Analysts expect this biotech company to grow by more than 30% next year.
Celldex Therapeutics, Inc. (CLDX)
From The Medical Technology Stock Letter
In our view, CDX-0159, Celldex Therapeutics’ anti-C-KIT antibody has blockbuster potential in various mast cell diseases. With a market cap of ~$375 million with ~$200 million in cash, in our view, CLDX is extremely undervalued based on the potential of CDX—0159 alone—especially when compared with ALLK (~$4 billion market cap), which is another mast cell targeted company. After releasing highly positive initial clinical data resulting in significant mast cell depletion and a clean safety profile, further updates and multiple trial initiations are due this Fall. These clinical trials are relatively quick to perform as trials go and data are released. Lastly, as a wholly-owned asset, we believe CLDX has also become an attractive potential takeover candidate. As a result, we think CLDX’s market cap will approach that of ALLK’s. BUY.
CDX-0159 is a humanized monoclonal antibody that specifically binds the receptor tyrosine kinase KIT (also called stem cell factor or SCF) with high specificity and potently inhibits its activity. KIT is expressed in a variety of cells, including mast cells, which mediate inflammatory responses such as hypersensitivity and allergic reactions. KIT signaling controls the differentiation, tissue recruitment, survival and activity of mast cells. In certain inflammatory and allergic diseases, such as chronic urticaria, mast cell activation plays a central role in the onset and progression of the disease. KIT inhibition is involved in the potential treatment of various multi-billion acute and chronic conditions.
CDX-0159 was well tolerated at all dose levels. Celldex plans to initiate Phase Ib studies in chronic urticaria this Fall, likely starting in September or October. Urticaria (hives) are red, itchy welts that result from a skin reaction. The welts vary in size and appear and fade repeatedly as the reaction runs its course. The condition is considered chronic hives if the welts appear for more than six weeks and recur frequently over months or years—leading to chronic spontaneous urticaria (CSU). There is also a more difficult to treat subset of chronic urticaria—chronic inducible urticaria (CINDU) which is defined as hives that are present for at least or greater than 6 weeks and for most days of the week. Physical urticaria is present only when certain physical stimuli are applied. These hives are intermittent and technically are not chronic. Current treatments include Roche’s Xolair and Novartis’ ligelizumab, both antibodies to IgE. However, not all patients respond to these treatments.
A recent clinician presentation suggests there is an unmet need in 20-40% of CSU and CINDU patients, respectively. This market alone could include 1 million CSU patients in the U.S./EU and 1.3 million CINDU patients in the U.S./EU.
In 2019, Allakos (ALLK) successfully completed a Phase I/II trial of AK002, a monoclonal antibody to Siglec-8, in Xolair naive chronic urticaria. patients, which demonstrated a benefit on the primary (UCT scale) and secondary efficacy endpoints (UAS7) and that the drug was generally well tolerated. The mechanism of action of AK002 differs from CDX-159 as it has multi-model activity for both mast cells and eosinophils. The main difference is that the ALLK compound reduces mast cells and mast cell activation by roughly 20%, while the CLDX compound is way more potent in blocking MCs—the EAACI data above shows that it almost completely depletes mast cells.
Specifically, CSU is a mast cell disease and there is a very high probably that CDX-159 will be successful. Consensus models of AK002 currently show peak CSU sales at $1.8 billion. When the positive AK002 in CSU data alone, ALLK’s valuation rose to approximately $2 billion. With further mast cell diseases and in AK002’s case eosinophil conditions as well, ALLK’s market capital is now over $4 billion. We expect that CLDX will perform a list of clinical studies in several of the mast cell conditions listed above. In our view, the CSU studies will be ready by Q1:21. Upon a positive outcome, we believe the market will begin to value CLDX on not just CSU but also discount success in some of the other MC indications as well.
Since the initial mast cell data of CDX-0159 was presented in June, CLDX raised $150 million in a follow-on offering and now has about $200 million in cash and no debt. The cash is sufficient to fund currently planned operations through 2023. Before the data/deal, only 11% of the stock was owned by institutions. That has changed dramatically as the secondary has brought in the most sophisticated and dedicated biotech investors. RTW Investment now owns 10% of the company, Ikarian Capital 7%, Biotech Value Fund (BVF) owns 4% and more recently, Adage Capital acquired 5%. 25% of CLDX stock is now owned by four top funds. (Funds are only required to disclosed >5% positions, so we believe other Blue Chip Biotech investors are establishing CLDX positions, too.)
We are initiating coverage of CLDX with a BUY UNDER 15 and a TARGET PRICE of 30 based on the early clinical results and commercial potential of CDX-0159 in mast cell conditions. With multiple clinical catalysts due beginning in H2:20 plus what we believe is an easy value comparison with Allakos (ALLK ~$3.7 billion market cap or 10x that of CLDX), in our view Celldex ($370 million market cap) is extremely undervalued. Several new top-tier biotech investors seem to agree. Lastly, with CDX-0159 as a wholly-owned asset, we also think that CLDX is an attractive takeover candidate.
CLDX is a BUY under 15 with a TARGET PRICE of 30
John McCamant, The Medical Technology Stock Letter, bioinvest.com, August 2, 2020