Earnings Transcript for CLDX - Q2 Fiscal Year 2018

Executives: Sarah Cavanaugh - Senior Vice President, Corporate Affairs and Administration Anthony Marucci - Founder, President, Chief Executive Officer and Director Tibor Keler - Founder, Executive Vice President and Chief Scientific Officer Sam Martin - Senior Vice President and Chief Financial Officer

Analysts: Joseph Pantginis - H.C. Wainwright & Co. Boris Peaker - Cowen and Company Stephen Brozak - WBB Securities, LLC

Operator: Good day, ladies and gentlemen, and welcome to the Celldex Therapeutics Mid-Year 2018 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. And I would like to introduce your host for today's program, Sarah Cavanaugh. Please go ahead.

Sarah Cavanaugh: Good afternoon and thank you for joining us. With me on the call today are Anthony Marucci, Co-Founder, President and CEO of Celldex Therapeutics; Dr. Tibor Keler, Co-Founder, Executive Vice President and Chief Scientific Officer; and Sam Martin, Senior Vice President and Chief Financial 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 reports 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 the question-and-answer period will be held at the close of the call. On today's call, Anthony will begin with a review of the business strategy, Tibor will update you on our clinical program, Sam will review the financials, and Anthony will close, outlining key milestones for the remainder of the year. I'd now like to turn the call over to Anthony.

Anthony Marucci: Thank you, Sarah. Good afternoon and thank you for joining us. As you know, Celldex has long held interest and deep experience in immunotherapy. We have used this knowledge to develop a very unique set of immunotherapies and targeted biologics. Core to our scientific approach is the belief that when they targeted the immune system combination therapy is the most promising approach to support clinical benefit. When considering the cancer immunity cycle, there are a number of key areas to intervene. While the checkpoint inhibitors can help keep an active immune response from being turned off, we also need agents that extend beyond the role of checkpoint therapies that can help initiate immune responses. This is where we are focused, on enhancing the antigen presentation pathway to allow new immune responses to be generated against liberated antigens resulting from immunogenic cell death by tumor targeted products like CDX-3379, or in certain indications, CDX-1140 of varlilumab, and other modes of therapies like radiation. One key to this process are dendritic cells, which are relatively rare cells, especially in tumors, and are the most effective cells to prime immune responses, specifically T cell responses against tumors. We are developing CDX-301 as a boosting agent to prime the immune system, by increasing the number of dendritic cells and promoting the efficiency of the process. That said, not only do we need dendritic cells in reasonable numbers, you need to activate them, which is where CDX-1140 plays a critical role in activating dendritic cells through the CD40 pathway. Likewise, T cell costimulation is also an important part of the immune cascade, which is where varlilumab can fit in by targeting the CD27 pathway. And beyond the PD-1 and CTLA-4 checkpoint pathways, there are other immuno suppressive mechanisms that can - that needs to be addressed to optimize clinical benefit and we need several earlier stage programs that target this pathway. Importantly, as Sam will outline later on the call, we are confident we have the required financial resources on hand to see these programs through to key inflection points. In direct support of this, in April we made significant cuts to our business operations, including a corporate restructuring that decreased our headcount by approximately 30%, and the cost savings initiatives that has reduced our projected burn for 2018 by 20%. As 2018 included significant glemba cost, cost savings realized from this effort in 2019 will be more significant. These efforts are solely focused on extending and directing our financial resources to the advancement of the programs we believe can bring the most value to both patients and shareholders. We continue to believe we are well positioned to succeed and look forward to a productive second half of the year. With that overview, I will ask Tibor to provide an update on the pipeline progress. Tibor?

Tibor Keler: Thanks, Anthony. So let me start first with an update on CDX-1140, a fully human antibody targeted to CD40, a key activator of immune responses which is found, as mentioned, on dendritic cells, and also on macrophages, B cells, and several cancer types. Both the CD40 agonist antibodies have shown encouraging results in early clinical studies. However, systemic toxicity associated with broad CD40 activation has limited their dosing. We believe CDX-1140 has unique properties relative to other CD40 agonist antibodies. It binds to a unique part of the CD40 molecule that results in agonist activity, that does not require cross-linking through Fc receptor interaction, allowing more consistent and controlled immune cell activation. Also CDX-1140 does not interfere with the natural activation of CD40 by its ligand. And we have observed strong synergy with CD40 ligand that may potentiate the agonist activity. Finally, CDX-1140 has a remarkably good safety profile, while demonstrating potent immune activation in our pre-clinical studies. Our ongoing Phase 1 study is designed to answer a few important questions. First, our primary goal is to identify the optimum dose through dose escalation. During this phase, patients with recurrent locally advanced or metastatic solid tumors receive CDX-1140 at dose levels ranging from 0.01 mg/kg to 3 milligrams per kilogram, once every four weeks until disease progression or intolerance. It's important to point out that the goal in this study is not necessarily to get to the highest 3 milligrams per kilogram dose, but rather achieve a dose level that will provide good systemic exposure without those limiting toxicity, a goal that has eluded other potent CD40 agonist antibodies tested in the clinic to date. As we have guided in the past, given the potency of prior CD40 agonist, the dose escalation portion of this study will take some time. We are required to wait between dosing patients within a specific cohort and must also clear a 4-week observation period after the last patient in each cohort is dosed before we can increase to the next dose level. We have made great progress so far, with three dosing cohorts completed, 0.01, 0.03 and the 0.9 milligrams per kilogram. Data to date from these cohorts suggest that CDX-1140 has a desirable safety profile without any dose limiting toxicities, and based on the biomarker data it is demonstrating clear signs of biological activity associated with CD40 activation. We're currently enrolling to the fourth cohort at 0.18 milligrams per kilogram. As Anthony mentioned at the start of the call, from a scientific perspective, increasing the number of dendritic cells could enhance the potential impact of CDX-1140. CDX-301 is a dendritic cell growth factor that we want to use as a priming agent to increase the number of dendritic cells available to respond to CDX-1140. To this end, we have added CDX-1140 plus CDX-301 combination cohort to the dose escalation phase of the study using a fixed dose of CDX-301 with increasing doses of CDX-1140. We expect to begin enrolling this new cohort next month. Once we have the optimal dose identified, we will move into extension arms in both the single agent and combination cohort in specific tumor types. Our interest in this combination cohort has continued to grow as we have seen some very intriguing CDX-301 data coming out of an investigator sponsored study at Montefiore Medical Center and led by doctors, Chandan Guha and Nitin Ohri. Early data from this study were presented in a plenary session at the AACR Annual Meeting in April. The study is evaluating the combination of CDX-301 with stereotactic body radio therapy in patients with advanced metastatic non-small cell lung cancer. In this study, patients receive radiation directed to a single lung tumor lesion, along with five once-a-day subcutaneous injections of CDX-301. The non-irradiated tumors are then evaluated for response with the rationale that the dendritic cells mobilized by CDX-301 will help initiate a systemic immune response to the tumor antigens released by the irradiated tumor. Preliminary data has provided important proof-of-concept by demonstrating partial responses in non-irradiated tumors in several patients and with associated with better progression-free survival and overall survival than expected for these refractory patients. We look forward to receiving additional updates and we'll continue to monitor the study as we move forward. Next, I will update on CDX-3379, a monoclonal antibody targeting ErbB3, which is also called HER3. ErbB3 is found on tumor cells and a variety of cancers, and it is implicated in cancer cell growth, survival as well as resistance to targeted therapies. CDX-3379 may play an important role and overcoming this resistance, and it's specifically targets ErbB3 with potent affinity and locks it into a deactivated state, uniquely its interaction with ligand and also with other oncogenic drivers. In a previously completed Phase 1b study, we saw evidence of antitumor activity among the nine patients with head and neck cancer, who were treated with CDX-3379 in combination with Erbitux and EGFR inhibitor, including a durable complete response in a patient who had previously progressed on Erbitux as monotherapy. An open label Phase 2 study of CDX-3379 given in combination with Erbitux is currently enrolling patients with HPV negative, advanced head and neck squamous cell carcinoma, these tumors have previously been treated with an anti-PD1 checkpoint inhibitor and have become resistant to Erbitux. Using a Simon two-stage design, the first portion of the study will involve 13 patients, and if at least one patient achieves a partial response, enrollment can progress to the second stage. We have already experienced a confirmed partial response, but plan to complete enrollment to the entire first stage and we will use the full data set to inform next decisions. Beyond head and neck cancer, ErbB3 is believed to play a role in several other solid tumor types such as thyroid, breast, lung and gastro cancers as well as melanoma. We continue to explore potential other opportunities and additional indications and data from the first portion of the head and neck study will largely inform our decisions on next steps. Moving to varlilumab, during an oral presentation at the ASCO Annual Meeting in June, we started to report results from several cohorts in our Phase 1/2 study of varlilumab, our CD27 agonist antibody in combination with Opdivo, which is being conducted in collaboration with Bristol-Myers Squibb. As a reminder, the Phase 2 portion of the study with design to enroll patients across five indications

Sam Martin: Thank you, Tibor. For the second quarter of 2018, net loss was $16.4 million or $0.11 per share, compared to a net loss of $28.6 million or $0.23 per share for the second quarter of 2017. Net loss for the six months ended June 30, 2018, was $134.5 million or $0.93 per share, compared to $62.8 million or $0.51 per share for the comparable period in 2017. During the first quarter of 2018, we recorded $109.7 million or $0.78 per share in one-time goodwill and intangible asset non-cash impairment expenses. Research and development expenses were $43.3 million for the six months ended June 30, 2018, compared to $50.8 million for the comparable period in 2017. General and administrative expenses were $11.2 million for the six months ended June 30, 2018, compared to $13.8 million for the comparable period in 2017. As of June 30, 2018, we reported cash, cash equivalents and marketable securities of $114 million. We expect cash, cash equivalents and marketable securities at June 30, 2018 combined with the anticipated proceeds from future sales of common stock under the cancer agreement are sufficient to meet estimated working capital requirements and fund planned operations through 2020. At June 30, 2018, we had 156.6 million shares outstanding. I will now turn the call over to Anthony to close.

Anthony Marucci: Thank you, Sam. I believe today's review provides not only a good overview of the program themselves, but also the approach we are taking to build the right regimen to come back in tractable cancers. As we look to the future, we are focused on execution, for CDX-1140, we will continue to enroll the Phase 1 study over the remainder of the year. And I'm looking forward to opening up the 301 combination cohort very soon. We believe that in the next six to nine months, we should have a very good understanding of the important role we believe CDX-1140 can play in the treatment of cancer. For CDX-3379, we will complete enrollment of the - to the first portion of the Phase 2 study in head and neck cancer in the coming months, and we'll use the data to determine next steps for the program. For varli, results of the Phase 2 Opdivo combination in glioblastoma will be presented later this year. And we may have a cohort to the 1140 study to evaluate the combination of CD27 and CD40 and B-cell lymphomas, where we'll potentially have the ability to take advantage of the dual mechanism of action of both direct killing and immune activation. Finally, for CDX-0159, our anti-KIT antibody, we will complete IND enabling studies by the end of year and would anticipate initiate Phase 1 studies in 2019. With that review, I will open up the floor to questions. Operator?

Operator: Certainly. [Operator Instructions] Our first question comes from the line of Joe Pantginis from H.C. Wainwright. Your question, please.

Joseph Pantginis: Hey, guys, good afternoon. Thanks for taking the question. Hope you're all staying cool. So maybe this is for Tibor. With regard to 1140, really appreciate the details with regard to what's unique about your antibody. Maybe can you do a little bit more compare and contrast about how it might compare to others, especially with regard to some of the points you made with regard to what appears to be so far reduced systemic toxicity relative to others? And then I have a quick follow-up.

Tibor Keler: Sure, Joe. Thank you. There have been several different approaches taken to enhance the activity of CD40 agonist antibodies. Some of the approaches include modifications in the Fc domain or Fc region of the antibody to enhance interaction with Fc receptor, which helps provide cross-linking for signaling. That approach of course requires the presence of the appropriate Fc receptors to lead to the cross-linking and agonist activity. The antibody we selected, CDX-1140 is able to bind and activate the receptor without requiring any other interactions with other molecules. So that's one clear distinction. Another factor that we used in the selection of CDX-1140 was to ensure that it would bind in such a way and activate cells in a dose dependent manner that would allow us to achieve dose levels that would give good systemic exposure. We think it's really important that the antibody is able to engage with dendritic cells, macrophages within the tumor microenvironment. And we believe that will require doses that are greater than doses being used with some of the current CD40 agonist antibodies in the clinic so far.

Joseph Pantginis: That's actually very helpful. Thank you. And, I guess, my quick follow-up is, as you're looking at the dose escalation, are there any considerations that might be analogous to varli with regard to your decisions for dosing and scheduling identification relative to immune activation, because I know that was important for varli. Is that something you're thinking about here or is it not even relevant?

Tibor Keler: No, it's certainly relevant and we do think that it's important. We have some prior experience with CD40 agonist antibodies that suggests dosing too frequently may not be optimal and we certainly believe there is rationale for that. So that is why we selected an every four week dosing strategy in our Phase 1 dose escalation. But, of course, the data will drive the appropriate regimens, but certainly the dosing frequency as well as the dose level are both things that we're really going to pay attention to in terms of determining the best regimen to move forward with.

Joseph Pantginis: Great. Thanks a lot, Tibor.

Tibor Keler: You're welcome.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Boris Peaker from Cowen. Your question, please.

Boris Peaker: Great. Good evening. So my first question is on CD40. When you combine 1140 and 301, I'm just curious, how can you tell which agent is actually working or how do you even best dose adjust each individual drug?

Tibor Keler: So, Boris, this is Tibor. It's a good question. They both have very unique effects biologically. And so, we will certainly be able, from a biomarker perspective, be able to track the effect of the drugs which for CDX-301 we have a very significant body of data that describes the effects that we see including the increased number of dendritic cells, which is the most pertinent biological effect from our point of view. So I think we will be able to determine that both drugs are having their effects. We've already landed on a 5 daily subcu regimen for CDX-301 as our recommended dose moving forward in these combination studies and we have quite a bit of data suggesting that that's an active regimen that effectively enhances the number of dendritic cells. And, of course, for 1140, which will activate these cells resulting in cytokine stimulation. Cytokine expression in the blood will have additional biomarkers that will show and suggest the combination relative to, for example, the CDX-1140 monotherapy arm.

Boris Peaker: Got you. And my second question for varli, I'm just curious what specific efficacy threshold do you have for this drug to continue development in head and neck, and renal cell carcinoma. And when is kind of a timeline where you could actually assess it?

Tibor Keler: In reference to, in combination with Opdivo?

Boris Peaker: Yeah. Or in general, just at which point could you - what do you need to see in the ongoing studies, since you have several ongoing studies, and which point would you get to that dataset to make a decision to move forward or not on this program?

Tibor Keler: So I think, we've seen some very important biologic as well as clinical effects with varli, we continue to explore what combinations will provide the best opportunities for it. We haven't set a specific bar of what needs to be seen. As I have mentioned, currently from the data that we reported on head and neck, and renal. We don't see a clear path forward for the nivo combination. But we are continuing to understand better the difference between the patients, which have significant responses, and where we are able to turn their tumors from cold to hot. To understand whether either through patient selection, by understanding the difference in those patients, or by perhaps additional combinations that could be brought into enhance that clinical activity in those patients that don't respond.

Boris Peaker: Yeah.

Anthony Marucci: Boris, remember also many of the patients in the study are PD-L1 negative, and there isn't a heck of a lot of information on single-agent activity with Opdivo or pembro in the setting. So when we look at what the hurdle rates going to be, we need to do, be able to do an apples to apples comparison here.

Boris Peaker: Got you. Thank you very much for taking my questions.

Anthony Marucci: Thanks, Boris.

Operator: Thank you. Our next question comes from the line of Stephen Brozak from WBB Securities. Your question, please.

Stephen Brozak: Hey, good afternoon, gentlemen. Thanks for taking the question. I'd actually like to go more of a macro picture with Celldex, in terms of how we should look at Celldex, right now? Because - obviously the realities are that you're trading at a discounted cash. And there aren't that many franchises that I know of at any market cap size that have as much immuno-oncology experience as you do. So in positioning yourselves in terms of the trials that you're running, what we should look at think about in evaluating the franchise? Can you give us what - how you position Celldex in 2018? And then, I've got follow-up after that, please.

Tibor Keler: Yeah, I mean, I think, again this whole immuno-oncology space is taking a little bit of ahead, so I think, we've suffered along with that. But the strategy from our perspective, Steve, as always been combination therapy around oncology and other diseases. Obviously, we've talked about - a lot about 1140 today. We think that that's an important asset for us. We think it's a highly differentiated CD40 compared to what's out there now. But it's going to take a few more months to see the fruits of that. So expect some early data at SITC in late November on that, while we're doing the dose escalation. But I definitely - what we've said today about activating the immune system, targeting APCs and what have you. That's been the focus of the company for a long-time that will continue. I just think that with the IOs taken a little bit of a hit this year, we've suffered accordingly. But that's basically the way, we've always looked at ourselves, putting the right combination drugs together in order to really enhance the immune system of the patients to handle itself.

Stephen Brozak: And that leads me to the follow-up, because you obviously just mentioned that. Given the fact that we're looking at a combination therapy universe and we've been doing so far quite a while. How do you position yourselves along that line, understanding that there are multiple drugs out there, that you potentially could collaborate with multiple companies that you are - that you could work with multiple companies that you could collaborate with. How should we look at that given the fact that - you pretty have the ability to do more than anyone else can for any size company given what options in the immuno-oncology space there are? And I'll hop back in the queue after that. Thank you.

Tibor Keler: Yeah, I mean, I think that something that's very real for us to look forward to down the road. Obviously, let's get through the Phase 1s and see what the data tells us. And at that point, we can decide or engage the appropriate parties for collaborations, partnerships and what have you.

Stephen Brozak: Great. Thanks again, gentlemen.

Tibor Keler: Yeah.

Operator: Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Anthony Marucci, CEO for any further remarks.

Anthony Marucci: Thank you, operator. And thanks everyone for joining us today. We appreciate your time and support. And we look forward to keeping you up-to-date throughout 2018. And as always, we welcome your questions at any time. Have a great evening.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.