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

I asked the manager of a large health care fund why he owns Celldex. He can't be quoted by name, but his top reason for owning Celldex is CDX-1127, the company's cancer immunotherapy candidate.

"It's all about CDX-1127. Celldex is really the only small-cap immuno-oncology play," he told me. The rest of Celldex's assets, collectively, were attractive, he added, but his focus was CDX-1127, despite the fact that we still haven't seen human clinical data yet.

It should be noted that this manager runs a large fund so Celldex is a very small portion of his overall portfolio. He can afford to take a risk on an early-stage drug. Main Street investors don't have that luxury.

There are compelling reasons to own Celldex but the valuation is getting ahead of itself. That's the way I see the stock today. Now take note: Valuation shorts are dangerous, never more so in an environment where investors want to own biotech and drug stocks and are happy to take on greater risk to do so. Biotech and drug stocks only sell off today for two reasons: 1) a clinical trial blows up, or 2) the FDA rejects a drug or an advisory panel hands down a negative vote. Celldex is not in danger of either of these two things happening in the near future.

A related email from "HeyMikey99":

Would like to hear your thoughts on Celldex and their phase III drug rindopepimut, especially considering your recent article on Agenus.

"Rindo" is the most advanced cancer therapy in Celldex's pipeline but it's also the product most likely to fail, according to sentiment checks I made this week with buyside investors.

Cancer vaccines don't work. Dendreon's (DNDN) Provenge is the lone exception, and it has been a commercial failure, in part because many oncologists are skeptical of the data upon which Provenge was approved. Rindo is a cancer vaccine that targets a mutated protein, EGFRv3, present in about one-third to one-half of brain cancers. Rindo is designed to train a patient's immune system to recognize and attack cancer cells containing EGFRv3.

Celldex is one of three companies developing cancer vaccines against brain cancer and the only one with data showing promise. Agenus (AGEN) and Northwest Biotherapeutics (NWBO) are a lot less impressive and seem more interested in promoting their stocks than developing drugs.

You can take a look at the rindo data presented to date on Celldex's Web site. All the phase III studies are single arm and match rindo against historical controls. The absence of controlled data is a risk. What's most interesting is the consistency in the rindo results across three different studies. Remember, Pfizer (PFE) once licensed rindo but gave the drug back to Celldex in 2010, after much of the phase II data were known.

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