Could Bristol-Myers End Up Acquiring Celldex?

Celldex's shares jumped by more than a quarter following news that Bristol-Myers has paid Celldex $5 million up front and will pay half of development costs for a new study that teams Bristol's PD-1 drug nivolumab up with Celldex's promising varlilumab against solid tumor cancer.

The news appears to have surprised investors despite Celldex's deep ties to Medarex, a company bought by Bristol-Myers for more than $2 billion in 2009.

Bristol's up-front payment was small relative to upfront payments made by big pharma and big biotechs in the past year, but the real benefit to Celldex is in the renegotiation of its license with Medarex and the potential to cozy up more closely with Bristol's promising oncology business.

CLDX data. Source: YCharts.

Riding the roller coaster
Celldex was among last year's top performers, running more than 200% higher on enthusiasm for rindopepimut, a drug in phase 3 trials for a form of brain cancer that occurs in 30% of cases.

However, Celldex shares fell spectacularly in March, dropping nearly 40%, as investors shunned risk following dramatic gains across the industry. Those who jumped out of shares after the sell-off are likely wishing they'd taken a longer view.

In mid-stage trials, rindopepimut put up results that appear nothing short of impressive: 51% of patients receiving rindopepimut alongside the standard of care, Merck's Temodar, survived two years, significantly better than the 6% rate that is typical for the disease.

Temodar, which was approved as a treatment for brain cancer in 2005, lost patent exclusivity last year. Global sales totaled more than $700 million in 2013 and nearly $1 billion in 2012; however, new generic competitors reduced sales by 62% in the first quarter to $83 million.

Celldex hopes rindopepimut will prove as successful as Temodar, but that will only happen if rindopepimut puts up equally impressive results during its current phase 3 trials. Unfortunately, investors may have to wait a while to find out. The estimated primary completion date for that trial isn't until November 2016. In the meantime, investors should get data from Celldex's phase 2 trial of rindopepimut combined with Avastin in the second half of 2015.

In addition to rindopepimut, Celldex is also developing CDX-011, a treatment for triple negative breast cancer. Celldex used drug delivery technology from Seattle Genetics to develop CDX-011, and the drug is currently being evaluated in a phase 2 study that is slated for a primary completion date of September 2015.

Renegotiating a prior deal
Bristol's deal with Celldex expands its immense PD-1 nivolumab research program that includes more than 35 studies across more than 7,000 patients. Nivolumab and Merck's PD-1 drug MK-3475 have captured investors' attention as potential oncology blockbusters that could be used across a variety of cancer types.

Bristol hopes that combining nivolumab (originally developed by Medarex) with Celldex's varlilumab (a targeting antibody licensed to Celldex by Medarex) will improve efficacy in treating a range of solid tumors across non-small cell lung cancer, melanoma, ovarian, colorectal, and squamous cell head and neck cancer.

During preclinical studies, the two companies determined that varlilumab and nivolumab may be more effective when used as part of combination therapy than when used alone.

Whether that preclinical finding holds up in human trials is a big question, and investors won't know the answer for quite a while. Celldex doesn't expect to launch its phase 1/2 trial until the fourth quarter.

Foolworthy final thoughts
Bristol's deal with Celldex is atypical. Since Bristol owns Medarex and Medarex is due milestones and royalties from Celldex on varlilumab, Bristol renegotiated Celldex's contract instead of forking over big money. The new license cuts milestone payments and reduces royalty rates that Celldex would eventually owe Medarex if varlilumab makes its way to market.

The deal could also help pave the way to a closer combination between the two companies given that Celldex's C-Suite has substantial ties to Bristol's Medarex. After all, Celldex was first launched as a Medarex subsidiary back in 2004 and many of the company's top executives, including CEO Anthony Marucci, have previously served in senior roles at Medarex.

If Bristol's deal doesn't lead to a closer tie-up, Celldex still appears to have an intriguing future. Rindopepimut offers substantial new hope for brain cancer patients given survival rates in trials thus far appear to outpace rates typical under current standards of care. Since spending on brain cancer treatment is expected to climb from $4.4 billion in 2010 to as much as $8 billion in 2020, investors should pay close attention to Celldex. However, since Celldex doesn't have any products currently on the market, it still remains highly speculative and suitable for only the most aggressive investors.