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Biotech Stock Mailbag: Celldex, Exelixis, Geron, NPS Pharma

Stocks in this article: CLDX EXEL GERN NPSP

BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag opens with a couple of tweets about Celldex Therapeutics (CLDX):

Here's the one-year chart for Celldex Therapeutics. Impressive! CLDX Chart CLDX data by YCharts

This week, I admonished Leerink analyst Howard Liang for increasing his estimate of Celldex's market value by $1 billion based solely on the prospects for an experimental cancer drug lacking human clinical data. This doesn't mean I dislike Celldex. I just like ribbing sell-side analysts for using increasingly outlandish reasons to justify higher price targets on covered companies.

Analysts have two choices when a covered company blows through a price target: 1) Downgrade, or 2) raise their price target. Since very few sell-siders have the job security or cojones to downgrade stocks on valuation, the only real option is the latter.

The big jump in Celldex's stock price is easily explained. Health care investors are in love with two drug development trends today: 1) Drugs to treat rare, or orphan, diseases, and 2) drugs which release the brake on a patient's immune system in order to more effectively kill cancer i.e. the PD-1s from Bristol-Myers Squibb (BMY) and Merck (MRK).

Celldex has two drugs in its pipeline hitting on each of these trends. CDX-1135 is targeting dense deposit disease, a rare kidney disorder. As I wrote in July, investors were buying Celldex on the prospect that CDX-1135 could be like Alexion Pharmaceuticals' (ALXN) Soliris. The second Celldex drug, CDX-1127, works by stimulating T cells to better recognize and destroy cancer cells. CDX-1127 may not be very effective on its own, but Celldex believes CDX-1127's home-run potential could be in combination with a PD-1 "checkpoint inhibitor." A similar "combination cancer immunotherapy" approach is already being tried -- Bristol is running cancer trials combining Yervoy with nivolumab -- two checkpoint inhibitors. This was the thesis cited by Leerink's Liang to raise his price target on Celldex this week.

Investors also love companies with near-term catalysts, and Celldex checks this box. The first, early-stage study of CDX-1127 in patients will be presented at a medical conference Nov. 7 to 10. A small, proof-of-concept study of CDX-1135 is expected to read out at the end of the year or early in 2014. Celldex will also be presenting additional phase II data on its brain tumor vaccine candidate rindopepimut in late November.

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