Product Royalties

 

2,318

 

1,037

 

6,761

 

4,735

 

Total Revenue

 

2,363

 

2,408

 

6,831

 

9,072

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

 

 

Research and Development

 

8,594

 

7,215

 

22,615

 

20,908

 

Royalty

 

2,318

 

1,218

 

6,761

 

5,277

 

General and Administrative

 

2,273

 

2,421

 

6,899

 

7,848

 

Gain on Sale of Assets

 

 

(50

)

(50

)

(50

)

Amortization of Acquired Intangible Assets

 

656

 

483

 

1,622

 

2,660

 

Total Operating Expense

 

13,841

 

11,287

 

37,847

 

36,643

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

(11,478

)

(8,879

)

(31,016

)

(27,571

)

Investment and Other Income, Net

 

144

 

124

 

307

 

3,379

 

Interest Expense

 

(438

)

(332

)

(1,358

)

(1,002

)

Net Loss

 

$

(11,772

)

$

(9,087

)

$

(32,067

)

$

(25,194

)

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss Per Common Share (Note 4)

 

$

(0.27

)

$

(0.28

)

$

(0.85

)

$

(0.79

)

 

 

 

 

 

 

 

 

 

 

Shares Used in Calculating Basic and Diluted Net Loss per Share (Note 4)

 

44,136

 

31,922

 

37,926

 

31,812

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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CELLDEX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,
2011

 

September 30,
2010

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net Loss

 

$

(32,067

)

$

(25,194

)

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

 

 

 

 

 

Depreciation and Amortization

 

1,696

 

2,188

 

Amortization of Intangible Assets

 

1,622

 

2,660

 

Amortization and Premium of Marketable Securities

 

(96

)

(89

)

Realized Loss on Sales and Maturities of Marketable Securities

 

5

 

22

 

Gain on Sale or Disposal of Assets

 

(58

)

(11

)

Stock-Based Compensation Expense

 

1,703

 

2,197

 

Non-Cash Interest Expense

 

250

 

546

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

Accounts and Other Receivables

 

120

 

88

 

Prepaid and Other Current Assets

 

58

 

(108

)

Other Assets

 

15

 

554

 

Accounts Payable and Accrued Expenses

 

556

 

(2,141

)

Deferred Revenue

 

 

(3,406

)

Other Liabilities

 

(92

)

(1,663

)

Net Cash Used in Operating Activities

 

(26,288

)

(24,357

)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Sales and Maturities of Marketable Securities

 

38,353

 

30,210

 

Purchases of Marketable Securities

 

(48,217

)

(52,272

)

Acquisition of Property and Equipment

 

(403

)

(1,662

)

Proceeds from Sale or Disposal of Assets

 

68

 

50

 

Net Cash Used in Investing Activities

 

(10,199

)

(23,674

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Net Proceeds from Stock Issuances

 

35,880

 

1,001

 

Issuance of Term Loan

 

5,000

 

 

Payment of Convertible Subordinated Debt

 

(12,503

)

 

Payments of Other Long-Term Liabilities

 

(72

)

(145

)

Net Cash Provided by Financing Activities

 

28,305

 

856

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

(8

)

1

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

(8,190

)

(47,174

)

Cash and Cash Equivalents at Beginning of Period

 

21,287

 

57,002

 

Cash and Cash Equivalents at End of Period

 

$

13,097

 

$

9,828

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5



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CELLDEX THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2011

 

(1)  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Celldex Therapeutics, Inc. (the “Company” or “Celldex”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the operations of the Company and its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation.

 

These interim financial statements do not include all the information and footnotes required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2011.  In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary to fairly state the Company’s financial position and results of operations for the interim periods presented.  The year-end consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future interim period or the fiscal year ending December 31, 2011.

 

At September 30, 2011, the Company had cash, cash equivalents and marketable securities of $62.8 million; working capital of $53.6 million; and a Term Loan balance of $15.1 million. The Company incurred a loss of $32.1 million for the nine months ended September 30, 2011.  Net cash used in operations for the nine months ended September 30, 2011 was $26.3 million. The Company believes that the cash, cash equivalents and marketable securities at September 30, 2011 in addition to interest income on invested funds and the Company’s ability to control certain costs, including those related to clinical trials, manufacturing and preclinical activities, will be sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

The Company raised net proceeds of $35.9 million from the sale of its common stock during the nine months ended September 30, 2011.  During the next twelve months, the Company expects to take further steps to raise additional capital to meet its long-term liquidity needs including, but not limited to, one or more of the following: the licensing of technology programs with existing or new collaborative partners, possible business combinations, issuance of debt, or the issuance of common stock or other securities via private placements or public offerings. While the Company continues to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and the Company’s negotiating position in capital-raising efforts may worsen as existing resources are used. There is also no assurance that the Company will be able to enter into further collaborative relationships. Additional equity financing may be dilutive to the Company’s stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate as a business; and licensing or strategic collaborations may result in royalties or other terms which reduce the Company’s economic potential from products under development. If the Company is unable to raise the funds necessary to meet its long-term liquidity needs, it may have to delay or discontinue the development of one or more programs, discontinue or delay on-going or anticipated clinical trials, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, or sell all or part of the Company.

 

(2)  Significant Accounting Policies

 

The significant accounting policies used in preparation of these condensed consolidated financial statements for the nine months ended September 30, 2011 are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010, except for the adoption of new accounting standards during the first nine months of 2011 as discussed below.

 

6



Table of Contents

 

Recent Accounting Pronouncements

 

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

 

In January 2011, the Company adopted a new U.S. GAAP accounting standard which revises the accounting guidance for milestone revenue recognition. The new guidance allows for revenue recognition contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive.  The Company adopted this guidance beginning with agreements entered into on or after January 1, 2011. This standard may impact the Company in the event it completes future transactions or collaborative relationships that include milestone payments.

 

In June 2011, the FASB issued a new U.S. GAAP accounting standard which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements.  This new standard eliminates the option to present components of other comprehensive income as part of the statement of equity and will be effective for the Company beginning January 1, 2012. Early adoption is permitted.  The Company does not expect the adoption of this new standard to have a material effect on its operating results or financial position.

 

In September 2011, the FASB amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This guidance will be effective for the Company’s fiscal year ending December 30, 2012.   The Company does not expect the adoption of this new standard to have a material effect on its operating results or financial position.

 

(3)  Comprehensive Loss

 

For the three and nine months ended September 30, 2011 and 2010, comprehensive loss was as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In thousands)

 

Net loss

 

$

(11,772

)

$

(9,087

)

$

(32,067

)

$

(25,194

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

(117

)

138

 

(89

)

249

 

Unrealized foreign exchange translation (loss) gain

 

(3

)

 

(8

)

1

 

Total other comprehensive gain (loss)

 

(120

)

138

 

(97

)

250

 

Total comprehensive loss

 

$

(11,892

)

$

(8,949

)

$

(32,164

)

$

(24,944

)

 

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(4)  Net Loss Per Share

 

Basic net loss per common share is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock that has been issued but is not yet vested. Diluted net loss per common share is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average potentially dilutive common shares outstanding during the period when the effect is dilutive.  The potentially dilutive common shares that have not been included in the net loss per common share calculations because the effect would have been anti-dilutive are as follows:

 

 

 

As of September 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Stock options

 

4,535,137

 

4,026,378

 

Convertible debt

 

 

353,563

 

Restricted stock

 

9,000

 

17,500

 

 

 

4,544,137

 

4,397,441

 

 

In connection with the acquisition of CuraGen Corporation (“CuraGen”), the Company assumed the $12.5 million in 4% convertible subordinated debt due February 15, 2011 (the “CuraGen Debt”).  Effective October 1, 2009, Celldex, CuraGen, and The Bank of New York Mellon (the “Trustee”) amended the CuraGen Debt to provide that the CuraGen Debt shall be convertible into 353,563 shares of Celldex common stock at the rate of 28.27823 shares of Celldex common stock per $1,000 principal amount of notes, or $35.36 per share. The initial carrying value of the CuraGen Debt was accreted ratably, over the term of the CuraGen Debt, to $12.5 million due at maturity.  In February 2011, the Company paid the Trustee $12.8 million to satisfy all outstanding principal and accrued interest related to the CuraGen Debt.

 

(5)  Fair Value Measurements

 

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

 

 

 

As of
September 30, 2011

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Money market funds and cash equivalents

 

$

12,554

 

$

12,554

 

 

 

Marketable securities

 

49,677

 

 

$

49,677

 

 

 

 

$

62,231

 

$

12,554

 

$

49,677

 

 

 

 

 

As of
December 31, 2010

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Money market funds and cash equivalents

 

$

10,975

 

$

10,975

 

 

 

Marketable securities

 

39,811

 

 

$

39,811

 

 

 

 

$

50,786

 

$

10,975

 

$

39,811

 

 

 

There have been no transfers of assets or liabilities between the fair value measurement classifications.  The Company’s financial instruments consist mainly of cash and cash equivalents, marketable securities, short-term accounts receivable, accounts payable and debt obligations.  Marketable securities have been valued from independent pricing services which normally drive security prices from recently reported trades for identical or similar securities, making adjustments based on significant observable transactions.  At each balance sheet date, observable market inputs may include trade information, broker or dealer quotes, bids, offers or a combination of these data sources. Short-term accounts receivable and accounts payable are reflected in the accompanying consolidated financial statements at cost, which approximates fair value due to the short-term nature of these instruments.  Based on current market interest rates available to the Company for long-term liabilities with similar terms and maturities, the Company believes the fair value approximates the carrying value of the principal portion of the Term Loan and note payable at September 30, 2011.

 

8



Table of Contents

 

(6)  Marketable Securities

 

A summary of marketable securities is shown below:

 

September 30, 2011

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government and municipal obligations

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

24,855

 

$

47

 

$

(3

)

$

24,899

 

Maturing after one year through two years

 

6,656

 

103

 

 

6,759

 

Total U.S. government and municipal obligations

 

$

31,511

 

$

150

 

$

(3

)

$

31,658

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

12,248

 

$

3

 

$

(1

)

$

12,250

 

Maturing after one year through two years

 

5,852

 

1

 

(84

)

5,769

 

Total corporate debt securities

 

$

18,100

 

$

4

 

$

(85

)

$

18,019

 

Total marketable securities

 

$

49,611

 

$

154

 

$

(88

)

$

49,677

 

 

December 31, 2010

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government and municipal obligations

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

14,836

 

$

35

 

$

 

$

14,871

 

Maturing after one year through two years

 

11,428

 

103

 

 

11,531

 

Total U.S. government and municipal obligations

 

$

26,264

 

$

138

 

$

 

$

26,402

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

11,798

 

$

18

 

$

(2

)

$

11,814

 

Maturing after one year through two years

 

1,594

 

1

 

 

1,595

 

Total corporate debt securities

 

$

13,392

 

$

19

 

$

(2

)

$

13,409

 

Total marketable securities

 

$

39,656

 

$

157

 

$

(2

)

$

39,811

 

 

The marketable securities held by the Company were high investment grade and there were no marketable securities that the Company considered to be other-than-temporarily impaired as of September 30, 2011.

 

(7)  Intangible Assets and Goodwill

 

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

 

 

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

Estimated
Life

 

Cost

 

Accumulated
Amortization

 

Net

 

Cost

 

Accumulated
Amortization

 

Net

 

 

 

(In thousands)

 

Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D

 

Indefinite

 

$

11,800

 

 

$

11,800

 

$

11,800

 

 

$

11,800

 

Amgen Amendment

 

16 years

 

14,500

 

$

(1,794

)

12,706

 

14,500

 

$

(1,121

)

13,379

 

TopoTarget Agreement

 

1.75 years

 

2,400

 

(2,400

)

 

2,400

 

(2,057

)

343

 

Core Technology

 

4.5-11 years

 

1,948

 

(1,240

)

708

 

1,948

 

(1,040

)

908

 

Strategic Partner Agreement

 

8 years

 

630

 

(630

)

 

630

 

(224

)

406

 

Total Intangible Assets

 

 

 

$

31,278

 

$

(6,064

)

$

25,214

 

$

31,278

 

$

(4,442

)

$

26,836

 

Goodwill

 

Indefinite

 

$

8,965

 

 

$

8,965

 

$

8,965

 

 

$

8,965

 

 

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Table of Contents

 

The estimated fair value attributed to the April 2008 agreement (“TopoTarget Agreement”) between the Company (as a successor to CuraGen) and TopoTarget A/S (“TopoTarget”) relates to the Company’s rights under the TopoTarget Agreement to receive up to $6 million in either potential commercial milestone payments related to future net sales of Belinostat or 10% of any sublicense income received by TopoTarget (“TopoTarget Payments”).  In February 2010, TopoTarget entered into a co-development and commercialization agreement for Belinostat with Spectrum Pharmaceuticals, Inc. which resulted in the Company’s receipt of $3 million of the TopoTarget Payments.  The Company recorded this cash receipt as Other Income for the nine months ended September 30, 2010.

 

During the nine months ended September 30, 2011, the Company recorded an impairment loss of $0.3 million in Strategic Partnership Agreement to amortization of intangible asset expense due to the Company’s termination of rights to intellectual property underlying that Strategic Partnership Agreement.

 

(8) Term Loan

 

In December 2010, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC (“MidCap”) pursuant to which the Company borrowed $10 million (the “Term Loan”) from MidCap.  In March 2011, as the Company had anticipated, the Company amended the Loan Agreement and borrowed an additional $5 million from General Electric Capital Corporation (“GECC”) (collectively with MidCap, the “Lenders”) to increase the amount owed under the Term Loan to $15 million. No additional advances are available under the Loan Agreement. The Term Loan accrues interest at a fixed annual interest rate equal to the greater of (i) the sum of (A) the LIBOR Rate (as defined in the Loan Agreement) plus (B) 6.25%; or (ii) a minimum rate of 9.50%.  In September 2011, the Company exercised an option to extend the interest-only period by 6 months from October 1, 2011 to April 1, 2012.  Interest on the Term Loan is payable monthly and principal is due in 22 equal consecutive monthly installments commencing on April 1, 2012.  All unpaid principal and accrued interest with respect to the Term Loan is due and payable on the earlier of (A) December 30, 2013 or (B) the date that the Term Loan otherwise becomes due and payable under the terms of the Loan Agreement. The Company may prepay all, but not less than all, of the Term Loan subject to a prepayment premium of 1% in year three, 2% in year two, and 4% in year one of the original principal amount of the Term Loan.

 

The obligations of the Company under the Loan Agreement are secured by a first priority lien upon and security interest in substantially all of the Company’s existing and after-acquired assets, excluding its intellectual property assets. Under the Loan Agreement, the Company is subject to specified affirmative and negative covenants customary for financings of this type. The Loan Agreement provides that, upon the occurrence of certain specified events of default customary for financings of this type, the Company’s obligations under the Loan Agreement may be automatically accelerated, whereupon the Company’s obligations under the Loan Agreement shall be immediately due and payable. At September 30, 2011, the Company believes it is in compliance with the Loan Agreement.

 

Upon repayment of the Term Loan in full, the Company is also obligated to make a final payment fee of $0.5 million (“Final Payment”) which the Company is accreting ratably over the term of the Term Loan to interest expense.  At September 30, 2011 and December 31, 2010, the Company had $0.2 million in capitalized deferred financing costs incurred in connection with the Term Loan and is amortizing these costs over the term of the Term Loan to interest expense.  Interest expense on the Term Loan including the accretion of the Final Payment and amortization of the deferred financing costs was $0.4 million and $1.2 million for the three and nine months ended September 30, 2011, respectively.

 

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(9)  Other Long-Term Liabilities

 

Other long-term liabilities include the following:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(In thousands)

 

Deferred Rent

 

$

434

 

$

450

 

Severance

 

12

 

685

 

Deferred Tax Liabilities

 

4,661

 

4,661

 

Deferred Income from Sale of Tax Benefits

 

510

 

 

Deferred Revenue

 

87

 

 

Loan Payable

 

541

 

581

 

Note Payable

 

 

32

 

Total

 

6,245

 

6,409

 

Less Current Portion

 

(264

)

(818

)

Long-Term Portion

 

$

5,981

 

$

5,591

 

 

(10) Stockholders’ Equity

 

In January 2011, the Company entered into a controlled equity offering sales agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which the Company may issue and sell up to 5,000,000 shares of its common stock from time to time through Cantor, acting as agent. The Company agreed to pay Cantor a commission of up to 5% of the gross proceeds from each sale and to reimburse Cantor for certain expenses incurred in connection with entering into the Cantor Agreement.  The Cantor Agreement terminates upon the sale of all 5,000,000 shares or upon ten day notice by either Cantor or the Company.  During the nine months ended September 30, 2011, the Company sold 575,000 shares of common stock under the Cantor Agreement and raised $2.2 million in net proceeds, after deducting commission and offering expenses.  During the three months ended September 30, 2011, the Company did not sell any shares of common stock under the Cantor Agreement.  As of September 30, 2011, the Company had 4,425,000 shares available to be sold under the Cantor Agreement.

 

In May 2011, the Company issued 11,500,000 shares of its common stock in an underwritten public offering, including the underwriter’s exercise of their full over-allotment option to purchase an additional 1,500,000 shares of common stock.  The net proceeds to the Company were $33.7 million, after deducting underwriting fees and offering expenses.

 

(11)  Stock-Based Compensation

 

A summary of stock option activity for the nine months ended September 30, 2011 is as follows:

 

 

 

Shares

 

Weighted
Average
Exercise
Price
Per Share

 

Weighted
Average
Remaining
Contractual
Term (In Years)

 

Options Outstanding at December 31, 2010

 

4,019,982

 

$

6.93

 

6.6

 

Granted

 

913,350

 

$

2.91

 

 

 

Exercised

 

 

$

 

 

 

Canceled

 

(398,195

)

$

7.77

 

 

 

Options Outstanding at September 30, 2011

 

4,535,137

 

$

6.05

 

7.1

 

Options Vested and Expected to Vest at September 30, 2011

 

4,472,565

 

$

6.08

 

7.0

 

Options Exercisable at September 30, 2011

 

2,809,966

 

$

7.09

 

6.0

 

Shares Available for Grant under the 2008 Plan

 

945,385

 

 

 

 

 

 

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2011 was $1.83.

 

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Table of Contents

 

A summary of restricted stock activity for the nine months ended September 30, 2011 is as follows:

 

 

 

Shares

 

Weighted
Average
Grant Date
Fair Value
(per share)

 

Outstanding and unvested at December 31, 2010

 

9,338

 

$

3.96

 

Granted

 

12,000

 

3.24

 

Vested

 

(12,338

)

(3.78

)

Canceled

 

 

 

Outstanding and unvested at September 30, 2011

 

9,000

 

$

3.24

 

 

Stock-based compensation expense for the three and nine months ended September 30, 2011 and 2010 was recorded as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In thousands)

 

Research and development

 

$

327

 

$

359

 

$

1,032

 

$

1,267

 

General and administrative

 

243

 

224

 

671

 

930

 

Total stock-based compensation expense

 

$

570

 

$

583

 

$

1,703

 

$

2,197

 

 

The fair values of employee stock options granted during the three and nine months ended September 30, 2011 and 2010 were valued using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Expected stock price volatility

 

70

%

67

%

68 - 70

%

65 - 67

%

Expected option term

 

6.0 years

 

6.2 years

 

6.0 years

 

6.2 years

 

Risk-free interest rate

 

1.9 – 2.5

%

2.2

%

1.9 – 2.9

%

2.2 – 3.2

%

Expected dividend yield

 

None

 

None

 

None

 

None

 

 

(12)  Income Taxes

 

Massachusetts, New Jersey and Connecticut are the three states in which the Company primarily operates or has operated and has income tax nexus. The Company is currently under examination for sales and use taxes by the State of Massachusetts for the period December 2008 through March 2011.  The Company completed an examination by the Internal Revenue Service with respect to 2008 which resulted in no change to our 2008 tax return.  The Company is not currently under examination by any other jurisdictions for any tax year.

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets, which are comprised principally of net operating loss carryforwards, capitalized R&D expenditures and R&D tax credit carryforwards. The Company has determined that it is more likely than not that it will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance was maintained at September 30, 2011 and December 31, 2010 against the Company’s net deferred tax assets.

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

·                  our ability to successfully complete product research and further development, including animal, preclinical and clinical studies, and commercialization of rindopepimut, CDX-011, CDX-1401, CDX-1135, CDX-1127, CDX-301 and other products and the growth of the markets for those product candidates;

 

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

 

·                  our ability to raise sufficient capital to fund our clinical studies, including our Phase 3 clinical trial for rindopepimut which we estimate will cost at least $50 million, and to meet our long-term liquidity needs, on terms acceptable to us, or at all;

 

·                  the cost, timing, scope and results of ongoing safety and efficacy trials of rindopepimut, CDX-011, CDX-1401, and other preclinical and clinical testing;

 

·                  our ability to fund and complete the development and commercialization of rindopepimut internally or to find another strategic partner to fund the development and commercialization of rindopepimut;

 

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

 

·                  the ability to negotiate strategic partnerships or other disposition transactions for our non-core programs;

 

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

 

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

 

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

 

·                  the timing, cost and uncertainty of obtaining regulatory approvals for product candidates;

 

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Table of Contents

 

·                  our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors;

 

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

 

·                  the factors listed under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for the year ended December 31, 2010 and other reports that Celldex files with the Securities and Exchange Commission.

 

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

 

OVERVIEW

 

We are a biopharmaceutical company currently focusing on the development of several immunotherapy technologies. Our lead programs include rindopepimut (CDX-110), a vaccine that is expected to enter into Phase 3 development for glioblastoma in the fourth quarter of 2011 and CDX-011, an antibody-drug conjugate currently in a randomized Phase 2b trial for treatment of advanced breast cancer. We have additional programs at various stages of clinical and preclinical development, including (i) CDX-1127, a therapeutic human antibody candidate for cancer indications, (ii) CDX-1307 and CDX-1401, APC Targeting Technology™ programs, and (iii) CDX-301, an immune cell mobilizing agent.  We are currently resourcing our priority programs and supplement the development of additional programs through external collaborations and funding.

 

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

 

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

 

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Table of Contents

 

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

 

Product (generic)

 

Indication/Field

 

Partner

 

Status

CLINICAL

 

 

 

 

 

 

CDX-110 (rindopepimut)

 

Glioblastoma

 

 

Phase 2b

CDX-011 (glembatumumab vedotin)

 

Metastatic breast cancer and melanoma

 

 

Phase 2b

CDX-1401

 

Multiple solid tumors

 

 

Phase 1/2

PRECLINICAL

 

 

 

 

 

 

CDX-1127

 

Lymphoma and other cancers

 

 

Preclinical

CDX-301

 

Cancer, autoimmune disease and transplant

 

 

Preclinical

CDX-1135

 

Renal disease

 

 

Preclinical

CDX-014

 

Ovarian and renal cancer

 

 

Preclinical

MARKETED PRODUCTS

 

 

 

 

 

 

Rotarix®

 

Rotavirus infection

 

GlaxoSmithKline

 

Marketed

 

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

 

Clinical Phase

 

Estimated
Completion
Period

Phase 1

 

1 - 2 Years

Phase 2

 

1 - 5 Years

Phase 3

 

1 - 5 Years

 

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

 

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

 

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

 

·                  the number of clinical sites included in the trials;

 

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

 

·                  the efficacy and safety profile of the product candidate.

 

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

 

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

 

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Table of Contents

 

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

 

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

 

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

 

During the past five years through December 31, 2010, we incurred an aggregate of $96.4 million in research and development expenses. The following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the nine months ended September 30, 2011 and 2010. The amounts disclosed in the following table reflect direct research and development costs, license fees associated with the underlying technology and an allocation of indirect research and development costs to each program.

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Rindopepimut

 

$

4,249

 

$

968

 

CDX-011

 

3,593

 

3,329

 

CDX-1127

 

4,800

 

2,674

 

CDX-1401

 

1,888

 

2,299

 

CDX-301

 

856

 

3,931

 

CDX-1135

 

3,553

 

651

 

CDX-014

 

347

 

87

 

CDX-1307

 

1,410

 

3,333

 

Other Programs

 

1,919

 

3,636

 

Total R&D Expense

 

$

22,615

 

$

20,908

 

 

Clinical Development Programs

 

Rindopepimut (CDX-110)

 

Our lead clinical development program, rindopepimut, is a peptide-based immunotherapy that targets the tumor specific molecule called EGFRvIII, a functional variant of the naturally expressed epidermal growth factor receptor (“EGFR”), a protein which has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not present in normal tissues, and has been shown to be a transforming oncogene that can directly contribute to the cancer cell growth. EGFRvIII is commonly present in glioblastoma, or GB, also commonly referred to as glioblastoma multiforme or GBM, the most common and aggressive form of brain cancer, and has also been observed in various other cancers such as lung, liver, and head and neck cancer. The Food and Drug Administration

 

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(“FDA”) and the European Medicines Agency (“EMA”) have granted orphan drug designation for rindopepimut for the treatment of EGFRvIII expressing GB and the FDA has also granted Fast Track designation.

 

In April 2008, we and Pfizer Inc. (“Pfizer”) entered into a License and Development Agreement (the “Pfizer Agreement”) under which Pfizer was granted an exclusive worldwide license to rindopepimut. The Pfizer Agreement also gave Pfizer exclusive rights to the use of EGFRvIII vaccines in other potential indications. The Pfizer Agreement also provided for reimbursement by Pfizer of all costs incurred by us in connection with the collaboration since the effective date.  In November 2010, the Pfizer Agreement was terminated (the “Pfizer Termination”) and all rights to rindopepimut were returned to us. Pfizer did not provide a reason for termination.  Effective with the Pfizer Termination, Pfizer is no longer funding the development of rindopepimut.

 

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

 

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

 

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

 

The following table summarizes the progression free survival (“PFS”) and overall survival (“OS”) rates from clinical trials of rindopepimut as reported in November 2010 as compared to matched historical controls and the standard of care.

 

 

 

Median PFS from
diagnosis (months)

 

Median OS from
diagnosis (months)

 

OS at 24 months

 

ACT III (n=65)

 

12.3

(1)

24.3

(2)

50

%(2)

ACT II (n=22)

 

15.3

 

24.4

 

50

%

ACTIVATE (n=18)

 

14.2

 

24.6

 

50

%

Matched historical control (n=17)(3) 

 

6.4

 

15.2

 

6

%

Standard of care radiation/TMZ (n=287)(4) 

 

6.9

 

14.6

 

27

%

 


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

 

(2)                                  Overall survival data for ACT III are estimated and not yet final.

 

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

 

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Table of Contents

 

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

 

Importantly, rindopepimut showed a similar benefit in patients whether or not they expressed an active DNA repair gene (MGMT) that has been shown to limit the benefit from TMZ treatment. In ACT III, the number of patients who were expected to be resistant to the TMZ chemotherapy appeared to do better with vaccination than the numbers observed in the historical data. Patients who have an active DNA repair gene, MGMT (unmethylated), generally have a worse outcome, presumably because they do not gain much benefit from TMZ as reported in the literature. Patients with a methylated MGMT promoter in their tumor do not express MGMT and have a more favorable outcome to TMZ treatment. Patients with methylated tumors (n=25) that were treated with the rindopepimut regimen experienced a median PFS of 17.2 months, which compares favorably with the published data from the SOC of radiation plus TMZ (R+TMZ) of 10.3 months. Those with unmethylated tumors (n=40) treated with the rindopepimut regimen experienced a PFS of 11.2 months, which compared favorably to the PFS with SOC of 5.3 months in this patient population. Thus, rindopepimut would appear to benefit both methylated and unmethylated MGMT patients.  We expect to present final median OS data from the ACT III study in the fourth quarter of 2011.

 

We are currently planning to initiate a pivotal Phase 3 randomized, multi-national, controlled study of rindopepimut in patients with newly-diagnosed, resected GB in the fourth quarter of 2011.  We expect that it will cost at least $50 million to complete this Phase 3 study.   We are also planning to initiate a Phase 2 randomized study of rindopepimut in combination with Avastin® in recurrent or refractory GB patients in the fourth quarter of 2011.  In addition, researchers at Stanford University are conducting a pilot trial of rindopepimut in pediatric patients with pontine glioma in an investigator sponsored trial.  Patient screening is ongoing for this trial.

 

Glembatumumab Vedotin (CDX-011)

 

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

 

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

 

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

 

For all patients treated at the maximum dose level, tumor shrinkage was seen in 62% (16/26) and median PFS was 9.1 weeks. A subset of 10 patients had “triple negative disease,” a more aggressive breast cancer subtype that carries a high risk of relapse and reduced survival as well as limited therapeutic options due to lack of over-expression of HER2/neu, estrogen and progesterone receptors. In these patients, 78% (7/9) had any tumor shrinkage, 12-week PFS rate was 70% (7/10), and median PFS was 17.9 weeks. Tumor samples from a subset of patients across all dose groups were analyzed for GPNMB expression. The tumor samples from most patients showed evidence of stromal and/or tumor cell expression of GPNMB. The most common treatment-related toxicities were fatigue, rash, nausea, alopecia (hair loss), neutropenia and vomiting.

 

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In May 2010, the FDA granted Fast Track designation to CDX-011 for the treatment of advanced, refractory/resistant GPNMB-expressing breast cancer.

 

In September 2010, we initiated a randomized Phase 2b controlled study in patients with heavily pre-treated, advanced breast cancer whose tumors are confirmed to express GPNMB via a validated, centralized diagnostic assay. We expect that a significant portion of the enrolled patients will have triple-negative disease, since GPNMB is frequently expressed in this patient population. Patients will be randomized (2:1) to receive either CDX-011 or single-agent “Investigator’s Choice” chemotherapy. Activity endpoints will include objective response rate (“ORR”), PFS and OS. We expect to complete enrollment of 120 patients at approximately 20-25 clinical sites in the United States in the fourth quarter of 2011 with preliminary data expected in mid 2012.

 

Treatment of Metastatic Melanoma:  In June 2006, a Phase 1/2 open-label, multi-center, dose escalation study was initiated to evaluate the safety, tolerability and pharmacokinetics of CDX-011 for patients with un-resectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. A total of 117 patients were enrolled in this trial. The trial initially evaluated doses of CDX-011 between 0.03 mg/kg to 2.63 mg/kg given once every three weeks. CDX-011 was generally well tolerated, with rash and neutropenia emerging at higher doses. The MTD was determined to be 1.88 mg/kg administered intravenously (IV) once every three weeks.

 

The study achieved its primary activity objective with an ORR in the Phase 2 cohort of 15% (5/34). Median PFS was 3.9 months. CDX-011 was found to be active in advanced melanoma patients in the study. The most frequent treatment-related adverse events included rash, fatigue, alopecia (hair loss), pruritus, diarrhea and neuropathy.

 

More frequent dosing schedules of CDX-011 were also evaluated, including a weekly and a two out of every three-week regimen, to explore if more frequent administration can provide additional activity in patients with metastatic melanoma. Doses of 1.0 mg/kg given once every week and 1.5 mg/kg given for two out of three weeks were identified as the MTD in each schedule. The response rate was observed to be 20% and 33%, respectively. This increased activity was accompanied by increased toxicity.

 

In the subset of patients with tumor biopsies, high levels of tumor expression of GPNMB appeared to correlate with favorable outcome. In the seven patients whose tumors were found to express high amounts of GPNMB, and who were treated at the maximum tolerated doses across all dosing schedules, median PFS was 4.9 months. The development of rash, which may be associated with the presence of GPNMB in the skin also seemed to correlate with greater PFS.

 

Melanoma is a difficult disease to work with and, at this point in time, our intention is to first focus our resources on advancing CDX-011 in breast cancer. We intend to conduct additional Phase 2 development of CDX-011 in combination with other therapies in investigator sponsored studies to further develop this product candidate in melanoma.

 

CDX-1401

 

CDX-1401, also developed from the APC Targeting Technology, is a fusion protein consisting of a fully human monoclonal antibody with specificity for the dendritic cell receptor, DEC-205, linked to the NY-ESO-1 tumor antigen. In humans, NY-ESO-1 has been detected in 20 - 30% of all melanoma, lung, esophageal, liver, gastric, prostate, ovarian and bladder cancers, thus representing a broad opportunity. This product is intended to selectively deliver the NY-ESO-1 antigen to APCs for generating robust immune responses against cancer cells expressing NY-ESO-1. Unlike CDX-1307, which targets the mannose receptor expressing dendritic cells, CDX-1401 is the first APC product targeting DEC-205 expressing dendritic cells. We are developing CDX-1401 for the treatment of malignant melanoma and a variety of solid tumors which express the proprietary cancer antigen NY-ESO-1, which we licensed from the Ludwig Institute for Cancer Research in 2006.  We believe that preclinical studies have shown that CDX-1401 is effective for activation of human T-cell responses against NY-ESO-1.

 

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

 

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poly-ICLC or Hiltonol™ and/or R848 or resiquimod. We expect to enroll up to 70 patients with solid tumor cancers at multiple clinical sites in the United States.

 

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

 

Preclinical and Other Development Programs

 

CDX-1127

 

CDX-1127 is a human monoclonal antibody that targets CD27, a member of the tumor necrosis factor (TNF) receptor superfamily.  We have entered into license agreements with the University of Southampton, UK for intellectual property related to uses of anti-CD27 antibodies and with Medarex for access to the UltiMab technology to develop and commercialize human antibodies to CD27.  CD27 acts downstream from CD40 and may provide a novel way to regulate the immune responses. CD27 is a co-stimulatory molecule on T cells and is over-expressed in certain lymphomas and leukemias.  CDX-1127 is an agonist antibody designed to have 2 potential therapeutic mechanisms. CDX-1127 has been shown to activate immune cells that can target and eliminate cancerous cells in tumor bearing mice, and to directly kill or inhibit the growth of CD27 expressing lymphomas and leukemias in vitro and in vivo. Both mechanisms have been seen even at low doses in appropriate preclinical models.

 

We plan to initiate an open label, dose-escalating Phase 1 study to determine the optimal dose for further development based on the safety, tolerability, pharmacokinetics and activity of CDX-1127 in the fourth quarter of 2011.  The trial will evaluate up to five doses of CDX-1127 in patients with selected refractory or relapsed solid tumors or hematologic malignancies that express CD27.  The study will accrue up to 90 patients at multiple clinical sites in the United States.

 

CDX-301

 

CDX-301 is a FMS-like tyrosine kinase 3 ligand (Flt3L) that we licensed from Amgen in March 2009. CDX-301 is a growth factor for stem cells and immune cells called dendritic cells. Based on previous experience with this molecule, we believe that CDX-301 has considerable opportunity in various transplant settings as a stem cell mobilizing agent. In addition, CDX-301 is an immune modulating molecule that increases the numbers and activity of specific types of immune cells. We believe CDX-301 has significant opportunity for synergistic development in combination with other proprietary molecules in our portfolio.  We plan to initiate a dose-escalating Phase 1 study of CDX-301 in approximately 30 healthy subjects in collaboration with Rockefeller University in the fourth quarter of 2011.

 

CDX-1135

 

CDX-1135 is a molecule that inhibits a part of the immune system called the complement system. The complement system is a series of proteins that are important initiators of the body’s acute inflammatory response against disease, infection and injury. Excessive complement activation also plays a role in some persistent inflammatory conditions. CDX-1135 is a soluble form of naturally occurring Complement Receptor 1 that inhibits the activation of the complement cascade in animal models and in human clinical trials. We believe that regulating the complement system could have therapeutic and prophylactic applications in several acute and chronic conditions, including organ transplantation, multiple sclerosis, rheumatoid arthritis, age-related macular degeneration (“AMD”), atypical Hemolytic Uremic Syndrome (“aHUS”), Paroxysmal Nocturnal Hemaglobinuria (“PNH”), Dense Deposit Disease (“DDD”) in kidneys, and myasthenia gravis.  In 2011, we increased our efforts to complete process development activities, plan for GMP manufacturing and define the most appropriate clinical development path for CDX-1135.  We are currently focusing on rare disease conditions of unregulated complement activation as the fastest route to FDA approval.

 

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CDX-014

 

CDX-014 is a fully-human monoclonal ADC that targets TIM-1, an immunomudulatory protein that appears to down regulate immune response to tumors. The antibody, CDX-014, is linked to a potent chemotherapeutic, monomethyl auristatin E (MMAE), using Seattle Genetics’ proprietary technology. The ADC is designed to be stable in the bloodstream, but to release MMAE upon internalization into TIM-1-expressing tumor cells, resulting in a targeted cell-killing effect. CDX-014 has shown potent activity in preclinical models of ovarian and renal cancer.

 

CDX-1307

 

CDX-1307, developed from the APC Targeting Technology™, targets the beta chain of human chorionic gonadotropin, known as hCG-Beta, which is an antigen often found in epithelial tumors. The presence of hCG-Beta in these cancers correlates with a poor clinical outcome, suggesting that this molecule may contribute to tumor growth. Normal adult tissues have minimal expression of hCG-Beta; therefore, targeted immune responses are not expected to generate significant side effects.

 

Two Phase 1 studies investigated the safety and immunogenicity of CDX-1307 alone and in combination with adjuvants, including GM-CSF and Toll-Like Receptor (“TLR”) agonists (poly-ICLC or Hiltonol™ and R848 or resiquimod).  The Phase 1 studies enrolled over 80 patients with heavily pretreated, advanced-stage colorectal, breast, pancreatic, bladder/ureteral, ovarian and testicular cancer that are known to express hCG-Beta. All patient cohorts demonstrated a favorable safety profile with no dose limiting toxicity. The combination of CDX-1307 with TLR agonists significantly enhanced immune responses against hCG-Beta.

 

In May 2010, we initiated a 60 patient randomized (1:1) Phase 2 controlled study to evaluate the CDX-1307 regimen in both neoadjuvant and adjuvant settings in patients with newly diagnosed muscle-invasive bladder cancers that express hCG-Beta.  In April 2011, we amended the study design to be a 30 patient single-arm study. In June 2011, in connection with the prioritization of our resources, we discontinued the Phase 2 study and plan to further develop CDX-1307, if at all, in investigator sponsored studies.

 

Marketed Products

 

Rotavirus Vaccine

 

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

 

In May 2005, we entered into an agreement whereby an affiliate of Paul Royalty Fund II, L.P. (“PRF”) purchased a 70% interest in the milestone payments and net royalties that we will receive on the development and worldwide sales of Rotarix®. We have received a total of $60 million in milestone payments under the PRF agreement. No additional milestone payments are due from PRF under the agreement. The PRF agreement terminates on December 12, 2012, unless otherwise extended.

 

Royalty rates on Rotarix® escalate from 7% to 10% based on net product sales in countries that have valid patent protection. These royalty rates are discounted by 30% for “non-patent” countries (primarily international markets). In September 2006, we received notice from Glaxo that Glaxo would begin paying royalties on sales of Rotarix® vaccine at the lower of the two royalty rates under their 1997 license agreement. Glaxo’s decision to pay the lower royalty rate (which is 70% of the full rate) is based upon Glaxo’s assertion that Rotarix® is not covered by

 

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the patents Glaxo licensed from us in Australia and certain European countries. We are currently evaluating the basis for Glaxo’s action and our potential remedies. If Glaxo’s position stands, the royalties to which PRF is entitled will no longer be limited by a $27.5 million annual threshold. With respect to the $27.5 million annual threshold, if worldwide net royalties on sales of Rotarix® exceed $27.5 million in any year, we would retain approximately 65% of all royalties in excess of $27.5 million. Irrespective of Glaxo’s position, we will still retain approximately 65% of the royalties on worldwide sales of Rotarix® if PRF receives 2.45 times the aggregate cash payments of $60 million it made to us, though the potential amount of such residual royalties will be lower if Glaxo’s position stands.

 

CRITICAL ACCOUNTING POLICIES

 

Our critical accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 and there have been no material changes to such critical accounting policies.  We believe our most critical accounting policies include accounting for business combinations, revenue recognition, impairment of long-lived assets, research and development expenses and stock-based compensation expense.

 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2011 compared with Three Months Ended September 30, 2010

 

 

 

Three Months Ended
September 30,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2011

 

2010

 

$

 

%

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

Product Development and Licensing Agreements

 

$

40

 

$

1,371

 

$

(1,331

)

(97

)%

Contracts and Grants

 

5

 

 

5

 

n/a

 

Product Royalties

 

2,318

 

1,037

 

1,281

 

124

%

Total Revenue

 

$

2,363

 

$

2,408

 

$

(45

)

(2

)%

Operating Expense:

 

 

 

 

 

 

 

 

 

Research and Development

 

8,594

 

7,215

 

1,379

 

19

%

Royalty

 

2,318

 

1,218

 

1,100

 

90

%

General and Administrative

 

2,273

 

2,421

 

(148

)

(6

)%

Gain on Sale of Assets

 

 

(50

)

50

 

100

%

Amortization of Acquired Intangible Assets

 

656

 

483

 

173

 

36

%

Total Operating Expense

 

13,841

 

11,287

 

2,554

 

23

%

Operating Loss

 

(11,478

)

(8,879

)

2,599

 

29

%

Investment and Other Income, Net

 

144

 

124

 

20

 

16

%

Interest Expense

 

(438

)

(332

)

106

 

32

%

Net Loss

 

$

(11,772

)

$

(9,087

)

$

2,685

 

30

%

 

Net Loss

 

The $2.7 million increase in net loss for the three months ended September 30, 2011 was primarily due to an increase in research and development expense and a decrease in product development and licensing agreement revenue.

 

Revenue

 

The $1.3 million decrease in product development and licensing agreement revenue for the three months ended September 30, 2011 was primarily due to the Pfizer Termination which resulted in us recognizing the remaining deferred revenue related to the Pfizer Agreement in 2010.  The $1.3 million increase in product royalty revenue for the three months ended September 30, 2011 was related to our retained interests in Rotarix® net royalties

 

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which were not sold to PRF and which is equal to the amount payable to CCH and recognized in royalty expense by us.

 

Research and Development Expense

 

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

 

 

 

Three Months Ended
September 30,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2011

 

2010

 

$

 

%

 

 

 

(In thousands)

 

Personnel

 

$

3,123

 

$

3,035

 

$

88

 

3

%

Laboratory Supplies

 

388

 

390

 

(2

)

(1

)%

Facility

 

1,196

 

1,199

 

(3

)

 

Product Development

 

2,810

 

1,657

 

1,153

 

70

%

 

Personnel expenses primarily include salary, benefits, stock-based compensation and payroll taxes.  Personnel expense for the three months ended September 30, 2011 was relatively consistent as compared to the three months ended September 30, 2010.  We expect personnel expenses to increase over the next twelve months as we plan to continue to increase our headcount, primarily in clinical research personnel in preparation for our planned Phase 3 study of rindopepimut.

 

Laboratory supply expenses include laboratory materials and supplies, services, and other related expenses incurred in the development of our technology.  Laboratory supply expenses for the three months ended September 30, 2011 was relatively consistent as compared to the three months ended September 30, 2010.  We expect supply expenses to increase over the next twelve months as a result of increased research and development activities, although there may be fluctuations on a quarterly basis.

 

Facility expenses include depreciation, amortization, utilities, rent, maintenance, and other related expenses incurred at our facilities. Facility expense for the three months ended September 30, 2011 was relatively consistent as compared to the three months ended September 30, 2010.  We expect facility expenses to remain relatively consistent over the next twelve months, although there may be fluctuations on a quarterly basis.

 

Product development expenses include clinical investigator site fees, external trial monitoring costs, data accumulation costs, contracted research and outside clinical drug product manufacturing. The $1.2 million increase in product development expenses for the three months ended September 30, 2011 was due to an increase in clinical trial costs of $1.2 million primarily due to our rindopepimut and CDX-011 programs.  We expect product development expenses to increase over the next twelve months due to the increase in clinical trial expense primarily related to our rindopepimut program, although there may be fluctuations on a quarterly basis.

 

Royalty Expense

 

Royalty expenses include product royalty and sublicense royalty fees on our out-licensed programs. The $1.1 million increase in royalty expenses for the three months ended September 30, 2011 was primarily due to an increase in Rotarix® related royalty fees. Our retained interests in Rotarix® net royalties which were not sold to PRF are recorded as product royalty revenue and a corresponding amount that is payable to CCH is recorded as royalty expense.

 

General and Administrative Expense

 

The $0.1 million decrease in general and administrative expenses for the three months ended September 30, 2011 was primarily due to a decrease in legal and patent costs.  We expect general and administrative expense to remain relatively consistent over the next twelve months, although there may be fluctuations on a quarterly basis.

 

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Amortization Expense

 

The $0.2 million increase in amortization expenses for the three months ended September 30, 2011 was primarily due to certain intangible assets becoming fully amortized or written off during 2011.  We expect amortization expense of acquired intangible assets to decrease over the next twelve months, although there may be fluctuations on a quarterly basis.

 

Investment and Other Income, Net

 

Investment and other income, net for the three months ended September 30, 2011 was relatively consistent as compared to the three months ended September 30, 2010.  We anticipate investment income to decrease over the next twelve months due to lower cash and investment balances caused by the utilization of cash and investment balances in the normal course of funding our operations.

 

Interest Expense

 

The $0.1 million increase in interest expense for the three months ended September 30, 2011 was primarily due to our Term Loan that we entered into in December 2010 and amended in March 2011.  In February 2011, we paid $12.8 million to satisfy all outstanding principal and accrued interest related to the CuraGen Debt.  We anticipate interest expense to decrease over the next twelve months as we will begin making principal payments on our Term Loan on April 1, 2012.

 

Nine Months Ended September 30, 2011 compared with Nine Months Ended September 30, 2010

 

 

 

Nine Months Ended
September 30,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2011

 

2010

 

$

 

%

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

Product Development and Licensing Agreements

 

$

65

 

$

4,117

 

$

(4,052

)

(98

)%

Contracts and Grants

 

5

 

220

 

(215

)

(98

)%

Product Royalties

 

6,761

 

4,735

 

2,026

 

43

%

Total Revenue

 

$

6,831

 

$

9,072

 

$

(2,241

)

(25

)%

Operating Expense:

 

 

 

 

 

 

 

 

 

Research and Development

 

22,615

 

20,908

 

1,707

 

8

%

Royalty

 

6,761

 

5,277

 

1,484

 

28

%

General and Administrative

 

6,899

 

7,848

 

(949

)

(12

)%

Gain on Sale of Assets

 

(50

)

(50

)

 

 

Amortization of Acquired Intangible Assets

 

1,622

 

2,660

 

(1,038

)

(39

)%

Total Operating Expense

 

37,847

 

36,643

 

1,204

 

3

%

Operating Loss

 

(31,016

)

(27,571

)

3,445

 

12

%

Investment and Other Income, Net

 

307

 

3,379

 

(3,072

)

(91

)%

Interest Expense

 

(1,358

)

(1,002

)

356

 

36

%

Net Loss

 

$

(32,067

)

$

(25,194

)

$

6,873

 

27

%

 

Net Loss

 

The $6.9 million increase in net loss for the nine months ended September 30, 2011 was primarily due to an increase in research and development expense and a decrease in product development and licensing agreement revenue and other income.

 

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Revenue

 

The $4.1 million decrease in product development and licensing agreement revenue for the nine months ended September 30, 2011 was primarily due to the Pfizer Termination which resulted in us recognizing the remaining deferred revenue related to the Pfizer Agreement in 2010.  The $0.2 million decrease in contracts and grants revenue for the nine months ended September 30, 2011 was due to a decrease in revenue related to our vaccine development work on Rockefeller’s CDX-2401 program.  The $2.0 million increase in product royalty revenue for the nine months ended September 30, 2011 was primarily related to our retained interests in Rotarix® net royalties which were not sold to PRF and which is equal to the amount payable to CCH and recognized in royalty expense by us.

 

Research and Development Expense

 

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

 

 

 

Nine Months Ended
September 30,

 

Increase/
(Decrease)

 

Increase/
(Decrease)

 

 

 

2011

 

2010

 

$

 

%

 

 

 

(In thousands)

 

Personnel

 

$

9,505

 

$

9,185

 

$

320

 

3

%

Laboratory Supplies

 

1,508

 

1,133

 

375

 

33

%

Facility

 

3,567

 

3,934

 

(367

)

(9

)%

Product Development

 

5,898

 

4,332

 

1,566

 

36

%

 

The $0.3 million increase in personnel expenses for the nine months ended September 30, 2011 was primarily due to higher headcount, partially offset by a decrease in stock-based compensation expense.

 

The $0.4 million increase in laboratory supply expense for the nine months ended September 30, 2011 was primarily due to renovations to our Fall River manufacturing facility during which manufacturing activities ceased for the nine months ended September 30, 2010.

 

The $0.4 million decrease in facility expenses for the nine months ended September 30, 2011 was primarily due to lower depreciation and amortization expenses.

 

The $1.6 million increase in product development expenses for the nine months ended September 30, 2011 was primarily due to an increase in clinical trial costs of $1.8 million primarily due to our rindopepimut and CDX-011 programs.

 

Royalty Expense

 

The $1.5 million increase in royalty expenses for the nine months ended September 30, 2011 was primarily due to an increase in Rotarix® related royalty fees, partially offset by the lack of sublicense royalty fees during the nine months ended September 30, 2011 due to the Pfizer Termination which resulted in us recognizing the remaining deferred sublicense fees related to the Pfizer Agreement in 2010.

 

General and Administrative Expense

 

The $0.9 million decrease in general and administrative expenses for the nine months ended September 30, 2011 was primarily due to a decrease in stock-based compensation, patent and other professional service expense.

 

Amortization Expense

 

The $1.0 million decrease in amortization expenses for the nine months ended September 30, 2011 was primarily due to intangible assets acquired in connection with the CuraGen Merger including the TopoTarget Agreement.  In February 2010, TopoTarget entered into a co-development and commercialization agreement for

 

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Table of Contents

 

Belinostat with Spectrum Pharmaceuticals, Inc. which resulted in our receipt of $3.0 million which we recorded as Other Income for the nine months ended September 30, 2010 and we recorded amortization expense related to the TopoTarget Agreement of $1.5 million for the nine months ended September 30, 2010.

 

Investment and Other Income, Net

 

The $3.1 million decrease in investment and other income, net for the nine months ended September 30, 2011 was primarily due to $3.0 million received in connection with the TopoTarget Agreement.

 

Interest Expense

 

The $0.4 million increase in interest expense for the nine months ended September 30, 2011 was primarily due to our Term Loan.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2011, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $62.8 million. Our working capital at September 30, 2011 was $53.6 million. At September 30, 2011, our Term Loan balance was $15.1 million. We incurred a loss of $32.1 million for the nine months ended September 30, 2011.  Net cash used in operations for the nine months ended September 30, 2011 was $26.3 million. We believe that the cash, cash equivalents and marketable securities at September 30, 2011 in addition to interest income on invested funds and our ability to control certain costs, including those related to clinical trials, manufacturing and preclinical activities, are sufficient to meet estimated working capital requirements and fund planned operations for at least the next twelve months.

 

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

 

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

 

We raised net proceeds of $35.9 million from the sale of our common stock during the nine months ended September 30, 2011.  During the next twelve months, we expect to take further steps to raise additional capital to fund our planned Phase 3 study of rindopepimut which we expect to cost at least $50 million and to meet our long-term liquidity needs including, but not limited to, one or more of the following: the licensing of technology programs with existing or new collaborative partners, possible business combinations, issuance of debt, or the issuance of common stock or other securities via private placements or public offerings. While we continue to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and our negotiating position in capital-raising efforts may worsen as existing resources are used. There is also no assurance that we will be able to enter into further collaborative relationships. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and licensing or strategic collaborations may result in royalties or other terms which reduce our economic potential from products under development. If we are unable to raise the funds necessary to meet our long-term liquidity needs, we may have to delay or discontinue the development of one or more programs, discontinue or delay on-going or anticipated clinical

 

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trials, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, or sell all or part of us.

 

Operating Activities

 

Net cash used in operating activities was $26.3 million for the nine months ended September 30, 2011 compared to $24.4 million for the nine months ended September 30, 2010.  The increase in net cash used in operating activities was primarily due to changes in working capital and decreases during the nine months ended September 30, 2011 in other income and the related amortization of intangible assets resulting from the $3.0 million received in connection with the TopoTarget Agreement during the nine months ended September 30, 2010.   We expect that cash used in operations will continue to increase over the next twelve months primarily related to our rindopepimut program.

 

We have incurred and will continue to incur significant costs in the area of research and development, including preclinical and clinical trials, as our product candidates are developed. We plan to spend significant amounts to progress our current product candidates through the clinical trial and commercialization process as well as to develop additional product candidates. As our product candidates progress through the clinical trial process, we may be obligated to make significant milestone payments to our collaborators.

 

Investing Activities

 

Net cash used in investing activities was $10.2 million for the nine months ended September 30, 2011 compared to $23.7 million for the nine months ended September 30, 2010. The decrease in net cash used in investing activities was primarily due to net purchases of marketable securities for the nine months ended September 30, 2011 of $9.9 million as compared to $22.1 million for the nine months ended September 30, 2010. We expect that cash provided by investing activities will increase over the next twelve months as we fund our operations through the net proceeds from the sale and maturity of marketable securities, cash provided by financing activities and/or new partnerships, although there may be significant fluctuations on a quarterly basis.

 

Financing Activities

 

Net cash provided by financing activities was $28.3 million for the nine months ended September 30, 2011 compared to $0.9 million for the nine months ended September 30, 2010.  The increase in net cash provided by financing activities was primarily due to the $35.9 million in net proceeds we received through the sale of 11,500,000 shares of our common stock in an underwritten public offering in May 2011 and the sale of 575,000 shares of common stock under the Cantor Agreement during the nine months ended September 30, 2011.  In February 2011, we paid $12.5 million to satisfy all outstanding principal related to the CuraGen Debt.  In March 2011, we amended the Loan Agreement and borrowed an additional $5 million from GECC to increase the amount owed under the Term Loan to $15 million.

 

Equity Offering

 

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

 

On January 6, 2011, we entered into a controlled equity offering sales agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which we may issue and sell up to 5,000,000 shares of our common stock from time to time through Cantor, acting as agent. We agreed to pay Cantor a commission of up to 5% of the gross proceeds from each sale and to reimburse Cantor for certain expenses incurred in connection with entering into the Cantor Agreement.  The Cantor Agreement terminates upon the sale of all 5,000,000 shares or upon ten day notice by either Cantor or us.  During the nine months ended September 30, 2011, we sold 575,000 shares of common stock under the Cantor Agreement and raised $2.2 million in net proceeds, after deducting commission and offering expenses.  During the three months ended September 30, 2011, we did not sell any shares of common stock under the Cantor Agreement.  As of September 30, 2011, we had 4,425,000 shares available to be sold under the Cantor Agreement.

 

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In May 2011, we issued 11,500,000 shares of our common stock in an underwritten public offering, including the underwriter’s exercise of their full over-allotment option to purchase an additional 1,500,000 shares of common stock.  The net proceeds to us were $33.7 million, after deducting underwriting fees and offering expenses.

 

Term Loan

 

On December 30, 2010, we entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC (“MidCap”) pursuant to which we borrowed $10 million (the “Term Loan”) from MidCap. In March 2011, we amended the Loan Agreement and borrowed an additional $5 million from GECC to increase the amount owed under the Term Loan to $15 million. No additional advances are available under the Loan Agreement. The Term Loan accrues interest at a fixed annual interest rate equal to the greater of (i) the sum of (A) the LIBOR Rate (as defined in the Loan Agreement) plus (B) 6.25%; or (ii) a minimum rate of 9.50%.  In September 2011, we exercised an option to extend the interest-only period by 6 months from October 1, 2011 to April 1, 2012.  Interest on the Term Loan is payable monthly and principal is due in 22 equal consecutive monthly installments commencing on April 1, 2012.  All unpaid principal and accrued interest with respect to the Term Loan is due and payable on the earlier of (A) December 30, 2013 or (B) the date that the Term Loan otherwise becomes due and payable under the terms of the Loan Agreement. We may prepay all, but not less than all, of the Term Loan subject to a prepayment premium of 1% in year three, 2% in year two, and 4% in year one of the original principal amount of the Term Loan.  Upon repayment of the Term Loan in full, we are also obligated to make a final payment fee of $0.5 million (“Final Payment”).

 

Our obligations under the Loan Agreement are secured by a first priority lien upon and security interest in substantially all of our existing and after-acquired assets, excluding our intellectual property assets. Under the Loan Agreement, we are subject to specified affirmative and negative covenants customary for financings of this type. The Loan Agreement provides that, upon the occurrence of certain specified events of default customary for financings of this type, our obligations under the Loan Agreement may be automatically accelerated, whereupon our obligations under the Loan Agreement shall be immediately due and payable.  At September 30, 2011, we believe we are in compliance with the Loan Agreement.

 

AGGREGATE CONTRACTUAL OBLIGATIONS

 

Except as set forth below, the disclosures relating to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2010 which was filed with the SEC on March 9, 2011 have not materially changed since we filed that report.

 

In September 2011, we exercised an option to extend the interest-only period by 6 months from October 1, 2011 to April 1, 2012.  Interest on the Term Loan is payable monthly and principal is due in 22 equal consecutive monthly installments commencing on April 1, 2012.

 

Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

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

 

We do not utilize derivative financial instruments. The carrying amounts reflected in the consolidated balance sheet of cash and cash equivalents, accounts receivables and accounts payable approximates fair value at September 30, 2011 due to the short-term maturities of these instruments.

 

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Item 4.         Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.

 

As of September 30, 2011, we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2011. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1.         Legal Proceedings

 

None.

 

Item 1A.      Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

 

There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2011.

 

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Item 6.

Exhibits

 

 

2.1

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

3.1

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

3.2

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

3.3

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

3.4

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

3.5

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

3.6

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

3.7

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

4.3

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

10.1

Employment Agreement dated July 1, 2011 by and between the Company and Ronald A. Pepin, Ph.D. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on July 6, 2011 with the Securities and Exchange Commission.

*10.2

Master Services Agreement dated March 29, 2010 by and between the Company and Prologue Research International, Inc. (“Prologue”)

*10.3

Amendment to Master Services Agreement dated July 6, 2011 by and between the Company and Novella Clinical Inc. (formerly known as Prologue)

*31.1

Certification of President and Chief Executive Officer

*31.2

Certification of Senior Vice President and Chief Financial Officer

**32.1

Section 1350 Certifications

101.1+

XBRL Instance Document.

101.2+

XBRL Taxonomy Extension Schema Document.

101.3+

XBRL Taxonomy Extension Calculation Linkbase Document.

101.4+

XBRL Taxonomy Extension Definition Linkbase Document.

101.5+

XBRL Taxonomy Extension Label Linkbase Document.

101.6+

XBRL Taxonomy Extension Presentation Linkbase Document.

 


*

Filed herewith.

**

Furnished herewith.

+

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

 

30



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SIGNATURES

 

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

 

 

CELLDEX THERAPEUTICS, INC.

 

 

 

BY:

 

 

 

/s/ ANTHONY S. MARUCCI

Dated: November 3, 2011

Anthony S. Marucci

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

/s/ AVERY W. CATLIN

Dated: November 3, 2011

Avery W. Catlin

 

Senior Vice President, Treasurer and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

 

Description

2.1

 

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

3.1

 

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

3.2

 

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

3.3

 

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

3.4

 

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

3.5

 

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

3.6

 

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

3.7

 

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

4.3

 

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

10.1

 

Employment Agreement dated July 1, 2011 by and between the Company and Ronald A. Pepin, Ph.D. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on July 6, 2011 with the Securities and Exchange Commission.

*10.2

 

Master Services Agreement dated March 29, 2010 by and between the Company and Prologue Research International, Inc. (“Prologue”)

*10.3

 

Amendment to Master Services Agreement dated July 6, 2011 by and between the Company and Novella Clinical Inc. (formerly known as Prologue)

*31.1

 

Certification of President and Chief Executive Officer

*31.2

 

Certification of Senior Vice President and Chief Financial Officer

**32.1

 

Section 1350 Certifications

101.1+

 

XBRL Instance Document.

101.2+

 

XBRL Taxonomy Extension Schema Document.

101.3+

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.4+

 

XBRL Taxonomy Extension Definition Linkbase Document.

101.5+

 

XBRL Taxonomy Extension Label Linkbase Document.

101.6+

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 


*

 

Filed herewith.

**

 

Furnished herewith.

+

 

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

 

32


EXHIBIT 10.2

 

CONFIDENTIAL

 

MASTER SERVICES AGREEMENT

 

THIS MASTER SERVICES AGREEMENT (“MSA”) is effective as of the 29 day of March, 2010 (the “Effective Date”), by and between Celldex Therapeutics Inc. (“Celldex”) with headquarters at 119 Fourth Avenue, Needham, MA 02494, USA and Prologue Research International, Inc. (“Prologue”), with offices at 580 North Fourth Street, Suite 270, Columbus, Ohio 43215, USA.

 

WHEREAS, Prologue is engaged in providing clinical trial-related services in connection with the research and development of pharmaceutical products;

 

WHEREAS, Celldex is an integrated biopharmaceutical company that applies its comprehensive Precision Targeted Immunotherapy Platform to generate a pipeline of candidates to treat cancer and other difficult-to-treat diseases; and

 

WHEREAS, Celldex desires to engage Prologue to perform certain designated services relating to management of clinical trials in cancer patients.

 

NOW THEREFORE, in consideration of the premises and the mutual promises and undertakings herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Services

 

1.1 Master Agreement. This MSA is intended by the parties to be a “master” form of contract and allows Prologue to work on one or more projects for Celldex without having to re-negotiate the basic terms and conditions contained herein. The parties contemplate that one or more studies will be conducted under this MSA, each under a separate agreed written Statement of Work as described below. Each agreed Statement of Work shall be duly signed by authorized representatives of both Parties and added to this MSA and incorporated herein. In the case of a conflict between a specific term in a Statement of Work and this MSA the Statement of Work shall control.

 

1.2 Appointment. Prologue will perform services (the “Services”) for an individual project which will be described in a Statement of Work (“SOW”) covering the project and shall report regularly to Celldex regarding progress under such SOW including provision of all data, work products and results. In addition to a description of the Services, the SOW will also contain a budget, payment schedule and a Transfer of Obligations for the specific project. The term “Services” as used herein means work done on a project by Prologue for Celldex under a Statement of Work. If requested by Celldex, Prologue will advise

 



 

Celldex of the names and provide Celldex with the resume(s) of personnel prior to assigning them to perform the Services.

 

1.3 Change in Law or Rules Governing Clinical Trials. In the event the Food, Drug, and Cosmetic Act (the “Act”), or any rule or regulation governing any Services including without limitation any Good Clinical Practice regulation is amended revised or revoked during the term of this Agreement, the parties will discuss the effect of such change on the Agreement and/or on Services being provided under this MSA and work together in good faith to implement any necessary changes to the Services.

 

1.4 Sponsor under 21 CFR §312.52. Celldex remains the sponsor of all studies performed hereunder and has not transferred any obligations to Prologue pursuant to 21 CFR §312.52 unless specified in a Transfer of Obligations attached to and made a part of a Statement of Work. In any such instances, the obligations of Prologue will be mutually agreed to by Celldex and Prologue in writing. Celldex is responsible for the relationship with the Food and Drug Administration (“FDA”) unless specified in a Statement of Work.

 

1.5 Changes to Agreement. The terms of this Agreement may be amended or modified by mutual, written agreement of Celldex and Prologue. If Celldex wishes to change the scope of Services covered by a Statement of Work or this Agreement, or wishes to obtain additional services not initially covered by this Agreement or a Statement of Work, or wishes to reduce or remove any of the Services covered by a Statement of Work, Celldex shall so advise Prologue and the parties will negotiate diligently and in good faith any revisions to the Services and related changes in fees and expenses. Prologue shall have no obligation to implement a modification, expend resources or provide additional services in the absence of a signed amendment to this Agreement; provided, however, that in the event Prologue does provide additional services or expend resources, at Celldex’s written request and in accordance with Celldex’s requirements, in the absence of a written amendment, Celldex will compensate and/or reimburse Prologue for all fees and reasonable costs incurred on a time and materials basis.

 

1.6 Compliance with Applicable Laws. Prologue shall perform all of its Services set forth herein in strict accordance with:

 

2



 

a) all applicable statutes, rules, guidelines, and regulations, including without limitation (as far as applicable to data management and biometrics services and to regional law);

 

(i) the United States Food, Drug and Cosmetic Act, as amended, and any and all rules and regulations promulgated there under (the “Act”), Title 21 Code of Federal Regulations (“CFR”) Parts 50, 56 and 312, and any other applicable FDA regulations or guidance documents;

(ii) European Commission Directive 2001/20 EC; (iv) and any applicable laws relating to patient privacy; and

(iii) ICH guidelines and Good Clinical Practices;

 

b) the Protocol;

c) Prologue’s or Celldex’s Standard Operating Procedures (SOP’s); and

d) any other written instructions from Celldex.

 

1.7 Debarment. Prologue represents and warrants that it has never been debarred and, none of its employees, affiliates, subcontractors, or agents has ever been 1) debarred 2) threatened to be debarred or 3) to the best of its knowledge after due inquiry, indicted for a crime or otherwise engaged in conduct for which a person can be debarred, under Section 306(a) or (b) of the Food, Drug and Cosmetic Act [21 USC 335aj (“Section 306(a) or (bY). Prologue agrees that it will promptly notify Celldex in the event of any such debarment, conviction, threat or indictment related to the performance of Services hereunder. The terms of this paragraph shall survive the termination or expiration of this Agreement.

 

1.8 Conflict of Interest. Prologue shall be free to provide services or conduct or sponsor clinical or research studies involving other parties, so long as a its agreement with any such third party does not prevent it from performing its obligations under this Agreement.

 

2. Compensation and Expenses

 

2.1 Payment for Service. As compensation for Prologue’s performance of the Services described in each Statement of Work, Celldex shall pay Prologue fees for Services in the amounts and upon the terms specified in the study budget (“Budget”) attached to and made a part of each Statement of Work, in the manner stated in the payment schedule (the “Payment Schedule”) attached to said Budget.

 

2.2 Travel & Out-of-Pocket Expenses. Celldex will reimburse Prologue for travel and other reasonable out-of-pocket expenses incurred by Prologue personnel where incurred for the specific purpose of performance of Prologue’s obligations under the Scope-of-work. All pass through costs invoiced to Celldex will be at actual cost with no mark-up for administration or overhead. In the event Prologue incurs a pass through cost in a currency other than U.S. Dollars, the parties shall determine the

 

3



 

amount payable based on the relevant conversion rate as reported in the Wall Street Journal on the invoice date. Travel and reasonable out-of-pocket expenses shall include the following:

 

a) Travel throughout the United States and Europe via commercial airlines, economy class; train or rental car.

b) Local travel to places other than Prologue’s office by personal car at a rate to be agreed between the parties for each country;

c) Actual and reasonable lodging and meal expenses;

d) Actual and reasonable telephone expenses, mailing expenses, express courier expenses, facsimile expenses and photocopying expenses incurred in the performance of the Services under this Agreement; and

e) Other reasonable and necessary expenses as approved by Celldex.

 

2.3 Invoices. Prologue shall submit a reasonably detailed invoice of such travel and out-ofpocket expenses to Celldex each month. Prologue shall retain originals of receipts and shall permit Celldex to review and copy such receipts upon reasonable request.

 

2.4 Applicable Taxes. Professional fees and out-of-pocket expenses shall be subject if necessary to VAT or other state or local taxes at the appropriate rate in force.

 

2.5 Payment in US Dollars. All invoices and payments will be in U.S. Dollars. Celldex will pay all invoices, via check or wire transfer of immediately available funds, within thirty (30) days of its receipt of an invoice. Invoices not paid within 30 days may be subject to interest which shall accrue and be payable at the rate of 12% per annum, calculated at the rate of 1 % per month.

 

2.6 Payment Disputes. In the event Celldex disputes one or more items in an invoice, Celldex will notify Prologue in writing within ten (10) working days of receipt of the invoice and such notice shall contain a reasonably specific description of the item(s) being disputed and the basis therefore. Prologue will respond to Celldex within ten (10) working days of receipt of the notification. This written communication pattern will continue until Prologue has provided Celldex with sufficient justification for the disputed item(s) or until the parties agree to a resolution of the disputed amount. Celldex shall pay the undisputed portion of the invoice within 30 days of receipt of the invoice and shall use commercially reasonable efforts to pay the disputed amount within 15 days of resolution of the dispute.

 

4



 

3. Confidentiality

 

3.1 Access to Confidential Information. Each party acknowledges that in connection with the performance of the Services, it may receive, learn or have access to confidential, trade secret, or proprietary information owned or controlled by the other party or third parties to whom the other party has an obligation of confidentiality (“Confidential Information”).

 

3.2 Description of Confidential Information. Celldex’s Confidential Information shall include, without limitation, information regarding Celldex’s business, services, methodologies, marketing strategies, business plans and proposals, employees and personnel, standard operating procedures, prices and rates, technology, tools, programs and software programs; scientific or technical information including any experimental results, trade secret, invention, idea, procedure, formulation, process, formula or data; any information relating to Celldex drug products and proposed drug products; any information arising from the Services; current or proposed studies on Celldex products; prior research and results of studies on Celldex’s drug products; and reports and decisions resulting from clinical trials on Celldex’s drug products. Prologue Confidential Information shall include, without limitation, information regarding Prologue’s business including: information regarding Prologue services and documentation; business proposals, prices and rates; employees and personnel; business plans; marketing strategies, standard operating procedures, data, experimental results and trade secrets; business methodologies and processes and associated algorithms, tools, programs, software architecture and technology.

 

3.3 Obligation of Confidentiality and Non-Use. Each party agrees that: (a) it will use the other party’s Confidential Information only as may be necessary in connection with provision of the Services (or in the case of Celldex, such Confidential Information may be used by Celldex for the development of its study drug); (b) it will maintain all Confidential Information in trust and treat such Confidential Information as confidential and proprietary; (c) without the prior written consent of the other party, it will not disclose such Confidential Information orally or in writing to any third party (except however, to disclose such information to its respective agents, consultants or representatives, or IRB/Ethics Committee members, all of whom have a need to know such information in connection with the purpose for which it is disclosed to the party and only after such agents, consultants or representatives, or IRB/Ethics Committee members have been advised of the confidential nature of such information and are bound by an obligation of confidentiality to the receiving party under terms substantially similar to the terms of this Agreement.); (d) it will take all reasonable precautions to protect the Confidential Information; and (e) it will not otherwise appropriate such Confidential Information to its own use or to the use of any other person or entity. Without limiting the foregoing, each party agrees to take at least such precautions to protect the other party’s Confidential Information as it takes to protect its own Confidential Information.

 

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3.4 Return of Confidential Information. Upon termination of this Agreement and request by the other party, each party will return to the other party or certify as destroyed all tangible items containing any of the other party’s Confidential Information that are held by that party or its employees, agents or contractors. However, each party may retain archive copies of information as required by applicable regulatory requirements. Each party agrees to notify the other party if it becomes aware of any unauthorized use or disclosure of the other party’s Confidential Information.

 

3.5. Disclosure Required by Law. If either party believes it is required by law or by a subpoena or court order to disclose any of the other party’s Confidential Information, it shall promptly notify the other party prior to any disclosure and shall make all reasonable efforts to allow the other party an opportunity to seek a protective order or other judicial relief.

 

3.6 Exceptions to Non-Use & Confidentiality. Nothing in this Agreement shall be construed to restrict disclosure or use of information that as shown by competent written proof (a) was in the possession of or rightfully known by the recipient, without an obligation to maintain its confidentiality, prior to receipt from the other party; (b) is or becomes generally known to the public without violation of this Agreement; (c) is obtained by the recipient in good faith from a third party having the right to disclose it without an obligation of confidentiality; (d) is independently developed by the receiving party without reference to or use of the other party’s Confidential Information.

 

3.7 Confidentiality Term. The obligation of confidentiality and non-disclosure set forth in this Section 3 shall remain in effect for a period of ten (10) years after the expiration and/or termination of this Agreement. The terms and obligations of confidentiality and non-use of the parties contained in this Section 3 shall survive termination or expiration of this Agreement and the completion of the Services by Prologue.

 

3.8 Patient Information. Each party agrees not to disclose or utilize individual patient or medical claim information in any way that would violate any physician-patient confidence or any applicable laws or regulations. Any information containing personally identifiable patient data shall be handled in accordance with all applicable privacy laws, rules and regulations.

 

4. Term and Termination

 

4.1 Term. This Agreement shall commence on the Effective Date and shall remain in full effect until three (3) years after the Effective Date or until the last Statement of Work is completed. This Agreement may be renewed by mutual written consent of the parties for such additional period as the parties may agree upon.

 

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4.2 Termination for Breach. In the event that either party commits a breach or default in any of the terms or conditions of this Agreement, and that party fails to remedy the default or breach within thirty (30) days after receipt of written notice of the default or breach from the other party, the party giving notice may, at its option, immediately terminate this Agreement or any Statement of Work attached to this Agreement at the end of the 3~-day notice period.

 

4.3 Termination by Celldex. Celldex shall have the right to terminate this Agreement (for other than default or breach by Prologue) or any Statement of Work attached to this Agreement at any time by giving appropriate written notice at least sixty (60) days prior to the desired termination date.

 

4.4 Termination by Prologue._Prologue shall have the right to terminate this Agreement (for other than default or breach by Celldex or any Statement of Work attached to this Agreement at any time by giving appropriate written notice at least sixty (60) days prior to the desired termination date. Notwithstanding anything in the forgoing sentence to the contrary, Prologue may, upon fifteen (15) days prior written notice to Celldex, terminate this Agreement or cease performing its obligations hereunder, without such cessation resulting in a Prologue breach or default, if Celldex fails to make payment to Prologue as required by Section 2 of this Agreement (after application of Subsection 2.6).

 

4.5 Termination for Insolvency. Either party shall have the right to terminate this Agreement at any time upon written notice to the other party, if the other party has reasonable basis for believing the other party is about to become insolvent or bankrupt, the other party shall be adjudicated insolvent or shall petition for or consent to any relief under any insolvency, re-organization, receivership, liquidation, compromise, or any moratorium statute, whether now or hereafter in effect, or shall make an assignment for the benefit of its creditors, or shall petition for the appointment of a receiver, liquidator, trustee, or custodian for all or a substantial part of its assets, or if a receiver, liquidator, trustee or custodian is appointed for all or a substantial part of its assets and is not discharged within thirty (30) days after the date of such appointment. In the event that any of the events contemplated in this Section 4.3 occur, that party shall immediately notify the other, in writing, of its occurrence.

 

4.6 Payment of Fees & Expenses upon Termination. Upon termination or expiration of this Agreement, or any Statement of Work attached to this Agreement, Celldex will pay Prologue all fees due and expenses incurred or irrevocably committed up to the date notice of termination is received or date of expiration, plus fees and expenses for phase-down work associated with the Services following the date of receipt of notice, which are necessary for patient safety, government requirement compliance and/or which are requested by Celldex and agreed to by Prologue in an amendment to this Agreement or to a Statement of Work.

 

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4.7 Winding Down of Services Upon Termination. Upon termination of this Agreement or of a Statement of Work attached to this Agreement, Prologue shall immediately cease providing Services there under. Prologue shall cooperate with Celldex, at Celldex’s reasonable request, to develop and begin implementing a wind-down plan for the services including where appropriate the transition to new service provider(s) designated by Celldex; provided, however, that Celldex compensates Prologue for all services provided in connection with such wind-down plan on a time and materials basis or other mutually agreed-upon rate. In connection with any termination or expiration of this Agreement, Prologue shall return to Celldex all copies of all materials, data, work product, specimens, reports and all other property of Celldex under this Agreement (subject to the provisions of Subsection 3.4).

 

5. Indemnification

 

5.1 Celldex Indemnification. Celldex agrees to indemnify and hold harmless Prologue, its affiliates and their respective officers, directors, employees, agents and other representatives against claims, expenses, or losses arising out of or related to this Agreement or the Services, except to the extent that such claims, expenses or losses result from Prologue’s or any other indemnitee’s negligence, wrongful acts or willful misconduct.

 

5.2 Prologue Indemnification. Prologue agrees to indemnify and hold harmless Celldex, its affiliates and their respective officers, directors, employees, agents and other representatives against claims, expenses or losses resulting from Prologue’s negligence, wrongful acts or willful misconduct, except to the extent that such claims result from Prologue’s actions taken at the specific direction of Celldex or Celldex’s negligence, wrongful acts or willful misconduct.

 

5.3 Notice of Claim. Each party’s obligations under Section 5 of this Agreement are further conditioned upon the indemnified party giving the indemnifying party timely written notice and assistance in the defense of any claim, proceeding or investigation; provided however, that failure of the indemnified party to give such notice shall not limit the indemnified party’s right to indemnification except in such case where such failure materially and adversely affects the indemnifying party’s ability to defend against such claim, proceeding or investigation and then only to the extent of such adverse effect.

 

5.4 Consent for Settlement of Claim. Neither party will enter into any settlement agreement that attributes fault or negligence to the other party, requires any payment by the other party, or restricts the future actions or activities of the other party, without the other party’s prior written consent.

 

5.5 Limitation of Liability. With the exception of liability arising out of the obligation of confidentiality set forth in Section 3 or the indemnification provisions of this Agreement set forth in Section

 

8



 

5, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER OR TO ANY THIRD PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL PUNITIVE OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT.

 

6. Representations and Warranties

 

6.1 Mutual Representations. Each party represents and warrants the following: (a) that it is authorized to enter into this Agreement and that the terms of this Agreement are not inconsistent with or a violation of any contracted or other legal obligation to which it is subject; and (b) that in performing under this Agreement it shall (i) conduct business in conformance with sound ethical standards of integrity and honesty and in compliance with all applicable laws, regulations and guidelines; (ii) conduct business in such a way as to not give the appearance of impropriety, even when the behavior or activity is in compliance with the law; and (iii) not achieve business results by illegal act or unethical conduct.

 

6.2 Licenses & Permits. Prologue represents that it has all necessary or appropriate qualifications, authorizations, licenses or permits to perform the Services.

 

7. Dispute Resolution

 

7.1 Resolution of Disputes. Celldex and Prologue recognize that a bona fide dispute may arise under this Agreement which may relate to either party’s rights and/or obligations hereunder or under any Statement of Work attached to this Agreement. Celldex and Prologue agree that they shall use all commercially reasonable efforts to resolve, in an amicable manner, any dispute that may arise.

 

7.2 Injunctive Relief. Notwithstanding the provisions of Section 7.1, each party reserves the right to seek injunctive or other relief in a court of competent jurisdiction if it believes that immediate relief is necessary to protect its business interest.

 

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8. Patents, Rights in Work Product and Trade Secrets

 

8.1 Inventions & Discoveries. The parties acknowledge and agree that any invention, discovery, or improvement directly related to Celldex’s study drug, protocol, or Celldex’s Confidential Information, which is conceived or reduced to practice as a direct consequence of Prologue’s performance of Services hereunder (the “Inventions”) shall be Celldex’s exclusive property and can be used by Celldex as it deems appropriate. Prologue shall promptly disclose in writing to Celldex details of all such Inventions.

 

8.2 Assignment of Rights. Prologue agrees to execute and have executed assignments of the Inventions (or any and all rights therein) to Celldex, along with other documents that may be necessary or helpful to Celldex in filing patent applications, or which may relate to any litigation or interference and/or controversy in connection therewith. The entire control, prosecution, and conduct of any patent application filed by Celldex shall be outside the jurisdiction of and without expense to Prologue and its officers, employees, representatives and agents. Prologue acknowledges that Celldex has the exclusive right to file patent applications and own patents in connection with the Inventions.

 

8.3 Work for Hire. The parties expressly agree that all original works of authorship, reports, data, technical information, communications, materials, and/or concepts and plans developed by Prologue which are or have been made, conceived or written by Prologue or its employees and which are based upon Services performed by Prologue for Celldex pursuant to this Agreement is a work made for hire as defined under 17 USC §101 and shall belong exclusively to Celldex, including, without limitation, all rights to obtain copyrights therein. In cases where an original work or a copy of an original work cannot be assigned to and owned by Celldex, Celldex shall be notified by Prologue, and Prologue shall obtain rights of use in Celldex’s favour, as Celldex may require. All communications, materials and artwork provided by Celldex shall remain the property of Celldex, including, without limitation, any copyrights or other intellectual property rights therein.

 

8.4 Intellectual Property of a Party Owned Prior to Agreement. Each party agrees that all inventions, processes, technology, know-how, trade secrets, improvements, other intellectual property and other assets, including, without limitation, computer programs and software (including code), applications, databases, methods, techniques, processes and other materials and ideas of or used by the other party under this Agreement, and not supplied to one party by such other party (“Prologue Technology” or “Celldex Technology” as the case may be), are the exclusive property of the relevant party or its licensors. The parties agree that any improvements, alterations or enhancements to the other party’s Technology during the term of this Agreement or any SOW conducted under this Agreement shall be the sole property of such party. In no event shall Prologue be precluded from use of its general knowledge, skills and experience, and of any ideas, concepts, know-how and techniques used or learned

 

10



 

in the course of providing Services under this Agreement. No rights or licenses to any patent rights or any other proprietary rights of Celldex are implied or granted under this Agreement.

 

9. Communications and Payments

 

9.1 Notices. Except as otherwise provided herein, all notices, consents, or approvals required under this Agreement will be in writing delivered personally or delivered by facsimile, electronic mail, first class mail, or by a commercial overnight courier that guarantees next day delivery (in the case of notice by facsimile or electronic mail, a confirmation shall thereafter be transmitted to the addressee by first class mail or by a commercial overnight courier that guarantees next day delivery), addressed as follows:

 

If to Celldex:

 

If to Prologue:

Celldex Therapeutics, Inc.

 

Prologue Research International, Inc.

119 Fourth Avenue

 

540 North Fourth Street, Suite 270

Needham, MA 02494

 

Columbus, Ohio 43215

USA

 

USA

Attention: President/CEO

 

Attention: President/CEO

Phone: (781) 433-0771

 

Phone: +1 (614) 324-1500

Fax: (781) 433-0262

 

Fax: +1 (614)324-0683

 

9.2 Payments. Payments made by Celldex to Prologue via check should be mailed to the Columbus, Ohio address above, Attention: Accounts Receivable.

 

10. Insurance

 

10.1 Prologue Insurance. Prologue warrants that throughout the term of this Agreement it shall maintain a policy or program of insurance or self-insurance at levels sufficient to support its obligations of indemnification assumed herein in paragraph 5.2. The amount shall not be less than $3,000,000 for each occurrence for liability arising out of bodily injury, property damage and personal injury and a $2,000,000 umbrella policy excluding products and completed operations. Upon written request, Prologue will provide evidence of its insurance or if self-insured, its most recent audited financial statement to Celldex. Prologue will provide to Celldex thirty (30) days prior written notice of any change in or cancellation of its insurance or self-insurance.

 

10.2 Celldex Insurance. Celldex warrants that throughout the term of this Agreement it shall maintain a policy of insurance at levels sufficient to support its indemnification obligations assumed in paragraph 5.1 herein, but the amount shall not be less than $5 million for each occurrence and $5 million aggregate for bodily injury, personal liability or death. Such insurance shall be Comprehensive General Liability Insurance, Excess Umbrella Liability Insurance and Products Liability Insurance (and shall

 

11



 

include coverage for clinical trials liability, Contractual liability and products liability) for personal and bodily injury and broad form property damage. Such insurance shall be on an occurrence basis (except Products Liability Insurance which is on a claims made basis) and shall (a) be with insurance carriers acceptable to Prologue, (b) name Prologue as an additional insured, and (c) provide that Celldex shall give Prologue thirty (30) days prior written notice of any change in or cancellation of its insurance. If requested by Prologue, Celldex shall deliver certificate(s) of insurance evidencing such coverage prior to the execution of this Agreement.

 

11. Miscellaneous

 

11.1 Independent Contractors. The parties hereto are independent contractors. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, franchise or joint venture relationship between the parties. Neither party shall incur any debts or make any commitments for the other except to the extent, if at all, specifically provided for in this Agreement or as otherwise authorized in writing.

 

11.2 Force Majeure. Neither Prologue nor Celldex shall incur any liability to the other in the event of non-performance or delay in the performance of its obligations under this Agreement if caused directly or indirectly by strikes, lockouts, inability to procure materials, failure of power, restrictive government or judicial orders, riots, insurrection, war, Acts of God, or other similar reasons beyond Prologue’s or Celldex’s control (“Force Majeure”). Any such non-performance shall be excused for the period of such delay, provided Prologue has used best efforts to mitigate the disruption in Services and the resulting costs of such delays to Celldex.

 

11.3 Publicity. Except as required by law, neither party shall use the name of the other party or disclose its relationship with the other party, the terms or existence of this Agreement, without the prior written consent of the other party in any press release or other public disclosure, whether such disclosure be in writing, orally or otherwise.

 

11.4 Assignment. Neither party shall have the right to assign this Agreement or any of the rights or obligations hereunder without the prior written consent of the other party, except that (a) either party may assign this Agreement to a parent or subsidiary company or to a successor to that area of its business to which this Agreement is related and in the case of Prologue that has the financial and operational capacity and ability to perform the obligations set forth in this Agreement and all Statements of Work attached to this Agreement; and (b) Celldex may assign this Agreement to any entity acquiring all or substantially all of the assets to which this Agreement relates or upon a merger or consolidation with another company.

 

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11.5 Maintenance of Records. Prologue shall maintain complete and accurate records relating to its performance of the Services and pass-through expenses incurred in connection therewith. Prologue agrees to maintain such records and data during and after the term or early termination of this Agreement in compliance with all applicable laws and regulatory requirements. Records and data should not be destroyed without contacting Celldex beforehand, who may request that said records be further maintained at Celldex’s expense. During the term of this Agreement and for one year thereafter, Celldex or its designee may, upon reasonable notice and at Celldex’s sole cost and expense, audit Prologue’s records, facilities or procedures related to Prologue’s provision of the Services. Celldex agrees to hold such records and procedures in confidence. Audits shall be conducted by Celldex on site at Prologue, in a manner designed to cause the least interruption to Prologue’s business operations. Celldex’s right to audit described in this Section 11.5 shall be limited to one (1) audit per 6-month period. Prologue shall notify Sponsor immediately of any impending inspection or audit by the FDA or other federal, state, or foreign government authority which relates to the Services.

 

11.6 Severability. If any provision of this Agreement is found invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall continue in full force and effect and the invalid or unenforceable provision shall be deemed amended to conform to applicable laws and to accomplish the intentions of the parties.

 

11.7 Complete Agreement. The parties hereto acknowledge that each has read this Agreement, understands it and agrees to be bound by its terms. The parties agree that this Agreement is the complete agreement between the parties on the subject matter and supersedes all proposals (oral or written), understandings, representations, conditions, warranties, covenants and other communications between the parties relating to the same subject matter.

 

11.8 Survival. The terms, provisions, representations and warranties contained in this Agreement that, by their sense and context are intended to survive the performance thereof by either party or both parties hereunder, shall so survive the completion of performance, expiration or termination of this Agreement.

 

11.9 Captions & Headings. The captions and headings in this Agreement are for convenience and reference only, and they shall in no way be held to explain, modify, or construe the meaning of the terms of this Agreement.

 

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11 .10 Counterpart Originals. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument.

 

11.11 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to the choice of law principles thereof. The parties hereby consent to the jurisdiction of the state and federal courts sitting in the State of New York, and any Courts of Appeal there from, in connection with any dispute arising in connection with this Agreement or the provision by Prologue of Services hereunder.

 

11.12. No Waiver. Failure on the part of Celldex or Prologue to exercise or enforce any right conferred upon it hereunder shall not be deemed to be a waiver of any such right nor operate to bar the exercise or enforcement thereof at any time or times thereafter.

 

IN WITNESS WHEREOF, the following have caused this General Services Agreement to be . executed by their respective duly authorized representatives effective as of the Effective Date.

 

 

CELLDEX THERAPEUTICS, INC.

 

PROLOGUE RESEARCH INTERNATIONAL, INC.

 

 

 

By:

/s/ Thomas Davis

 

By:

illegible

 

 

 

 

 

Name:

Thomas Davis MD

 

Name:

illegible

 

 

 

 

 

Title:

CMO

 

Title:

President

 

 

 

 

 

Date:

March 31, 2010

 

Date:

March 29, 2010

 

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EXHIBIT 10.3

 

AMENDMENT TO

MASTER SERVICES AGREEMENT

 

This Amendment (“Amendment”) is entered into effective as of the last date signed below (the “Effective Date”), by and between Celldex Therapeutics, Inc., with offices located at 119 Fourth Avenue, Needham, MA 02494 (“Celldex”), and Novella Clinical Inc., a Delaware corporation with principal offices located at 4309 Emperor Blvd., Suite 400, Durham, North Carolina 27703, formerly Prologue Research Internaltional, Inc. (“Novella”).

 

WHEREAS, Prologue Research International, Inc. (“Prologue”) and Celldex entered into that certain Master Services Agreement, dated effective March 29, 2010 (hereinafter the “MSA”); and

 

WHEREAS, Prologue was acquired by Novella Clinical, Inc. (“Novella”) effective December 31, 2010;

 

WHEREAS, the MSA between Prologue and Celldex included a provision that allowed assignment of the MSA to a successor which has the financial and operational capacity to perform the obligations set forth in the MSA;

 

WHEREAS, the parties mutually desire to amend the MSA in the manner set forth below.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

1. That the parties to this MSA are now Novella and Celldex.

 

2. The following language is added to Section 1 Services of the MSA:

 

Section 1.9 Investigator Payments. If Novella will be paying Investigators on behalf of Celldex, Novella will request advance funds for payments to sites. Novella’s initial invoice will estimate the administrative costs for the sites (Le., non-refundable setup fees, IRB fees, etc). For the per patient fees, Novella will estimate and invoice for the site reimbursement fees on a quarterly basis utilizing enrollment projections agreed to with Celldex. Should additional funds be required during the payment time frame established in the Work Order, Novella will submit an invoice to Celldex as soon as practical. Investigator payments are pass-through expenses and will be subject to the terms detailed in the Investigator Agreement with each site. Novella will not issue any payment to a site until funds are received from Celldex. Novella will provide Celldex with an accounting of funds disbursed to Investigators on a monthly basis and will reimburse any funds paid by Celldex which are not required to be passed on to Investigators. If VAT is charged by a site, Novella will pass this tax onto Celldex as a pass-through payment.

 

Section 1.10 Vendor Payments. If Novella will be paying outside Vendors on behalf of Celldex, Novella will provide Celldex with an estimate of the funding required for this purpose for each calendar quarter not later than 30 days prior to the start of said quarter. Celldex will transfer the required funding to Novella not less than three days prior to the beginning of the quarter. Payments will be subject to the terms detailed in

 



 

the specific agreements between the parties. Should additional funds be required in a quarter, Novella will submit a request to Celldex with appropriate documentation as soon as practicable. If not all funds are projected to be disbursed by the end of a given quarter, Novella will adjust the forecast for the following quarter accordingly. Novella will provide Celldex with an accounting of funds disbursed to Vendors, including applicable administration fees on a monthly basis and will reimburse any funds paid by Celldex which are not required to be passed on to Vendors. No payments will be made to Vendors until receipt of funds at Novella. Celldex shall be responsible for any late fees or penalties imposed on Novella by third party vendors as a result of late payments or nonpayment made by Celldex.

 

Section 1.11 Project Delay. In the event that a project delay or temporary project hold is requested by Celldex, the total sums payable by Celldex for Service Fees shall be prorated for actual Services completed in accordance with this MSA through the date of notification of delay or project hold. In addition, Celldex shall pay Novella for all noncancellable costs and for all Pass-through Costs, including those incurred in connection with the delay, as such costs are set forth in the SOW. Any final payment still owed to Novella, or any refund due Celldex, pursuant to this Section, will be made by Celldex or Novella, as applicable, within 30 days of the reconciliation invoice(s) from Novella. In the event the Celldex chooses to maintain Novella’s core team, the Parties shall negotiate in good faith to determine the appropriate amount to be paid by Celldex to Novella in light of the circumstances of delay, with such final agreement to be set forth in a amendment. Nothing herein obligates either Celldex or Novella to hold core team members for delays in excess of 60 days.

 

3. The following Sections of the MSA are revised:

 

Section 1.6Ca) Compliance with Applicable Laws is revised to add the following language,

 

(iv) the Medicines and Healthcare products Regulatory Agency, the European Medicines Agency and the General Medical Council;

 

(v) ICH Harmonised Tripartite Guideline for Good Clinical Practice (ICH_E-6) together with such other good clinical practice requirements as are specified in Directive 2001/20/EC of the European Parliament and the Council of 4 April 2001 relating to medicinal products for human use and in guidance published by the European Commission pursuant to such Directive;

 

(vi) Directive 200S/28/EC, the Human Rights Act 1998;

 

(vii) the Data Protection Act 1998, E.U. Data Protection Directive 9S/46/EC;

 

(viii) the Medicines Act 1968;

 

(ix) the Medicines for Human Use (Clinical Trial) Regulations 2004, and with all relevant guidance relating to medicines and clinical trials from time to time in force including, but not limited to, the World Medical Association Declaration of Helsinki entitled ‘Ethical Principles for Medical Research Involving Human Subjects’ (1996 version), the NHS Research Governance Framework for Health and Social Care (version 2, April 200S), guidelines from time to time in force and published by The Association of the British Pharmaceutical Industry in relation to clinical trials and in

 



 

particular those entitled “Clinical Trial Compensation Guidelines” (1991), and the regulations promulgated pursuant thereto.

 

Section 2.1 Travel & Out-of-Pocket Expenses, sentence 3 previously read, “ In the event Prologue incurs a pass through cost in a currency other than US Dollars, the parties shall determine the amount payable based on the relevant conversion rate as reported in the Wall Street Journal on the invoice date,”

 

Section 2.1 Travel & Out-of-Pocket Expenses, sentence 3 is revised to read as follows, “In the event Novella incurs a pass through cost in a currency other than US Dollars, the parties shall determine the amount payable based on the relevant conversion rate as reported as the daily average ask price rounded to the closest hundredths place at www,Oanda.com on the last day of the month that the invoice is paid by Novella.”

 

Section 2.4 Applicable Taxes previously read, “Professional fees and out-of-pocket expenses shall be subject if necessary to VAT or other state or local taxes at the appropriate rate in force.”

 

Section 2.4 Applicable Taxes is revised to read, “On global studies, all fees are exclusive of Value Added Tax (VAT). Taxes (and any penalties thereon) imposed on any payment made by Celldex to Novella for Services shall be the responsibility of Novella, Celldex is responsible for payment of all indirect taxes, including VAT and custom duties.

 

Section 2.5 Payment in US Dollars is revised to add the following language, “For Statements of Work that involve the performance of Services or incurrence of expenses by Novella in any countries that use currencies other than U.S. Dollars, then the baseline exchange rate will equal the exchange rate as reported as the daily average ask price rounded to the closest hundredths place (“Exchange Rate”) at www,Oanda.com on the effective date of each Statement of Work (“SOW”), The Exchange Rate will be reviewed on a semi-annual basis as of each six month anniversary of the effective date of each SOW. If the average Exchange Rate for the ten trading days prior to the date of the semiannual review deviates by more than five percent in either direction of the Exchange Rate in effect, then the parties agree to adjust the costs on amounts invoiced from that point forward. If the gain or loss is less than five percent, then no adjustment will be made.”

 

Section 9.2 Payments shall be deleted in its entirety and replaced with the following language:

 

“Payments to Novella shall be made to:

 

If by Courier:

Or by Wire Transfer at the following:

Novella Clinical Inc.

Novella Clinical Inc,

PO BOX 63267

First Citizens Bank, RTP Branch

Charlotte, NC 28263-3267

Routing Number = #########

Tax ID#: ## #######

Account Number = ############

 

Tax ID#: ## #######

 

Section 10.1 Prologue Insurance is deleted in its entirety, and replaced with the following language, “Novella will maintain insurance during the term of this MSA at levels

 



 

sufficient to support its obligations under each sow. The amount shall not be less than $1,000,000 for each occurrence, and $2,000,000 in the aggregate for Commercial General Liability, with an umbrella policy of $5,000,000 over top of the Commercial General Liability. Novella will provide copies of insurance certificates upon request and will give thirty (30) days prior written notification to Celldex of any cancellation or decrease in coverage in their coverage.”

 

Section 11.5 Maintenance of Records is deleted in its entirety and replaced with the following language:

 

“During the term of each SOW, Novella shall maintain all study related records and all other data obtained or generated by Novella in the course of providing the Services under that SOW, including all computerized records and files, in a secure area reasonably protected from fire, theft and destruction in compliance with all applicable laws and regulatory requirements. At the expiration or termination each SOW and upon written instruction of Celldex, all materials and all other data and information obtained or generated by Novella in the course of providing the Services hereunder shall, at Celldex’s option, be (i) delivered to Celldex at its offices in such form as is then currently in the possession of Novella, or (ii) disposed of, at the direction and written request of Celldex, unless such materials are otherwise required to be stored or maintained by Novella as a matter of law or regulation. Celldex shall have sole responsibility for the costs of shipping or destruction of the materials referred to herein. Celldex shall retain and be responsible for the performance of any carrier designated by Celldex for the shipping of materials. In no event shall Novella dispose of any materials or data or other information obtained or generated by Novella in the course of providing the Services hereunder without first giving Celldex sixty (60) days prior written notice of its intent to do so. Notwithstanding the foregoing, Novella may retain copies of any of the materials referred to herein as are deemed reasonably necessary, in Novella’s sole discretion, for regulatory or insurance purposes or to demonstrate the performance of its obligations hereunder, subject to its ongoing obligations to maintain the confidentiality of such materials.”

 

4. The following Sections are added to Section 11 Miscellaneous:

 

Section 11.13 Employment. Neither party shall not knowingly and intentionally, directly or indirectly, as a contractor, subcontractor, employer, joint venturer or otherwise, engage the services of any subcontractor, employee or agent of the other party who or which performs Services hereunder during the term of this engagement or for a period of one year following termination. The parties acknowledge that damages for any actual or anticipated breach of this MSA may be difficult or impossible to measure and therefore agree that in addition to any other legal or equitable rights, that either party shall be entitled to obtain temporary or permanent injunctive relief to enforce the terms hereof, all without notice or bond.”

 

Section 11.14 Inspections.

 

(a) Inspections by Sponsor. Novella shall cooperate with any internal review or audit by Celldex, and at Celldex’s sole cost and expense, make records pertinent to the contracted services available to Celldex and their agents for examination, during normal business

 



 

hours subject to at least 10 business days advance notice to Novella, the facilities where the Services are being conducted, study documentation, study data and any other relevant information necessary to confirm that the Services are being conducted in conformance with applicable standard operating procedures, the specific SOW, this Agreement and in compliance with applicable laws and regulations. Novella shall provide copies of any records pertaining to Celldex’s project reasonably requested by Celldex during such review or audit. Audits shall be conducted by Celldex on site at Novella, in a manner designed to cause the least interruption to Novella. Celldex’s right to perform a standard audit shall be limited to one audit per 6 month period. “For cause” audits are not limited.

 

(b) Inspections by Regulatory Agency. During the term of this Agreement, Novella agrees to permit regulatory authorities to examine the facilities where the Services are being conducted, study documentation, study data and any other relevant information, including information that may be designated by one or both of the parties as confidential, reasonably necessary for regulatory authorities to confirm that the Services are being conducted in compliance with applicable laws and regulations. Novella will promptly notify Celldex of any regulatory inspection, where it may involve a relation to Celldex Services.lf the inspection is related to the project, if possible, Novella agrees to permit representatives of Celldex to be present during the portion of the inspection that relates solely to Celldex’s project, and promptly provide Celldex with relevant portions or summary of any report issued after the inspection. All inspection fees charged by regulatory agencies shall be invoiced to Celldex as a pass-through expense, and Celldex shall pay such inspection fee pursuant to the terms of Section 2.”

 

Except as amended hereby, the MSA shall remain in full force and effect without modification. In the event of inconsistency between the terms of the MSA and this Amendment, the terms of this Amendment shall govern. Capitalized terms used and not otherwise defined herein shall have the meaning set forth in the MSA.

 

IN WI1NESS WHEREOF, the parties have executed this Amendment to the MSA as of the Effective Date.

 

NOVELLA CLINICAL INC.

 

CELLDEX THERAPEUTICS, INC.

 

 

 

By:

/s/ Charles R. Lambert

 

By:

/s/ Anthony S. Marucci

 

 

 

 

 

Name:

Charles R. Lambert

 

Name:

Anthony S. Marucci

 

 

 

 

 

Title:

CFO

 

Title:

President & CEO

 

 

 

 

 

Date:

June 8, 2011

 

Date:

July 6, 2011

 


 

Exhibit 31.1

 

CERTIFICATION

 

I, Anthony S. Marucci, certify that:

 

1.               I have reviewed this report on Form 10-Q 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)                                  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)                                 Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)                                  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)                                 Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)                                  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)                                 Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.