Earnings Transcript for CLDX - Q2 Fiscal Year 2017

Executives: Sarah Cavanaugh - Senior Vice President, Corporate Affairs and Administration Anthony Marucci - Founder, President, Chief Executive Officer and Director Thomas Davis - Executive Vice President and Chief Medical Officer Sam Martin - Senior Vice President and Chief Financial Officer

Analysts: Allen Cha - Guggenheim Partners Mara Goldstein - Cantor Fitzgerald, L.P.

Operator: Good day, ladies and gentlemen, and welcome to the Celldex Therapeutics Midyear Call. I would like to turn the call over to Ms. Sarah Cavanaugh with Celldex. Ma'am, you may begin.

Sarah Cavanaugh: Thank you. Good afternoon and thank you for joining us today. With me on the call are Anthony Marucci, Co-Founder, President and CEO of Celldex; Dr. Tibor Keler, Co-Founder, Executive Vice President and Chief Scientific Officer; Dr. Tom Davis, Executive Vice President and Chief Medical Officer; Sam Martin, Senior Vice President and Chief Financial Officer; Dr. Rick Wright, Senior Vice President and Chief Commercial Officer. Before we begin our discussion, I'd like to mention that today's speakers will be making forward-looking statements. Such statements reflect our current views with respect to future events, and are based on assumptions, and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Certain of the factors that might cause Celldex's actual results to differ materially from those in the forward-looking statements include those set forth under the headings, risk factors and management's discussion and analysis of financial condition, and results of operations in Celldex's annual report on Form 10-K, quarterly report on Form 10-Q, and its current reports on Form 8-K, as well as those described in Celldex's other filings with the SEC, and its press releases. All forward-looking statements are expressly qualified in their entirety, by this cautionary notice. You should carefully review all of these factors, and be aware that there may be other factors that could cause these differences. These forward-looking statements are based on information, plans, and estimates as of this call, and Celldex does not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or other changes. Please be advised that the question-and-answer period will be held at the close of the call. I would now like to turn the call over to Anthony.

Anthony Marucci: Thank you, Sarah. Good afternoon and thank you for joining us. On today's call, we will update you on our clinical programs, outline key milestones for the remainder of the year, and then Sam Martin will review financial results. As announced in June, concurrent with the retirement of Chip Catlin, we promoted Sam Martin to Senior Vice President and Chief Financial Officer. Sam has been with us for eight years, and during that time, has not only provided us with corporate finance expertise but with leadership throughout the organization. The transition has been seamless and we are happy to have him in this role. As always, we look forward to answering your questions at the close of the call. As you saw in our press release this afternoon, regarding our lead antibody-drug conjugate program, glembatumumab vedotin, we have reached our target enrollment of 300 patients in the METRIC study and closed screening. Due to the inherent challenges in recruiting an enriched patient population, especially within an orphan indication, achieving this milestone is a significant accomplishment for Celldex. We anticipate formerly closing enrollment by the end of September, which gives time for eligible patients who have already been screened and identified as having tumors with high gpNMB expression to come on to the study. We will issue a press release when enrollment is formerly completed. Again, we believe by the end of September and we'll expect data from this study six to eight months after that announcement, so likely Q2 2018. I do want to take a minute to recognize the physicians who have supported METRIC, and most importantly, the patients who enrolled in the study. There is a significant amount of clinical research interest in triple negative breast cancer, given the high unmet-need and lack of effective targeted therapies. We believe that glemba's mechanism of action, its unique gpNMB target and the clinical evidence to date will support a differentiated product for patients with triple negative breast cancer. The successful METRIC is a study with potential for registration both in the U.S. and the EU. Importantly, we plan to seek input from the regulators on the filings as their feedback will be important in prioritizing and defining next steps and the associated timelines. These filings will be supported by the companion diagnostic and a fully validated commercial manufacturing process. As we discussed on our 2016 year-end call this past March, commercial manufacturing for an ADC is considerably more involved and more expensive than that of a typical antibody. And we made a decision to stage the most costly work in these areas, estimated at an incremental $40 million to $50 million spend to begin after we have data in hand. While this step will extend the timeline to complete our regulatory filings, we believe that this is the most prudent use of our funds as we seek to advance our pipeline overall. As said, we are progressing activities to support commercialization and have made good progress on a number of fronts. We have successfully established a complete manufacturing supply chain, working with established CMOs to produce the monoclonal antibody intermediate, the drug substance and the drug product at commercial scale. Further ongoing process characterization studies are defining the critical process parameters, that we will need to be established before proceeding the process performance qualification. We have also worked closely with our preferred diagnostic partner to define the process to transition from a current lab based diagnostic to a distributable test. We remain open to the possibility of bringing a partner onboard for glemba who could help maximize the opportunity across multiple indications and geographies, and believe the staged approach we have outlined supports this. Glemba has also been evaluated in the Phase 2 study, in patients with checkpoint refractory metastatic melanoma. At ASCO in June, we reported clear activity observed in the single-agent arm of the study, which Tom will review in detail. And we are building on these findings by investigating combination cohorts with checkpoint inhibitors and with our own varlilumab. We continue to expect data from the glemba-varli arm in the fall, and we are currently working to complete enrollment of the glemba checkpoint arm of the study. The current focus of our varli program is the Phase 2 study in multiple tumor types that we are conducting in collaboration with BMS. We continue to anticipate completing enrollment across all cohorts of the study by the first quarter of 2018, and we will work with BMS to present these results at a medical meeting next year. We recently shared positive mature data from the Phase 1 portion of the study at ASCO, that showed a good safety profile, ability to turn cold tumors hot, and clinical activity in patients not likely to benefit from checkpoint monotherapy. Tom will discuss this in detail - more data in more detail. The progress that we brought in-house from our acquisition of Kolltan last November, CDX-0158, an antibody that targets KIT, and CDX-3379, an antibody that targets ErbB3, both have been successfully integrated into our pipeline. We continue to expect to complete the Phase 1 dose escalation study of CDX-0158 and refractory GIST with data by year-end. We have also finalized plans for an open label Phase 2 study of CDX-3379 in patients with recurrent metastatic head and neck squamous cell cancers, who are refractory to Erbitux, also known by its generic name cetuximab. And we anticipate initiating this study in the fourth quarter of this year. We also remain on track to complete the dose escalation portion of the Phase 1 study of CDX-014 and ADC targeted to TIM-1 in advanced renal cell carcinoma by year-end. We continue to drive the science behind unique drug candidate opportunities. From a preclinical perspective, the focus is on CDX-1140, the early stage TAM program we brought in with the Kolltan acquisition and our bispecific antibody programs. CDX-1140 are fully human antibody targeted to CD-40 is the most advanced and we are in track to initiate the Phase 1 study later this year. The TAM program comprised of the targets Tyro3, AXL and MerTK was an important driver for us in the Kolltan acquisition and has potentially broad applications in oncology, inflammation, and infectious disease. We expect preclinical data from this program and are growing bispecific program later this year and next year, respectively. With that, I will now ask Tom to review the glemba program and recent data presentations for glemba and varli in more depth. Tom?

Thomas Davis: Thank you, Anthony. As background for those who might be newer to the Celldex story, glembatumumab vedotin is an antibody drug conjugate for ADC that targets and binds to gpNMB a protein that is expressed in a range of cancers. In breast cancer, gpNMB has been shown to promote the migration, invasion and metastasis of the disease. It is highly expressed in triple negative breast cancers, where it is associated with increased risk of recurrence. As an ADC, glemba is designed to release the potent cytotoxin MMAE upon internalization into gpNMB-expressing tumor cells. Based on positive data from the randomized emerged study, we initiated the METRIC study, a 300-patient Phase 2 trial of glembatumumab in patients with metastatic triple negative breast cancers that over express gpNMB. In this indication, over expression is defined as greater than or equal to 25% of tumor cells testing positive, as determined by IHC. The primary endpoint of the study is progression free survival or PFS. Patients are randomized two to one to either glemba or to Xeloda, also known by the generic name capecitabine as a comparator. Xeloda, while routinely used in this patient population given the lack of options, has a limited impact, with the PFS ranging from 1.7 to 2.5 months in the published literature. The study is event-driven, the event being PFS, which is defined as the time from randomization to the earlier of disease progression or death due to any cause. And the study calls for 203 events for evaluation of the primary endpoint. PFS will be assessed based on an independent central reading of the tumor imaging scans. That said, the sum of the data, including the secondary endpoints of response rate, overall survival, duration of response and safety will be important in assessing clinical benefit. As Anthony mentioned, we look forward to data likely in Q2 of 2018. At ASCO in June, we presented mature data from the 62 patient Phase 2 study of glemba as a single agent in patients with checkpoint refractory metastatic melanoma. Glemba performed well in the single agent setting with 11% response rate, a 52% disease control rate and a median duration of response of six months in patients with primarily stage IV metastatic melanoma, who had failed both checkpoint inhibitor therapy, and if appropriate, a BRAF/MEK targeted therapy. And these patients, when some cases have failed three or four prior lines of therapy, there are no drugs available that really offer them a meaningful benefit. The primary endpoint of the cohort, a threshold of six or more objective responses in 52 evaluable patients was exceeded. Seven of 62 patients experienced a confirmed response, and an additional three patients also experienced the single time-point partial responses. Since data were first reported in October of 2016, one patient converted from a confirmed partial response to a confirmed complete response, which is truly remarkable in this refractory population. Median overall survival or OS for all patients was 9 months and medium PFS for all patients with 4.4 months. Consistent with previous studies in melanoma and breast cancer, the development of a rash was associated with greater clinical benefit. Patients with a rash in cycle one, experienced a higher confirmed response of 21%, a more prolonged overall survival with a median of 15.8 months. And a more prolonged progression free survival of 5.5 months as compared to those who did not have a rash. We intend to conduct explanatory analysis of pre-entry skin biopsies in future trial patients to investigate potential predictions of response to glemba, given the intriguing association of rash and outcome. Pre-treatment tumor tissue was available for 59 patients. All samples were gpNMB positive and 78% of patients had tumors with 100% of their epithelial cells, expressing gpNMB. Therefore, all patients with metastatic melanoma could be evaluated as potential candidates for treatment with glemba in future studies. Additionally, published pre-clinical data suggest that the anti-tumor activity of MMAE may be enhanced when combined with immune activators and checkpoint inhibitors. Microtubule-depolymerizing cytotoxic agents such MMAE have been shown to convert tumor-resident tolerogenic dendritic cells into active antigen-presenting cells. This presents a great opportunity for us to build on the positive monotherapy results in melanoma and possibly augment the treatment effect. Enrollment is completed in the glemba and varli combination arm of the Phase 2 study and data from this portion of the study are expected this fall. Enrollment continues in the glemba plus checkpoint inhibitor arm in patients who failed prior checkpoint therapy, a population with limited treatment options. There has been a lot of investigator enthusiasm for this study, given the lack of treatment options for patients who progressed after checkpoint therapy. And if glemba can convert non-responders to responders, it would be an important clinical advancement. Moving on to the next program, in collaboration with BMS, we presented updated data from the Phase 1 portion of the varli/Opdivo study in an oral presentation at the recent ASCO meeting. Varli is a fully human monoclonal antibody that binds to and activates CD27, a critical co-stimulatory molecule in the immune activation cascade. Varli is thought to work primarily by stimulating T-cells, an important component of a person's immune system to attack cancer cells. 36 patients with stage IV heavily-pretreated disease were enrolled in the Phase 1 portion of the study, of which 80% had either colorectal or ovarian cancer and most were also PD-L1 negative at baseline, meaning they are unlikely to respond to a checkpoint inhibitor alone based on past experience. The primary objective of the Phase 1 portion of the study was to evaluate the safety and tolerability of the combination, which was well tolerated at all varli dose levels tested without any evidence of increased autoimmunity. Notable disease control was observed across multiple dosing regimens that is, stable disease or better for at least three months, three partial responses were observed including a patient with PD-L1 negative, MMR proficient colorectal cancer that is continued to a near complete response and is ongoing. We also observed a partial response in a patient with squamous cell head and neck cancer with low 5% PD-L1 expression, and another in a patient with PD-L1 negative ovarian cancer. A treatment associated increase of PD-L1 and tumor infiltrating lymphocytes was observed, particularly in patients with ovarian cancer. In a subgroup analysis of 13 patients with paired baseline and on-treatment biopsies, only 15% were PD-L1 positive at baseline compared to 77% during treatment, a statistically significant finding. Patients with increased tumor PD-L1 expression also showed an increase in tumor infiltrating CD8 T cells, and importantly these increases were correlated with better clinical outcome. The Phase 2 portion of the varli/Opdivo study is enrolling patients across five indications, targeting 18 patients with colorectal cancer, 54 with ovarian cancer, 54 with head and neck squamous cell carcinoma, 25 with renal cell carcinoma, and 20 with glioblastoma. The Phase 2 portion of the study includes alternate varli regimens using intermittent dosing to address the potential concern that continuous dosing may lead to immune cell exhaustion. The primary objective of this portion is overall response rate for all cohorts except glioblastoma with the primary objective is the rate of 12 month overall survival. Enrollment is complete in the colorectal and glioblastoma cohorts and we believe we will complete enrollment across the remaining cohorts in the first quarter of 2018. There are certainly other programs progressing across our pipeline, which Anthony discussed. I'm more than happy to answer questions on these programs during the Q&A. With that, I'll turn the call over to Sam.

Sam Martin: Thank you, Tom. In second quarter of 2017, net loss was $28.6 million or $0.22 per share, compared to a net loss of $32 million or $0.32 per share for the second quarter of 2016. Net loss for the six months ending June 30, 2017 was $62.8 million or $0.51 per share compared to $66.6 million or $0.67 per share for the comparable period in 2016. Research and development expenses were $50.8 million for the six months ending June 30, 2017, compared to $53.2 million for the comparable period in 2016. General and administrative expenses were $13.8 million for the six months ended June 30, 2017, compared to $17.1 million for the comparable period in 2016. As of June 30, 2017, we reported cash, cash equivalents and marketable securities of $154 million compared to $167 million at March 31, 2017. The decrease was primarily driven by second quarter cash used in operating activities of $20.8 million, partially offset by $8.7 million of cash received, net of transaction expenses paid from the sale of common stock under the Cantor sales agreement. We expect that our cash, cash equivalents and marketable securities at June 30, 2017, combined with the anticipated proceeds from future sales of common stock under the Cantor agreement are sufficient to meet estimated working capital requirements and fund planned operations through 2018. However, this guidance assumes that we elect to pay the Kolltan contingent milestones, if any, in stock rather than cash. At June 30, 2017, Celldex had 127.4 million shares outstanding. I will now turn the call over to Anthony to close.

Anthony Marucci: Thank you, Sam. Before we move onto Q&A, I want to first review the upcoming milestones discussed on the call today. First to glemba, for the METRIC study, we believe we will formerly close enrollment by the end of next month after we allow all eligible patients in the screening queue to come on study. The study is event-driven, and as we see more events emerge, we will be able to predict timing for data with greater accuracy. But it's estimated to be about six to eight months from enrollment completion, so likely Q2 of 2018. We also expect data by year-end from the glemba/varli combination arm in checkpoint refractory metastatic melanoma, and we'll continue to enroll patients in the glemba checkpoint combo in the same indication. For varli, we are expecting to complete enrollment across all cohorts in the Phase 2 portion of the varli/Opdivo study in the first quarter of 2018, and as we have done in the past, we will work with BMS to present data from the study at a future medical meeting. For CDX-0158, we are continuing to enroll patients to the Phase 1 dose escalation study and refractory GIST and plan to report data from this study by the end of the year. Additionally, we anticipate initiating a Phase 2 of CDX-3379, in patients with recurrent or metastatic head and neck squamous cell cancer, who are refractory to Erbitux in Q4 this year. And finally, we expect enrollment to be completed in the Phase 1 dose escalation study of CDX-014 in renal cell carcinoma by the end of the year, and we are excited to bring CDX-1140 to the clinic later this year. So as you can see, we have been very busy this first half of the year and expect a number of milestones over the second half. But there are number of trials completing enrollment and providing data to share with you. With that review, operator, we are now ready to open the call to questions.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Tony Butler of Guggenheim. Your line is open.

Allen Cha: Hi, this is Allen Cha on for Tony Butler. I have a couple of questions regarding the checkpoint refractory melanoma trial. So, first of all, can you give us a little more color on how the enrollment is going in the Opdivo/glemba combo arm and the trial [indiscernible] when you expect the enrollment to complete and how long you expect the wait to be before the first data readout? Secondly, what do you think is responsible for the correlation between the presence of rash in Cycle 1 of response rate? Do you think, this is an off target effect that might limit dose escalation? And lastly, were there any additional PR to CR conversion since the last update or just the one additional conversion that you announced? Thank you.

Anthony Marucci: Mr. Tony, happy to answer those questions. So the checkpoint inhibitor combination with glemba is actually occurring very actively at this point in time. We're happy with how things are going. We do expect to be able to complete accrual by the end of the year and would expect data at an appropriate conference next year. As far as the rash and outcome goes, we do know that gpNMB is very highly expressed in the normal tissues of the skin, so it's not surprising to see what we think is an on-target effect like rash in these patients. It does appear to be some correlation with the pharmacokinetics, so we do think it's an appropriate pharmacodynamic marker in these patients to predict outcome. We have reported the one patient who after really quite some length of time converted from a PR to CR. As mentioned, we presented that at ASCO. At this point in time, that is the only patient that we've seen fully convert to a CR, but there are other patients ongoing on treatment.

Allen Cha: Great. Thank you very much.

Anthony Marucci: Sure.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Mara Goldstein of Cantor Fitzgerald. Your line is open.

Mara Goldstein: Well, thanks very much, I appreciate taking the question. Just a more a housekeeping item, but as it relates to the candidates that came in from Kolltan, given the advancement of last couple of months, should we be thinking about any milestones that are due for those candidates and at what juncture would they be due?

Anthony Marucci: So, Mara, this is Anthony. We don't see any milestones being due in the next few months, maybe sometime in 2018.

Mara Goldstein: Okay. If I could just ask another question, if you don't mind, so you laid out sort of the activities that you've been undertaking on behalf of manufacturing for glemba, understanding obviously that you sold that process down, but by the time you have outcome for the METRIC study, which assume is some time in the second quarter of 2018. How far along in that continuum, because I think last time company spoke about publically this incremental $40 million to $50 million investment, which you weren't fully going to commit to, but how far long on that curve are you now if at all?

Anthony Marucci: Well, we haven't hit that the larger portions yet, but we're certainly making the preparations for it. The money that we are spending have been budgeted in this year. So those moneys are being spent. And again, we have not hit that larger portion yet. But those can be triggered once data is happening.

Mara Goldstein: And if I could just ask another question on this, and so assuming for a moment that the data that you - that METRIC present at the positive data study, you then have to obviously complete both the paths to get an NDA filed. One of which is CMC. So how long is that process relative to how long it will take you to put the data component together?

Anthony Marucci: Once we have data from the trial, Mara, we are predicting that it would take approximately three months to six months to put together the formal clinical package. But, of course, there are other components involved in the BLA filing as well.

Mara Goldstein: Right.

Anthony Marucci: So, Mara, we'll know a lot more as we get closer and closer, and have these conversations with the FDA.

Mara Goldstein: All right. Thank you. I really appreciate it.

Anthony Marucci: Okay. Great.

Operator: Thank you. And at this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Anthony Marucci for closing remarks.

Anthony Marucci: Thank you, operator. And thank you everyone for joining us today. As always, we welcome your questions at any time. So have a good evening. And we look forward to catching up you soon.

Operator: Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everybody have a great day.