Apparently the cancer vaccine honeymoon is over. Despite what looked like promising early-stage clinical data, Pfizer (NYSE:PFE) has decided to end its collaboration with Celldex Therapeutics (Nasdaq:CLDX) for the anti-cancer immunotherapeutic CDX-110.

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While it is not unusual for small oncology-focused biotechs to trade down after the annual ASCO meeting - the most important oncology-related medical conference on the calendar - Celldex has done a bit worse than most. There had been fears that Pfizer's commitment was something less than complete, but Friday's announcement walloped Celldex's stock.

Where Does Celldex Go From Here?
Celldex is putting on a brave face for its shareholders. The company is vowing to continue developing the product on its own, presumably with an eye toward striking another deal with a larger pharmaceutical company somewhere down the road. Sometimes this works out - there are examples where a partner has dropped out and the drug still ultimately makes it to market. Unfortunately, companies like GenVec (Nasdaq:GNVC), Trubion (Nasdaq:TRBN) and Neurocrine Biosciences (Nasdaq:NBIX) have all found that the loss of Pfizer as a partner is not a good sign for the drug involved.

One is the Loneliest Number
While Celldex says that they do not need a partner, I believe they are mistaken. Celldex has about $66 million in cash and marketable securities on the balance sheet and Phase 3 clinical studies (to say nothing of preparations for a full-scale commercial launch) cost a lot of money. Brain cancer studies are not usually anything close to as large as a study for a diabetes drug, for example, so Celldex might be able to fund a study itself. That said, it would be a very tight squeeze, and any attempt to raise money with the stock in the doldrums is going to dilute existing shareholders pretty meaningfully.

Furthermore, the company has to weigh the benefits of going at it alone with the risks. The company has other drug candidates in various stages of development and funding multiple studies may deplete resources to a point where other programs have to be postponed. All in all, it would not be surprising if the company is talking tough more with the intention of signaling that they will not take a cut-rate desperation deal with another partner as opposed to a true intention to go it alone from here on out.

The Drug Seems Worth The Effort
Although skeptics can point to the fact that the drug targets only a sub-set of the glioblastoma patient population and that studies to date on CDX-110 have been small and lacked a control arm, the data has been encouraging. In fact, earlier studies have shown that 70-80% of patients getting the treatment can expect it to hold the disease in check for more than 8 months, and that is a significant advantage over historical controls. Moreover, though there have been some hypersensitivity reactions to the drug, the overall safety profile seems encouraging. In other words, this does look like a drug that is worth taking into Phase 3 studies.

Here again, it is a question of the risk-return tradeoffs. Does Celldex really want to put all of their eggs in the CDX-110 basket? It is not all that unusual for drugs to show promise in small Phase 2 studies only to fail in larger pivotal trials. Should the company risk the development of CDX-011 in breast cancer and melanoma to push ahead by itself?

The Bottom Line
There is no question that many investors will take Pfizer's decision as proof (or at least a strong indication) that CDX-110 is not good enough to get FDA approval for glioblastoma with EGFRvIII expression. That does not make it true - Pfizer may simply have decided that the market is too small, the pathway too uncertain, or the competition too formidable - but it makes it a real factor for the stock.

Quite frankly, shareholders who have held on this far and can handle the ongoing risks might want to sit tight. Biotechs are risky in the best of times and while Pfizer's decision certainly has to change the risk calculation, it does not carry the same weight as bad clinical data. Biotech stocks like Celldex should only be held in risk-tolerant and well-diversified portfolios to begin with, so for those investors who are not putting all their eggs in the Celldex basket, there may be just enough reason to keep hoping this stock could recover. (Learn how to find a healthy pharmaceutical investment in a market full of weak drugs. Check out Measuring The Medicine Makers.)

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