“The Greatest Little Stock Nobody’s Ever Heard Of” (Marc Lichtenfeld)

By Travis Johnson, Stock Gumshoe, November 3, 2009

Now this is a nice promise:

“If This Stock Doesn’t Double Between Now and June 25, I’ll Write You an Apology – Along With a Check for $1,250”

Of course, one assumes that this only applies to the folks who pony up that same $1,250 for a subscription to the Access Research Group newsletter (and, not inconsequentially, who subscribed but didn’t get a refund during the initial “trial period,” so this is a nice way to get folks to stick around and not just sample the goods for a few days and cancel, which I assume must be the bane of many newsletter publishers). But perhaps that’s picking nits.

In case you haven’t guessed from those big promises, we’ve got another biotech stock to look at, also known as “another way for me to show an embarrassing lack of knowledge and shame my old chemistry teacher.” I may not be able to parse the medical test results, but I can at least figure out the companies that our favorite biotech analysts are teasing.

And today? It’s from Marc Lichtenfeld and his Access newsletter — like many of the biotech-focused newsletters, it ain’t cheap. But he’ll be the first one to tell you that he has picked some big winners (he doesn’t mention any losers, strangely enough). One of the examples of perfect past picks that he gives is Electro-Optical Sciences (MELA), which he teased back in March of 2008, and it really was a good pick, despite the skepticism I voiced at the time — if you had bought it then around $5 and held on through the collapse down to $2 or so, you’d now be sitting pretty with the shares at about $10. So not bad. It has not, as he predicted, gotten to $59 just yet, but perhaps patient investors will continue to be rewarded.

Has he found another good one today? This is the most aggressive ad I’ve seen from him in a while, which doesn’t necessarily mean the stock is any better than those featured in more tepid ads, or never used in marketing at all, but he does make a strong push for it. And today it’s for a biotech company that’s working on a drug (well, multiple drugs), not a medical/diagnostic device developer like MELA.

So who is it? Let’s dig into the tease a bit:

“The Greatest Little Stock Nobody’s Ever Heard of

“Here’s why I haven’t been this excited about a new drug since BioMarin was developing its drug to treat Phenylketonuria – a disorder that can lead to mental impairments in infants – and went on to hand us gains ranging from 102% to 2,650% in just six months.

“Only this story’s much bigger.

“Not only is the market much, much bigger – it’s a drug that’s taking on a much more common foe: brain cancer. And once a drug has been proven to work on one cancer, in many cases, it’s just a matter of tinkering for it to work just as effectively on other cancers.

“So far, this drug is doing what so many cancer drugs before it has failed to do. It’s having an impact on survival.

“Here’s what a Duke University doctor wrote in a science journal about the group using this company’s drug:

“‘Following vaccination, our group (the test group) has demonstrated potent, redirected cellular and humoral immunity against cancer cells expressing the mutant receptor without significant toxicity.’


“The drug worked – without any apparent dangerous side effects!

“That’s why I’m confident this drug will be the breakthrough that a growing number of medical experts think it will.

“And, I suspect, so does the drug giant who’s ponied up a lot of cash to be in a partnership deal with this little company.

“A $390 Million Pledge

“In exchange for the right to market the drug upon FDA approval, the company is paying for all the development costs – plus it’s agreed to pay up to $390 million in “milestone” payments as the drug moves through the approval process and into the marketplace.

“Plus there’s the double-digit royalties the company will receive based on sales when and if the drug is approved.”

But wait, there’s more! In addition to this brain cancer drug …

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“The company also has another promising drug in development that treats breast cancer. If successful, this drug could rival the sales of Genentech’s Herceptin, which is the $1.5 billion per year drug that helped take that company’s stock price from single digits to the $80 price it trades today.

“I believe the company is holding off on a development deal with a major pharmaceutical company on this drug until it’s had concrete success with the brain cancer drug early next year. That way, it’ll be in a better position to negotiate a much more favorable deal…”

Ah, yes … well, that’s a solid “what if” … after all, “if successful” your friendly neighborhood Stock Gumshoe could rival the Wall Street Journal and explode to a subscribership of millions. (It’s only a matter of time, I expect.)

But still, it’s nice to look at a biotech that has more than one drug in the pipeline. So who is this one?

Well, before I mention the name I do want to note that, as with many stocks like this and with other similarly expensive limited-circulation newsletters, Lichtenfeld is worried that the stock will go crazy if it gets too much attention — and yes, Stock Gumshoe does have enough readers to move a stock, especially a small cap. Here’s what Lichtenfeld says:

“Of course, the only catch is there’s a limit to how many new members we can bring in under this offer.
It’s limited to the number of people I feel comfortable sharing my latest recommendation with, simply because of the “small-cap” nature of this stock.

“For now, that number is 270.

“But I’ll be watching the volume and price action on the stock carefully. If it looks like too much money is flowing into the stock too quickly, I reserve the right to pull this offer at any time.”

So the word of warning is that I’m sending this to a lot more than 270 people — so please don’t jump on the stock just because I revealed it for you, this is a teensy, tiny company with a market cap of something like $70 million and average daily trading volume of just a couple hundred thousand shares at $4 a pop, so even a couple dozen readers piling in at once could send the stock soaring.

With that caveat, what’s the stock?

This appears almost certainly to be Celldex Therapeutics (CLDX)

Celldex is working on a drug that they call CDX-110, which targets the EGFRvIII receptor and acts as something like the cancer vaccines we’ve seen before from folks like Dendreon, inspiring the immune system to fight it off. They do have a deal that could provide $390 million+ in milestone payments from Pfizer, a chunk of which they’ve already received. The drug received “fast track” status from the FDA almost two years ago, and has had phase II studies that showed better than a 100% increase in survival time for those treated versus the “historical control’s median,” and a significant slowing of the “time to progression.” Which all sounds lovely, I’m sure, if you’re a brain cancer patient, as does the fact that from what I can tell, Lichtenfeld is right in saying that the side effects have been of limited concern.

Right now they’re enrolling another phase 2 trial for patients with newly diagnosed Glioblastoma Multiforme (GBM), and according to the timing of the clinical trial for this one they’ll probably release some data late in the Winter (February-ish) and present the full results at the American Society for Clinical Oncology (ASCO) meeting next June, which is probably where that late June date comes from for the “if this stock doesn’t double” promise.

Celldex also recently acquired another small biotech company, and this might mean that my market cap calculations are a bit off, but they’re still a tiny firm — they bought CuraGen in a deal that closed fairly recently, which helped them to diversify a bit and brought in Curagen’s lead drug (CR011), a breast cancer immunotherapy that looks to be the one Lichtenfeld included in the teaser as an extra potential catalyst for the stock.

If you’d like to read a pretty thorough (and recent) bull case for Celldex, this blog entry from Mike Havrilla is a good place to start.

If I go much further I’ll probably give you the impression — and it would be wrong — that I really know what I’m talking about with this company or the science behind it, but of course I can’t resist blathering a bit more …

I like the fact that they have multiple clinical trials for promising anti-cancer drugs, both of which are aimed at “big” cancers (those that hit a large part of the population, and thus a larger market), and I like the fact that they have large deals and cross-ownership with some big pharmaceutical companies (Pfizer and Medarex, now a Bristol Myers subsidiary). That means they’re in a much more stable position than some tiny biotechs, and they have a deeper pipeline of therapies that might help smooth things out if this CDX-110 drug runs into trouble, but they’re still tiny, and the stock will still collapse if they run into bad side effects or these phase 2 trials otherwise hit significant snags. I also have no idea whether or not competing therapies from other researchers will do better or worse than this drug — Celldex has exclusive rights for vaccines/immunotherapy targeting this particular receptor that was explored by Duke University researchers, but that doesn’t mean there aren’t other vaccines or other treatments that might similarly (or better) outclass the current “standard of care.”

And of course, they are not profitable, and probably won’t be for years — even with “fast track” status they’re not going to have any products actually being sold for at least a couple years, and their lead drug already has a big pharma deal in place (though perhaps Lichtenfeld is right that CuraGen’s lead drug might get a deal, too), so in the meantime we’re making guesses based on projections about the market, and about the effectiveness of the drug, and about the chance that one of their big partners or another company might buy them out to get access to their pipeline. Pfizer already owns CDX-110 and will hopefully be paying milestones and royalties based on clinical success and future sales, so that one’s not for sale, which would probably discourage other suitors in the immediate future.

That means valuing these firms is always a bit of a crapshoot, at least from my perspective … the drug has been around for a while, and has generated some exciting results before, with investor enthusiasm often petering out a bit in the months that follow. Back in 2008, when the exciting results about doubling survival time were released, they got a lot of attention (including this Reuters article — note that it credits AVANT Immunotherapeutics, which was a firm that Celldex “reverse merged” with to go public early in 2008, and then later changed the name from AVANT back to Celldex). That attention helped drive the shares to well over $15, but then the excitement petered out a bit (and the global economy collapsed), and things were pretty quiet for a while — but then the announcement at ASCO this year of the solid results from Pfizer and Celldex helped the shares jump back up, they had been trading around $8 and got as high as $14 intraday on June 1 thanks, in part, to attention from CNBC and the investing punditocracy (the $14 was very short-lived, it closed at $11.22 and was back under $10 by mid-month), but, as I noted, the shares are down around the $4.40 range right now. Given that record of the stock jumping on clinical news and press releases, I guess Lichtenfeld can probably sleep just fine promising a double by ASCO next year — heck, it might double today and then get cut in half tomorrow, who knows, but the record has certainly not been one of uninterrupted advances.

And if you’re curious about that quote from the “Duke University doctor” that Marc included in the teaser ad? It was actually from an abstract of a paper published by Brain Pathology back in June called “EGFRvIII-Targeted Vaccination Therapy of Malignant Glioma.” If you want to know why I can’t promise to understand the science behind this at all, here’s some more from the abstract:

“The epidermal growth factor receptor class III variant (EGFRvIII), a constitutively activated mutant of the wild-type tyrosine kinase, is present in a substantial proportion of malignant gliomas and other human cancers, yet completely absent from normal tissues. This receptor variant consists of an in-frame deletion, the translation of which produces an extracellular junction with a novel glycine residue, flanked by amino acid sequences that are not typically adjacent in the normal protein.

“In this review, both preclinical and early clinical development of a peptide vaccine directed against this portion of the EGFRvIII antigenic domain are recapitulated. Following vaccination, our group has demonstrated potent, redirected cellular and humoral immunity against cancer cells expressing the mutant receptor without significant toxicity. Additionally, the corresponding therapeutic outcomes observed in these studies lend credence to the potential role of peptide-based vaccination strategies among emerging antitumor immunotherapies in patients with malignant glioma.”

If you’re a Celldex shareholder or enthusiast, or otherwise have an opinion to share, please feel free to do so with a comment below — odds are pretty good that you know the company or the science better than I do. And if you’ve ever subscribed to Lichtenfeld’s Access newsletter, click here to review it for us and let your fellow investors know if it’s worth the money. Thank


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