Table of Contents

 

** **

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

** **
| **x**                                                       | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                  | ** ** | ** **                                                                                               |
| **For the quarterly  period ended September 30, 2008** |
| ** **                                                  | ** ** | ** **                                                                                               |
| **OR**                                                      |
| ** **                                                  | ** ** | ** **                                                                                               |
| **o**                                                       | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

** **

**Commission file number:  0-15006**

** **

**CELLDEX THERAPEUTICS, INC.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                              | ** ** | **No. 13-3191702**              |
|-----------------------------------------------------------|------------|--------------------------------------|
| (State of Incorporation)                                  |       | (I.R.S. Employer Identification No.) |
|                                                      |       |                                 |
| **119 Fourth Avenue, Needham, Massachusetts  02494-2725** |
| (Address of principal executive offices)  (Zip Code)      |

 

**(781) 433-0771**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer,”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 
| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes * *o No x

 

As of November 3,2008, 15,789,756 shares of common stock, $.001 par value per share, wereoutstanding.

 

 

 

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Table of Contents

 

**CELLDEX THERAPEUTICS, INC.**

 

**FORM 10-QQuarter Ended September 30, 2008Table of Contents**

** **
| **Part I—Financial  Information**                                                                                                                  |       |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                                                                         |       |       |
| Item 1. Unaudited Financial  Statements.                                                                                                                     |       |       |
|                                                                                                                                                         |       |       |
| Consolidated Balance Sheets at  September 30, 2008 and December 31, 2007                                                                           |       |       |
|                                                                                                                                                         |       |       |
| Consolidated Statements of  Operations and Comprehensive Loss for the Three Months Ended  September 30, 2008 and 2007                                   |       |       |
|                                                                                                                                                         |       |       |
| Consolidated Statements of  Operations and Comprehensive Loss for the Nine Months Ended  September 30, 2008 and 2007                                    |       |       |
|                                                                                                                                                         |       |       |
| Consolidated Statements of Stockholders’ Equity  (Deficit) for the Nine Months Ended September 30, 2008 and the Year  Ended December 31, 2007 |       |       |
|                                                                                                                                                         |       |       |
| Consolidated Statements of Cash Flows for the Nine  Months Ended September 30, 2008 and 2007                                                            |       |       |
|                                                                                                                                                         |       |       |
| Notes to Unaudited Consolidated Financial Statements                                                                                                         |       |       |
|                                                                                                                                                         |       |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations.                                                         |       |       |
|                                                                                                                                                         |       |       |
| Item  3. Quantitative and Qualitative Disclosures About Market Risk.                                                                                         |       |       |
|                                                                                                                                                         |       |       |
| Item 4.  Controls and Procedures.                                                                                                                            |       |       |
| ** **                                                                                                                                                   | ** ** | ** ** |
| **Part II  — Other Information**                                                                                                                   | ** ** | ** ** |
|                                                                                                                                                         |       |       |
| Item 1.  Legal Proceedings.                                                                                                                                  |       |       |
|                                                                                                                                                         |       |       |
| Item  1A. Risk Factors.                                                                                                                                      |       |       |
|                                                                                                                                                         |       |       |
| Item  4. Submission of Matters to a Vote of Security Holders.                                                                                                |       |       |
|                                                                                                                                                         |       |       |
| Item 6.  Exhibits.                                                                                                                                           |       |       |
|                                                                                                                                                         |       |       |
| Signatures                                                                                                                                                   |       |       |
|                                                                                                                                                         |       |       |
| Exhibit Index                                                                                                                                           |       |       |
|                                                                                                                                                         |       |       |
| Certifications                                                                                                                                               |       |       |

 

2

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Tableof Contents

 

**PART I—FINANCIAL INFORMATION**

**Item 1. Unaudited Financial Statements**

 

**CELLDEXTHERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

** **
| ** **                                                                                                                                                                                                                                                                       | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                                                                                  |       |                         |       |                        |       |
| Cash and Cash Equivalents                                                                                                                                                                                                                                                        |       | $                            | 42,697,228 |                        | $          | 4,909,530 |   |
| Accounts and Other Receivables                                                                                                                                                                                                                                                   |       | 11,481,828                   |       | 132,496                     |       |
| Prepaid Expenses and Other Current Assets                                                                                                                                                                                                                                        |       | 1,381,674                    |       | 656,347                     |       |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Total Current Assets                                                                                                                                                                                                                                                             |       | 55,560,730                   |       | 5,698,373                   |       |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Property and Equipment, Net                                                                                                                                                                                                                                                      |       | 14,190,971                   |       | 1,918,036                   |       |
| Intangible Assets, Net                                                                                                                                                                                                                                                           |       | 2,576,414                    |       | 1,032,902                   |       |
| Other Assets                                                                                                                                                                                                                                                                     |       | 6,857,420                    |       | 725,193                     |       |
| Total Assets                                                                                                                                                                                                                                                                     |       | $                            | 79,185,535 |                        | $          | 9,374,504 |   |
| ** **                                                                                                                                                                                                                                                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                    | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current Liabilities:                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Accounts Payable                                                                                                                                                                                                                                                                 |       | $                            | 1,405,789  |                        | $          | 749,865 |   |
| Accrued Expenses                                                                                                                                                                                                                                                                 |       | 8,794,887                    |       | 2,519,420                   |       |
| Payable Due Medarex                                                                                                                                                                                                                                                              |       | 2,957,248                    |       | 5,835,552                   |       |
| Current Portion of Deferred Revenue                                                                                                                                                                                                                                              |       | 5,043,160                    |       | 974,156                     |       |
| Current Portion of Deferred Rent                                                                                                                                                                                                                                                 |       | 57,447                       |       | 57,447                      |       |
| Current Portion of Loans Payable                                                                                                                                                                                                                                                 |       | 165,798                      |       | —                      |       |
| Total Current Liabilities                                                                                                                                                                                                                                                        |       | 18,424,329                   |       | 10,136,440                  |       |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Deferred Revenue                                                                                                                                                                                                                                                                 |       | 35,924,641                   |       | 219,754                     |       |
| Deferred Rent                                                                                                                                                                                                                                                                    |       | 211,977                      |       | 150,207                     |       |
| Loans Payable                                                                                                                                                                                                                                                                    |       | 786,860                      |       | —                      |       |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Commitments and Contingent Liabilities  (Note 14)                                                                                                                                                                                                                                |       |                         |       |                        |       |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Stockholders’ Equity (Deficit):                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Convertible Preferred Stock, 3,000,000  Shares Authorized; None Issued and Outstanding at September 30, 2008                                                                                                                                                                |       | —                       |       |                        |       |
| Convertible Preferred Stock, $1.00 Par  Value; 1,000,000 Shares Authorized; None Issued and Outstanding at  December 31, 2007                                                                                                                                               |       |                         |       | —                      |       |
| Common Stock, $.001 Par Value; 300,000,000  Shares Authorized; 15,708,244 Issued and Outstanding at September 30,  2008                                                                                                                                                     |       | 15,708                       |       |                        |       |
| Class A Common Stock, $.01 Par Value;  6,800,000 Shares Authorized, Issued and Outstanding at December 31, 2007  (2,811,147 shares issued and outstanding after adjustments to reflect the  Merger and a reverse stock split of 1-for-12 effective March 7, 2008) |       |                         |       | 68,000                      |       |
| Common Stock, $.01 Par Value; 50,000,000  Shares Authorized; 13,300,000 Issued and Outstanding at December 31, 2007  (5,498,273 shares issued and outstanding after adjustments to reflect the  Merger and a reverse stock split of 1-for-12 effective March 7, 2008)  |       | —                       |       | 133,000                     |       |
| Additional Paid-In Capital                                                                                                                                                                                                                                                       |       | 134,948,606                  |       | 69,696,514                  |       |
| Accumulated Other Comprehensive Income                                                                                                                                                                                                                                           |       | 2,569,211                    |       | 2,619,036                   |       |
| Accumulated Deficit                                                                                                                                                                                                                                                              |       | (113,695,797                 | )          | (73,648,447                 | )          |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Total Stockholders’ Equity (Deficit)                                                                                                                                                                                                                                        |       | 23,837,728                   |       | (1,131,897                  | )          |
|                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |
| Total Liabilities and Stockholders’ Equity  (Deficit)                                                                                                                                                                                                                       |       | $                            | 79,185,535 |                        | $          | 9,374,504 |   |

 

See accompanying notes to unauditedconsolidated financial statements

 

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**CELLDEXTHERAPEUTICS, INC.****CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,  2008**     | ** ** | **September 30,  2007** | ** ** |
| **REVENUE:**                                                                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Product Development and Licensing  Agreements                                      |       | $                                | 1,245,442  |   | $ | 116,539 |   |
| Contracts and Grants                                                               |       | 137,685                          |       | 152,435 |   |
| Product Royalties                                                                  |       | 975,009                          |       | — |   |
|                                                                               |       |                             |       |   |   |
| Total Revenue                                                                      |       | 2,358,136                        |       | 268,974 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                             | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Research and Development                                                           |       | 6,626,059                        |       | 3,111,002 |   |
| General and Administrative                                                         |       | 4,206,081                        |       | 1,306,000 |   |
| Amortization of Acquired Intangible Assets                                         |       | 103,974                          |       | 29,233 |   |
|                                                                               |       |                             |       |   |   |
| Total Operating Expense                                                            |       | 10,936,114                       |       | 4,446,235 |   |
|                                                                               |       |                             |       |   |   |
| Operating Loss                                                                     |       | (8,577,978                       | )          | (4,177,261 | ) |
|                                                                               |       |                             |       |   |   |
| Investment and Other Income, Net                                                   |       | 921,820                          |       | 120,243 |   |
|                                                                               |       |                             |       |   |   |
| Net Loss                                                                           |       | $                                | (7,656,158 | ) | $ | (4,057,018 | ) |
|                                                                               |       |                             |       |   |   |
| Basic and Diluted Net Loss Per Common Share  (See Note (3)(R))                     |       | $                                | (0.49      | ) | $ | (0.49 | ) |
|                                                                               |       |                             |       |   |   |
| Shares Used in Calculating Basic and  Diluted Net Loss per Share (See Note (3)(R)) |       | 15,708,244                       |       | 8,309,420 |   |
|                                                                               |       |                             |       |   |   |
| **COMPREHENSIVE LOSS:**                                                            |       |                             |       |   |   |
| Net Loss                                                                           |       | $                                | (7,656,158 | ) | $ | (4,057,018 | ) |
| Unrealized Gain / (Loss) on Foreign  Exchange Translation                          |       | 6,434                            |       | 202,779 |   |
|                                                                               |       |                             |       |   |   |
| Comprehensive Loss                                                                 |       | $                                | (7,649,724 | ) | $ | (3,854,239 | ) |

 

*See accompanying notes tounaudited consolidated financial statements*

 

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**CELLDEX THERAPEUTICS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Nine Months Ended** | ** **  |
|------------------------------------------------------------------------------------|------------|---------------------------------|-------------|
| ** **                                                                         | ** ** | **September 30,  2008**    | ** **  | **September 30,  2007** | ** ** |
| **REVENUE:**                                                                       | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Product Development and Licensing  Agreements                                      |       | $                               | 2,235,810   |   | $ | 349,617 |   |
| Contracts and Grants                                                               |       | 419,204                         |        | 672,581 |   |
| Product Royalties                                                                  |       | 1,812,131                       |        | — |   |
|                                                                               |       |                            |        |   |   |
| Total Revenue                                                                      |       | 4,467,145                       |        | 1,022,198 |   |
| ** **                                                                         | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                             | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Research and Development                                                           |       | 18,743,353                      |        | 8,270,191 |   |
| General and Administrative                                                         |       | 11,825,467                      |        | 3,884,000 |   |
| Charge for In-Process Research and  Development                                    |       | 14,755,908                      |        | — |   |
| Amortization of Acquired Intangible Assets                                         |       | 257,032                         |        | 87,699 |   |
|                                                                               |       |                            |        |   |   |
| Total Operating Expense                                                            |       | 45,581,760                      |        | 12,241,890 |   |
|                                                                               |       |                            |        |   |   |
| Operating Loss                                                                     |       | (41,114,615                     | )           | (11,219,692 | ) |
|                                                                               |       |                            |        |   |   |
| Investment and Other Income, Net                                                   |       | 1,067,265                       |        | 375,134 |   |
|                                                                               |       |                            |        |   |   |
| Net Loss                                                                           |       | $                               | (40,047,350 | ) | $ | (10,844,558 | ) |
|                                                                               |       |                            |        |   |   |
| Basic and Diluted Net Loss Per Common Share  (See Note (3)(R))                     |       | $                               | (2.92       | ) | $ | (1.31 | ) |
|                                                                               |       |                            |        |   |   |
| Shares Used in Calculating Basic and  Diluted Net Loss per Share (See Note (3)(R)) |       | 13,695,092                      |        | 8,309,420 |   |
|                                                                               |       |                            |        |   |   |
| **COMPREHENSIVE LOSS:**                                                            |       |                            |        |   |   |
| Net Loss                                                                           |       | $                               | (40,047,350 | ) | $ | (10,844,558 | ) |
| Unrealized Gain/(Loss) on Foreign Exchange  Translation                            |       | (49,825                         | )           | 367,435 |   |
|                                                                               |       |                            |        |   |   |
| Comprehensive Loss                                                                 |       | $                               | (40,097,175 | ) | $ | (10,477,123 | ) |

 

*See accompanying notes tounaudited consolidated financial statements*

 

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** **

**CELLDEXTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND THE YEAR ENDED DECEMBER31, 2007(Unaudited)**

 
| ** **                                                     | ** ** | **Common   Stock   Shares(1)** | ** ** | **Common   Stock   Par   Value(1)** | ** ** | **Class A   Common   Stock   Shares(1)** | ** **    | **Class A   Common   Stock Par   Value(1)** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Accumulated   Other   Comprehensive   Income** | ** **      | **Accumulated   Deficit** | ** ** | **Total   Stockholders’   Equity   (Deficit)** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------|---------------|----------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------|-----------------|--------------------------------|------------|--------------------------------------------------------------------|------------|
| **Balance at December 31, 2006**                          | ** ** | **5,498,273**                            | ** ** | **$**                                              | **5,498**  | ** **                                                   | **2,811,147** | ** **                                                           | **$**      | **2,811**                                    | ** ** | **$**                                                           | **71,322,900**  | ** **                     | **$**      | **2,388,196**                                                      | ** ** | **$** | **(58,575,397** | **)** | **$** | **15,144,008** | ** ** |
| Share-Based  Compensation                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | 1,604,922                                    |       | —                                                          |            | —                         |       | 1,604,922                                                          |       |
| Medarex  Return of Capital                                     |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | (3,038,617                                   | )          | —                                                          |            | —                         |       | (3,038,617                                                         | )          |
| Comprehensive  Income (Loss):                                  |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       |                                                               |       |
| Net  Loss                                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | (15,073,050                    | )          | (15,073,050                                                        |       |
| Other  Comprehensive Income                                    |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | 230,840                                                         |            | —                         |       | 230,840                                                            |       |
| Total  Comprehensive Loss                                      |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       | (14,842,210                                                        | )          |
| **Balance at December 31, 2007**                          | ** ** | **5,498,273**                            | ** ** | **$**                                              | **5,498**  | ** **                                                   | **2,811,147** | ** **                                                           | **$**      | **2,811**                                    | ** ** | **$**                                                           | **69,889,205**  | ** **                     | **$**      | **2,619,036**                                                      | ** ** | **$** | **(73,648,447** | **)** | **$** | **(1,131,897** | **)** |
| Exchange  of Class A for Common Stock                     |       | 2,811,147                                |       | 2,811                                              |       | (2,811,147                                                   | )             | (2,811                                                               | )          | —                                       |       | —                                                          |            | —                         |       | —                                                             |       |
| Shares  Issued to Medarex in Settlement of a Payable           |       | 351,692                                  |       | 352                                                |       | —                                                       |          | —                                                               |       | 3,038,265                                    |       | —                                                          |            | —                         |       | 3,038,617                                                          |       |
| Shares  Received in Exchange in the Merger                     |       | 6,265,889                                |       | 6,266                                              |       | —                                                       |          | —                                                               |       | 46,869,106                                   |       | —                                                          |            | —                         |       | 46,875,372                                                         |       |
| Cash  Paid for Fractional Shares in Connection with the Merger |       | (7                                       | )          | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | —                         |       | —                                                             |       |
| Shares  Issued to Pfizer as part of CDX-110 Licensing Agrmt.   |       | 781,250                                  |       | 781                                                |       |                                                         |          |                                                                 |       | 10,866,407                                   |       |                                                            |            |                           |       | 10,867,188                                                         |       |
| Share-Based  Compensation                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | 4,285,623                                    |       | —                                                          |            | —                         |       | 4,285,623                                                          |       |
| Comprehensive  Loss:                                           |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       |                                                               |       |
| Net  Loss                                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | —                                                          |            | (40,047,350                    | )          | (40,047,350                                                        | )          |
| Other  Comprehensive Loss                                      |       | —                                   |       | —                                             |       | —                                                       |          | —                                                               |       | —                                       |       | (49,825                                                         | )               | —                         |       | (49,825                                                            | )          |
| Total  Comprehensive Loss                                      |       |                                     |       |                                               |       |                                                         |          |                                                                 |       |                                         |       |                                                            |            |                           |       | (40,097,175                                                        | )          |
| **Balance at September 30, 2008**                         | ** ** | **15,708,244**                           | ** ** | **$**                                              | **15,708** |                                                         | —        | ** **                                                           | **$**      | **—**                                   | ** ** | **$**                                                           | **134,948,606** | ** **                     | **$**      | **2,569,211**                                                      | ** ** | **$** | **(113,695,797** | **)** | **$** | **23,837,728** | ** ** |

 

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(1)                                  Adjustedto reflect the Merger exchange ratio and a reverse stock split of 1-for-12effective March 7, 2008.

 

*See accompanying notes to unaudited consolidated financial statements*

 

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** **

**CELLDEXTHERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Nine Months Ended** | ** **  |
|------------------------------------------------------------------------------|------------|---------------------------------|-------------|
| ** **                                                                   | ** ** | **September 30,  2008**    | ** **  | **September 30,  2007** | ** ** |
| **Cash  Flows from Operating Activities:**                                   | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Net Loss                                                                     |       | $                               | (40,047,350 | ) | $ | (10,844,558 | ) |
| Adjustments to Reconcile Net Loss to Net  Cash Used in Operating Activities: |       |                            |        |   |   |
| Depreciation and Amortization                                                |       | 1,770,523                       |        | 543,969 |   |
| Amortization of Intangible Assets                                            |       | 257,032                         |        | 87,699 |   |
| Impairment of Investment in Select Vaccines  Limited                         |       | 297,146                         |        | — |   |
| Loss (Gain) on Impairment &  Disposal of Assets                     |       | 10,899                          |        | — |   |
| Stock-Based Compensation Expense                                             |       | 4,285,623                       |        | 1,080,684 |   |
| In-Process Research and Development                                          |       | 14,755,908                      |        | — |   |
| Changes in Operating Assets and  Liabilities:                                |       |                            |        |   |   |
| Accounts and Other Receivables                                               |       | (11,310,743                     | )           | 4,099,061 |   |
| Prepaid and Other Current Assets                                             |       | 9,590,606                       |        | (578,457 | ) |
| Other Assets                                                                 |       | (3,776,766                      | )           | — |   |
| Accounts Payable and Accrued Expenses                                        |       | 1,427,402                       |        | (521,782 | ) |
| Deferred Revenue                                                             |       | 39,663,891                      |        | 431,233 |   |
| Deferred Rent                                                                |       | 61,770                          |        | (64,443 | ) |
|                                                                         |       |                            |        |   |   |
| Net Cash Provided by (Used in) Operating  Activities                         |       | 16,985,941                      |        | (5,766,594 | ) |
| ** **                                                                   | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **Cash  Flows from Investing Activities:**                                   | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Cash Acquired in the Acquisition of AVANT,  Net of Transaction Costs         |       | 10,750,255                      |        | — |   |
| Restricted Cash Deposits                                                     |       | (1,577                          | )           | (2,315 | ) |
| Acquisition of Property and Equipment                                        |       | (1,277,958                      | )           | (72,931 | ) |
| Proceeds from Sale of Shares of Select  Vaccines Limited                     |       | 250,882                         |        | — |   |
| Proceeds from Disposal of Assets                                             |       | 238,755                         |        | — |   |
|                                                                         |       |                            |        |   |   |
| Cash Provided by (Used in) Investing  Activities                             |       | 9,960,357                       |        | (75,246 | ) |
| ** **                                                                   | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **Cash  Flows from Financing Activities:**                                   | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Net Proceeds from Stock Issuance                                             |       | 10,867,188                      |        | — |   |
| Related Party Loan Due to Medarex                                            |       | 160,313                         |        | 173,450 |   |
| Payments of Loans Payable                                                    |       | (136,276                        | )           | — |   |
|                                                                         |       |                            |        |   |   |
| Net Cash Provided by Financing Activities                                    |       | 10,891,225                      |        | 173,450 |   |
|                                                                         |       |                            |        |   |   |
| Effect of Exchange Rate Changes on Cash and  Cash Equivalents                |       | (49,825                         | )           | 366,239 |   |
|                                                                         |       |                            |        |   |   |
| Net Increase (Decrease) in Cash and Cash  Equivalents                        |       | 37,787,698                      |        | (5,302,151 | ) |
|                                                                         |       |                            |        |   |   |
| Cash and Cash Equivalents at Beginning of  Period                            |       | 4,909,530                       |        | 14,000,186 |   |
|                                                                         |       |                            |        |   |   |
| Cash and Cash Equivalents at End of Period                                   |       | $                               | 42,697,228  |   | $ | 8,698,035 |   |
|                                                                         |       |                            |        |   |   |
| **Supplemental  Disclosure of Non-Cash Flow Information**                    | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Shares Received in Exchange in the Merger                                    |       | $                               | 46,251,952  |   | $ | — |   |
| Shares Issued to Medarex in Settlement of a  Payable                         |       | $                               | 3,038,617   |   | $ | — |   |
| Future Amounts Payable to Licensors                                          |       | $                               | 2,817,413   |   | $ | — |   |
|                                                                              |            |                                 |             |  |  |  |  |  |  |

 

*See accompanying notes to unaudited consolidated financial statements*

 

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** **

**CELLDEX THERAPEUTICS, INC.Notes to Unaudited Consolidated Financial StatementsSeptember 30, 2008**

** **

**(1)****                               ****Nature of Business andOverview**

 

CelldexTherapeutics, Inc. (formerly known as AVANT Immunotherapeutics, Inc.) (the“Company” or “Celldex”) is engaged in the discovery, development andcommercialization of products that harness the human immune system to preventand treat disease. The Company is developing a portfolio of vaccines andtargeted immunotherapeutics addressing a wide range of applications includingoncology, infectious and inflammatory diseases. The portfolio includes apipeline of therapeutic cancer vaccines, monoclonal antibodies, single-dose,oral vaccines aimed at protecting travelers and people in regions whereinfectious diseases are endemic and a treatment to reduce complement-mediatedtissue damage. Celldex is advancing a pipeline of clinical and preclinicalproduct candidates, the most advanced of which are for treatment of variouscancers. Celldex’s lead programs are therapeutic cancer vaccines designed toinstruct the patient’s immune system to recognize and destroy cancer cells.Celldex further leverages the value of its technology portfolio throughcorporate, governmental and non-governmental partnerships. One successfulcollaboration resulted in our license of a rotavirus strain to GlaxoSmithKlinethat was used in the development of an oral human rotavirus vaccine. Currentcollaborations encompass the development of vaccines addressed to cancertherapies, global health, human food safety and animal health. Celldex’sproduct candidates address large market opportunities for which the Companybelieves current therapies are inadequate or non-existent.

 

*Mergerbetween Celldex and Celldex Research:*  On March 7, 2008, Celldex(formerly known as AVANT Immunotherapeutics, Inc.) completed the merger ofCallisto Merger Corporation (“Merger Sub”), a wholly owned subsidiary of Celldex,with and into Celldex Research Corporation (formerly known as Celldex Therapeutics, Inc.)(“Celldex Research”), a privately-held company, (the “Merger”). EffectiveOctober 1, 2008, the Company changed its name from AVANTImmunotherapeutics, Inc. to Celldex Therapeutics, Inc.

 

At the special meeting of theCompany’s shareholders held on March 6, 2008 in connection with theMerger, stockholders approved four proposals: (i) the issuance of sharesof the Company’s common stock pursuant to the Merger Agreement in the amountnecessary to result in the former Celldex Research stockholders owning 58% ofthe Company’s common stock on a fully diluted basis, (ii) an amendment tothe Company’s Third Restated Certificate of Incorporation to increase thenumber of authorized shares to 300,000,000, (iii) an amendment to theCompany’s Third Restated Certificate of Incorporation to effect a reverse stocksplit in a ratio ranging from one-for-twelve to one-for-twenty of all theissued and outstanding shares of the Company’s common stock, the final ratio tobe determined by the Company’s board of directors and (iv) adoption of the2008 Stock Option and Incentive Plan.

 

Also, pursuant to the termsof the Merger Agreement, former Celldex Research shareholders received 4.96shares of the Company’s common stock in exchange for each share of CelldexResearch common stock and Class A common stock they owned at the effectivetime of the Merger, plus cash in lieu of fractional shares. The Company alsoassumed all of Celldex Research’s stock options outstanding at the effectivetime of the Merger.

 

The Company’s board ofdirectors approved a 1-for-12 reverse stock split of the Company’s commonstock, which became effective on March 7, 2008. As a result of the reversestock split, each twelve shares of common stock were combined and reclassifiedinto one share of common stock and the total number of shares outstanding wasreduced from approximately 180 million shares (including the shares issuedto former Celldex Research stockholders in the Merger) to approximately15 million shares.

 

The Merger was accounted forusing the purchase method of accounting and was treated as an acquisition byCelldex Research of the Company with Celldex Research being considered theaccounting acquirer based on the application of criteria specified in Statementof Financial Accounting Standards (“SFAS”) No. 141,*Business Combination,* (“SFAS 141”), eventhough the Company was the issuer of common stock and the surviving legalentity in the transaction. Under the purchase method of accounting, the deemedpurchase price was allocated to the Company’s underlying tangible andidentifiable intangible assets acquired and liabilities assumed based upon therespective fair value of each with any excess deemed purchase price allocatedto goodwill. However, the valuation analysis conducted by the Companydetermined that the fair value of assets acquired and the fair value ofliabilities assumed by Celldex Research exceeded the estimated purchase pricefor the Company, resulting in negative goodwill of approximately $6.0 million.In accordance with SFAS 141*,*the negative goodwill has been allocated to all of the acquired assets that arenon-financial and non-current assets, including property and equipment,identifiable intangible assets, and in-process research and development. SeeNote 16 to the Company’s unaudited consolidated financial statements foradditional information.

 

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Because Celldex Research wasdetermined to be the acquirer for accounting purposes, the historical financialstatements of Celldex Research became the historical financial statements ofthe Company as of the closing of the Merger. Accordingly, the financial statementsof the Company prior to the Merger reflect the financial position, results ofoperations and cash flows of Celldex Research, which during the historicalperiods presented in the accompanying consolidated financial statements, wasthen majority-owned by Medarex, Inc. (“Medarex”). Following the Merger,the financial statements of the current period reflect the financial position,results of operation and cash flows of the Company. The results of operationsof Celldex are included in the results of operations of the Company beginningMarch 8, 2008. Accordingly, except as otherwise discussed below, thisreport reflects the financial condition, results of operations and liquidity ofthe combined company at September 30, 2008 and historically of Celldex Researchon a stand-alone basis for all periods prior to March 8, 2008.

 

The Company’s cash and cashequivalents at September 30, 2008 were $42,697,228. Its working capital atSeptember 30, 2008 was $37,136,401. The Company incurred a loss of$7,656,158 and $40,047,350 for the three and nine months endedSeptember 30, 2008, respectively. Net cash provided by operations for thenine months ended September 30, 2008 was $16,985,941. The Company believesthat cash inflows from existing grants and collaborations, interest income oninvested funds and its current cash and cash equivalents will be sufficient tomeet estimated working capital requirements and fund operations beyondSeptember 30, 2009. The working capital requirements of the Company aredependent on several factors including, but not limited to, the costsassociated with research and development programs, pre-clinical and clinicalstudies, manufacture of clinical materials and the scope of collaborativearrangements.

 

On April 16, 2008, theCompany and Pfizer Inc. (“Pfizer”) entered into a License and DevelopmentAgreement (the “Pfizer Agreement”) under which Pfizer will be granted anexclusive worldwide license to a therapeutic cancer vaccine candidate, CDX-110,in Phase 2 development for the treatment of glioblastoma multiforme (“GBM”).The Pfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement, Pfizermade an upfront payment to the Company of $40 million and made a $10 millionequity investment in the Company. Pfizer will fund all development costs forthese programs. The Company is also eligible to receive milestone paymentsexceeding $390 million for the successful development and commercialization ofCDX-110 and additional EGFRvIII vaccine products, as well as royalties on anyproduct sales.

 

On April 3, 2008,Rotarix® received Food and Drug Administration (“FDA”)market approval for the prevention of rotavirus gastroenteritis in infants. FDAapproval triggered a $1.5 million milestone payment to the Company fromGlaxoSmithKline plc (“Glaxo”), $750,000 of which the Company has retained underthe Company’s agreement with Paul Royalty Fund (“PRF”). Rotarix® is now licensed in over 100 countriesworldwide including the U.S. and the European Union. Glaxo initiated its U.S.launch of Rotarix® during the third quarter of 2008 whichresulted in the Company receiving a $10 million milestone payment from PRF onOctober 1, 2008.

 

During the remainder of 2008and in 2009, Celldex may take steps to raise additional capital including, butnot limited to, the licensing of technology programs with existing or newcollaborative partners, possible business combinations, or the issuance ofcommon stock via private placements or public offerings. We believe that ourcurrent cash and cash equivalents are sufficient to fund planned operations forat least the next twelve months. While the Company continues to seek capitalthrough a number of means, there can be no assurance that additional financingwill be available on acceptable terms, if at all, particularly in light of therecent disruptions in the financial markets and the Company’s negotiatingposition in capital-raising efforts may worsen as existing resources are used.There is also no assurance that the Company will be able to enter into furthercollaborative relationships. Additional equity financing may be dilutive to theCompany’s stockholders; debt financing, if available, may involve significantcash payment obligations and covenants that restrict the Company’s ability tooperate as a business; and licensing or strategic collaborations may result inroyalties or other terms that reduce the Company’s economic potential fromproducts under development.

 

**(2)          Interim Financial Statements**

 

The accompanying unauditedconsolidated financial statements for the three and nine months endedSeptember 30, 2008 and 2007 include the consolidated accounts of theCompany and its wholly-owned subsidiaries, and have been prepared in accordancewith instructions to Form 10-Q and Article 10 of Regulation S-X. Inthe opinion of management, the information contained herein reflects alladjustments that are necessary to fairly state the Company’s financial positionat September 30, 2008, results of operations for the three and nine monthsended September 30, 2008 and 2007. The Company’s financial conditions,results of operations and liquidity for the three- and nine-month periods endedSeptember 30, 2008 are not necessarily indicative of results for anyfuture interim period or for the full year.

 

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Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles in the United Statesof America have been omitted, although the Company believes that thedisclosures included, when read in conjunction with the Company’s Annual Reporton Form 10-K for the year ended December 31, 2007 are adequate tomake the information presented not misleading. The accompanyingDecember 31, 2007 Consolidated Balance Sheet was derived from auditedfinancial statements of Celldex, but does not include all disclosures requiredby U.S. GAAP.

 

**(3)          Significant Accounting Policies**

 

*(A) Basis of Presentation*

 

The unaudited consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiaries, Celldex Research Corporation, Celldex Therapeutics, Ltd.(“Celldex Ltd”) and Megan Health, Inc. (“Megan”). The Company’s operationsconstitute one business segment. All intercompany transactions have beeneliminated upon consolidation.

 

*(B) Cash and Cash Equivalents*

 

Cash and cash equivalentsconsist of cash and short-term investments with original maturities of threemonths or less. Cash and cash equivalents are stated at cost, whichapproximates fair value. At September 30, 2008, investments were primarilyin money market mutual funds.

 

Celldex may invest its cashin debt instruments of financial institutions, government entities andcorporations, and mutual funds. The Company has established guidelines relativeto credit ratings, diversification and maturities to mitigate risk and maintainliquidity. Financial instruments, which potentially subject the Company toconcentrations of credit risk, consist principally of cash and cash equivalentsand accounts receivable. Cash and cash equivalents consist of cash and moneymarket funds which are all held with three financial institutions in the U.S.and two financial institutions in the United Kingdom.

 

*(C) Investment in Securities*

 

In August 2008, theCompany sold its equity investment in Select Vaccines Limited (“SelectVaccines”) shares. The Company had classified its equity investment in Selectshares as available for sale securities under SFAS 115, *Accounting for Certain Investments in Debt and EquitySecurities*, (“FAS 115”). During the quarter endedSeptember 30, 2008, the Company recorded a loss of $297,129 in connectionwith the sale of its Select shares.

 

*(D) RestrictedCash*

** **

Restricted cash of $181,716and $180,139 at September 30, 2008 and December 31, 2007,respectively, represents security deposits for the Company’s facilities in Phillipsburg,New Jersey, of which the Company took occupancy in 2006.

 

*(E) Fair Value of Financial Instruments*

 

The Company enters intovarious types of financial instruments in the normal course of business. Thecarrying amounts of the Company’s cash and cash equivalents, accountsreceivable, accounts payable and accrued expenses approximate their fair valuesdue to the short-term nature of these financial instruments. Receivables areconcentrated in the pharmaceutical industry and from United Kingdom InlandRevenue. Management considers the likelihood of market credit risk to beremote.

 

*(F) Trade and Other Accounts Receivable*

 

Trade accounts receivableare recorded at the invoiced amount and do not bear interest. The Company hasnot historically experienced credit losses from its accounts receivable andtherefore has not established an allowance for doubtful accounts. The Companydoes not have any off-balance-sheet credit exposure related to its customers.

 

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Accounts and otherreceivables consist of the following:

 
| ** ** | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------|------------|------------------------------|------------|-----------------------------|------------|
| Trade      |       | $                            | 11,313,297 |                        | $          | — |   |
| Other      |       | 168,531                      |       | 132,496                     |       |
|       |       | $                            | 11,481,828 |                        | $          | 132,496 |   |

 

At September 30, 2008,trade receivables primarily consist of $10,000,000 due from Paul Royalty Fund(see Note 10(A)) and $1,296,325 due from Pfizer (see Note 10(C)(1)).

 

Other receivables primarilyconsist of money market interest receivable, an employee loan receivable andresearch and development tax credit receivable from United Kingdom InlandRevenue.

 

*(G) Long-Lived Assets:*

 

In the ordinary course ofits business, the Company incurs substantial costs to construct property andequipment. The treatment of costs to construct these assets depends on thenature of the costs and the stage of construction. Costs incurred in theproject planning and design phase, and in the construction and installationphase, are capitalized as part of the cost of the asset. The Company stopscapitalizing costs when the asset is substantially complete and ready for itsintended use.

 

For manufacturing propertyand equipment, the Company also capitalizes the cost of validating these assetsfor the underlying manufacturing process. Celldex completes the capitalizationof validation costs when the asset is substantially complete and ready for itsintended use. Costs capitalized include incremental labor and fringe benefits,and direct consultancy services.

 

Property and equipment isstated at cost and depreciated over the estimated useful lives of the relatedassets using the straight-line method. Laboratory equipment and officefurniture and equipment are depreciated over a five-year period and computer equipmentis depreciated over a three-year period. Manufacturing equipment is amortizedover a seven- to ten-year period. Leasehold improvements are amortized over theshorter of the estimated useful life or the non-cancelable term of the relatedlease, including any renewals that are reasonably assured of occurring.Property and equipment under construction is classified as construction inprogress and is depreciated or amortized only after the asset is placed inservice. Expenditures for maintenance and repairs are charged to expensewhereas the costs of significant improvements which extend the life of theunderlying asset are capitalized. Upon retirement or sale, the cost of assetsdisposed of and the related accumulated depreciation are eliminated and therelated gains or losses are reflected in net income.

 

*(H) Accounting for the Impairment of Long-LivedAssets:*

 

The Company periodicallyevaluates its long-lived assets, primarily property and equipment andintangible assets for potential impairment under SFAS No. 144, *Accounting for the Impairment of Long-Lived Assets,*(“SFAS No. 144”). The Company performs these evaluations whenever eventsor changes in circumstances suggest that the carrying amount of an asset orgroup of assets is not recoverable. Indicators of potential impairment include:

 

·                  asignificant change in the manner in which an asset is used;

 

·                  asignificant decrease in the market value of an asset;

 

·                  asignificant adverse change in its business or the industry in which it is sold;and

 

·                  acurrent period operating cash flow loss combined with a history of operating orcash flow losses or a projection or forecast that demonstrates continuinglosses associated with the asset.

 

If the Company believes anindicator of potential impairment exists, the carrying values of the assets areevaluated in relation to the operating performance and future undiscounted cashflows of the underlying asset. The net book value of an asset is adjusted tofair value if its expected future undiscounted cash flows are less than itsbook value. The Company charges impairments of the long-lived assets tooperations if its evaluations indicate that the carrying value of these assetsis not recoverable. Management had identified no indicators of impairment atSeptember 30, 2008.

 

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* *

*(I) Accounting for Patent Costs:*

 

Patent costs are expensed asincurred. Certain patent costs are reimbursed by the Company’s product developmentand licensing partners. Any reimbursed patent costs are recorded as productdevelopment and licensing agreement revenues in the Company’s financialstatements.

 

*(J) Interest Capitalization*

 

The Company capitalizesinterest cost as part of the historical cost of acquiring certain assets duringthe period of time required to get the asset ready for its intended use. Theamount of capitalized interest is limited to the amount of interest incurred bythe Company.

 

*(K) Operating Leases*

 

The Company presently hasthree facilities that are located at Phillipsburg, New Jersey, and Needham andFall River, Massachusetts under non-cancellable operating lease agreements foroffice, laboratory and manufacturing space. The rent payments for the threelocations escalate over the lease term. Rent expense is recorded on astraight-line basis over the terms of the leases, including any renewals thatare reasonably assured of occurring. The difference between rent expense andamounts paid under the lease agreements is recorded as deferred rent in theaccompanying consolidated balance sheets. Tenant improvements paid by thelandlord are capitalized as leasehold improvements and amortized over theshorter of their estimated useful lives or the remaining lease term.

 

*(L) Intangible Assets*

 

The Company has acquiredintangible assets, which include core technology, developed technology and astrategic partner agreement, through the Merger and the acquisition ofLorantis, Ltd (“Lorantis”). These acquired intangible assets are beingamortized on a straight-line basis over their estimated lives, which range from4.5 to 11 years. The determination of the amortization period involvesestimates and judgments on management’s part. Any significant changes in theCompany’s estimates or assumptions could impact the carrying value of acquiredintangible assets. The Company evaluates the recoverability of these assetswhen facts and circumstances suggest the asset could be impaired in accordancewith SFAS No. 144.

 

*(M) Revenue Recognition*

 

The Company accounts forrevenue arrangements that include multiple deliverables in accordance withEmerging Issues Task Force (“EITF”) No. 00-21, *Accounting for Revenue Arrangements with Multiple Arrangements*(“EITF 00-21”). EITF 00-21 addresses how to determine whether an arrangementinvolving multiple deliverables contains more than one unit of accounting. Inapplying the guidance, revenue arrangements with multiple deliverables can onlybe considered as separate units of accounting if (i) the delivered itemhas value to the customer on a standalone basis, (ii) there is objectiveand reliable evidence of the fair value of the undelivered items and(iii) if the right of return exists, delivery of the undelivered items isconsidered probable and substantially in the control of the vendor. If thesecriteria are not met, the revenue elements must be considered a single unit ofaccounting for purposes of revenue recognition.

 

Payments received to fundcertain research activities are recognized as revenue in the period in whichthe research activities are performed. Payments received in advance that arerelated to future performance are deferred and recognized as revenue when theresearch projects are performed.

 

The Company has entered intovarious license and development agreements with pharmaceutical andbiotechnology companies. The terms of the agreements typically includenon-refundable license fees, funding of research and development, paymentsbased upon achievement of certain milestones and royalties on net productsales. Non-refundable license fees are recognized as contract and license feerevenue when the Company has a contractual right to receive such payments,provided that (i) a contractual arrangement exists, (ii) the contractprice is fixed or determinable, (iii) the collection of the resultingreceivable is reasonably assured and (iv) the Company has no furtherperformance obligations under the license agreement. Upfront non-refundablefees associated with license and development agreements where the Company hascontinuing performance obligations under the terms of the

 

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agreement are recorded asdeferred revenue and recognized as revenue over the estimated service period asthe Company completes its obligations. Where the Company’s level of effort isrelatively constant over the performance period or no other pattern isestimable, the revenue is recognized on a straight-line basis. Revenue islimited to the lesser of the cumulative amount of payments received or thecumulative amount of revenue earned, as determined using the straight-linebasis, as of the period ending date. If the estimated service period is subsequentlymodified, the period over which the upfront fee is recognized is modifiedaccordingly on a prospective basis. The determination of the performance periodinvolves judgment on management’s part. Funding of research and development isrecognized as revenue over the term of the applicable contract as costs areincurred related to that contract.

 

Milestone payments arerecognized as revenue upon the achievement of mutually agreed milestones,provided that (i) the milestone event is substantive and its achievementis not reasonably assured at the inception of the agreement, and(ii) there is no continuing performance obligations associated with themilestone payment. Revenues from milestone payments related to arrangementsunder which the Company has continuing performance obligations are recognizedas revenue upon achievement of the milestone only if all of the followingconditions are met: (i) the milestone payments are non-refundable;(ii) achievement of the milestone was not reasonably assured at theinception of the arrangement; (iii) substantive effort is involved inachieving the milestone; and, (iv) the amount of the milestone isreasonable in relation to the effort expended or the risk associated withachievement of the milestone. If any of these conditions are not met, themilestone payments are deferred and recognized as revenue over the term of thearrangement as Celldex completes its performance obligations.

 

Revenue from governmentcontracts and grants, including U.S. government grants under Small BusinessInnovation Research (“SBIR”), is recognized as the services are performed andrecorded as effort is expended on the contracted work and billed to thegovernment. Product royalty revenue consists of payments received fromlicensees for a portion of sales proceeds from products that utilize Celldex’slicensed technologies and are recognized when the amount of and basis for suchroyalty payments are reported to us in accurate and appropriate form and inaccordance with the related license agreement. Payments received in advance ofactivities being performed are recorded as deferred revenue. Any significantchanges in the Company’s estimates or assumptions could impact its revenuerecognition.

 

*(N) Research and Development Costs*

 

Research and developmentcosts, including internal and contract research costs, are expensed asincurred. Research and development expenses consist mainly of clinical trialcosts, manufacturing of clinical material, toxicology and other studies,salaries, depreciation, technology access fees, royalty fees, including cost ofRotarix® royalty revenues retained by the Company, and funding ofoutside research. Costs to acquire technologies that are utilized in researchand development that have no alternative future use are expensed as incurred.

 

*(O) ClinicalTrial Accruals*

** **

Most of the Company’sclinical trials are performed by third-party contract research organizations(“CROs”) and clinical supplies are manufactured by contract manufacturingorganizations (“CMOs”). Invoicing from these third parties may be monthly basedupon services performed or based upon milestones achieved. The Company accruesthese expenses based upon its assessment of the status of each study and thework completed, and upon information obtained from the CROs and CMOs.

 

*(P) ForeignCurrency Translation*

 

The financial statements ofCelldex Ltd have been translated into U.S. dollars in accordance with SFASNo. 52, *Foreign Currency Translation*.All asset and liability accounts have been translated using the exchange ratesin effect at the balance sheet date. Income statement amounts have beentranslated using the average exchange rate for the period. The gains and lossesresulting from the changes in exchange rate from this period have been reportedin other comprehensive (loss) income. As of September 30, 2008 andDecember 31, 2007, the accumulated unrealized foreign exchange translation(losses) gains included in accumulated other comprehensive income were$2,569,211 and $2,619,036, respectively.

 

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***(Q) IncomeTaxes***

** **

The Company uses theasset and liability method to account for income taxes, including therecognition of deferred tax assets and deferred tax liabilities for theanticipated future tax consequences attributable to differences betweenfinancial statement amounts and their respective tax bases. The Company reviewsits deferred tax assets for recovery. A valuation allowance is established whenthe Company believes that it is more likely than not that its deferred taxassets will not be realized. Changes in valuation allowances from period toperiod are included in the Company’s tax provision in the period of change.

 

*(R) Net Loss Per Share*

 

The Companycomputes and reports earnings per share in accordance with the provisions ofSFAS No. 128, *Earnings Per Share*.The computations of basic and diluted loss per common share are based upon theweighted average number of common shares outstanding and potentially dilutivesecurities. Potentially dilutive securities include stock options and warrants.Options and warrants to purchase 2,046,427 and 953,861 shares of common stockwere not included in the September 30, 2008 and 2007 computation ofdiluted net loss per share, respectively, because inclusion of such shareswould have an anti-dilutive effect on net loss per share. Share amounts shownon the consolidated balance sheets and share amounts and basic and diluted netloss per share amounts shown on the consolidated statements of operations andcomprehensive loss have been adjusted to reflect the Merger exchange ratio anda reverse stock split of 1-for-12 effective March 7, 2008.

 

*(S) Comprehensive Loss*

 

Comprehensive lossis comprised of two components: net loss and other comprehensive income. Duringthe three and nine months ended September 30, 2008, the Company recordedother comprehensive loss of $6,434 and $49,825 related to unrealized foreignexchange translation losses, respectively. During the three and nine monthsended September 30, 2007, the Company recorded other comprehensive incomeof $202,779 and $367,435 related to unrealized foreign exchange translationgains, respectively.

 

*(T) Stock-Based Compensation*

 

The Companyaccounts for stock-based awards under SFAS No. 123 (revised 2004), *Share-Based Payment*, (“SFAS No. 123(R)”), whichrequires the measurement and recognition of compensation expense for allshare-based payment awards made to employees and directors including employeestock options and employee stock purchases related to the Employee StockPurchase Plan (“employee stock purchases”) based on estimated grant date fairvalues.

 

Compensationexpense for all share-based payment awards to employees are recognized usingthe straight-line method. As stock-based compensation expense recognized in theConsolidated Statement of Operations is based on awards ultimately expected tovest, compensation expense has been reduced for estimated forfeitures.SFAS No. 123(R) requires forfeitures to be estimated at the timeof grant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates.

 

The Companyestimates the fair value of share-based awards granted using the Black-Scholesoption-pricing model (“Black-Scholes model”). The Company’s determination offair value of share-based payment awards on the date of grant using anoption-pricing model is affected by the Company’s stock price as well asassumptions regarding a number of highly complex and subjective variables.These variables include, but are not limited to, the Company’s expected stockprice volatility over the term of the awards, and actual and projected employeestock option exercise behaviors.

 

SFAS No. 123(R) doesnot change the accounting guidance for how the Company accounts for optionsissued to nonemployees. The Company accounts for options issued to nonemployeesin accordance with SFAS No. 123(R) and EITF Issue No. 96-18, *Accounting for Equity Instruments That Are Issued to Other ThanEmployees for Acquiring, or in Conjunction with Selling, Goods or Services*.As such, the value of such options is periodically re-measured and income orexpense is recognized during the vesting terms.

 

See Note 5for additional information.

 

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*(U) Use of Estimates*

 

The preparation ofthe financial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectreported amounts and disclosures. Actual results could differ from thoseestimates.

 

*(V) Segments*

 

Management usesconsolidated financial information in determining how to allocate resources andassess performance. For this reason, the Company has determined that it isengaged in one industry segment. Substantially all of Celldex’s revenue sinceinception has been generated in the United States and substantially all of ourassets are in the United States.

 

*(W) RecentAccounting Pronouncements*

 

**SFAS 141(R) andSFAS 160:** In December 2007, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 141(R), *Business Combinations,* (“SFAS No. 141(R)”),and SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51,*(“SFAS No. 160”), which introduce significant changes in theaccounting for and reporting of business acquisitions and noncontrollinginterests in a subsidiary. SFAS No. 141(R) is to be applied prospectivelyto business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. SFAS No. 160 is effective for fiscal years, and interim periodswithin those fiscal years, beginning on or after December 15, 2008.Earlier adoption of both statements is prohibited. The adoption of SFAS No. 141(R) andSFAS No. 160 will only have an impact on the Company’s financialstatements if it is involved in a business combination that occurs after January 1,2009.

 

**EITF07-1:**  In December 2007,the EITF reached a consensus on Issue No. 07-1, *Accountingfor Collaborative Arrangements* (“EITF 07-1”).  The EITF concluded on the definition of acollaborative arrangement and that revenues and costs incurred with thirdparties in connection with collaborative arrangements would be presented grossor net based on the criteria in EITF 99-19, *ReportingRevenue Gross as a Principal versus Net as an Agent*, and otheraccounting literature.  Based on thenature of the arrangement, payments to or from collaborators would be evaluatedand its terms, the nature of the entity’s business, and whether those paymentsare within the scope of other accounting literature would be presented.  Companies are also required to disclose thenature and purpose of collaborative arrangements along with the accountingpolicies and the classification and amounts of significant financial statementamounts related to the arrangements. Activities in the arrangement conducted in a separate legal entityshould be accounted for under other accounting literature; however, requireddisclosure under EITF 07-1 applies to the entire collaborative agreement.  EITF 07-1 is effective for financialstatements issued for fiscal years beginning after December 15, 2008, andinterim periods within those fiscal years, and is to be applied retrospectivelyto all periods presented for all collaborative arrangements existing as of theeffective date.  The Company is currentlyevaluating the effect that the adoption of EITF 07-01 will have on its resultsof operations and financial condition.

 

**FSP No. FAS142-3:** In April 2008, the FASB staff issued FASB StaffPosition (“FSP”) No. FAS 142-3, *Determinationof the Useful Life of Intangible Assets* (“FSP No. FAS 142-3”).FSP No. FAS 142-3 amends the factors that should be considered indeveloping renewal or extension assumptions used to determine the useful lifeof a recognized intangible asset under FASB No. 142. The intent of thisFSP is to improve the consistency between the useful life of a recognizedintangible under Statement 142 and the period of expected cash flows used tomeasure fair value of the asset under FASB No. 141 and other accountingprinciples generally accepted in the United States of America (“U.S.GAAP”). TheFSP is effective for financial statements issued for fiscal years beginningafter December 31, 2008, and interim periods within those fiscal years.Early adoption is prohibited. The adoption of FSP No. FAS 142-3 is notexpected to have a material impact on Celldex’s financial position and resultsof operations.

 

**SFAS 162:**  In May 2008,FASB issued SFAS No. 162, *“TheHierarchy of Generally Accepted Accounting Principles”,*or**SFAS 162. SFAS 162 identifies the sourcesof accounting principles and the framework for selecting the principles to beused in the preparation of financial statements that are presented inconformity with generally accepted accounting principles in the UnitedStates. SFAS 162 is effective 60 days following the SEC’s approval of thePublic Company Accounting Oversight Board amendments to AU Section 411, *“The Meaning of Present Fairly in Conformity withGenerally Accepted Accounting Principles.”* The Company does notexpect SFAS 162 to have a material impact on its results of operations andfinancial condition.

 

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**EITF 03-6-1:**  In June 2008,FASB issued FASB Staff Position No. EITF 03-6-1, *“Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities”*, orFSP EITF 03-6-1. FSP EITF 03-6-1 addresses whether instruments granted inshare-based payment transactions are participating securities prior to vestingand, therefore, need to be included in the earnings allocation in computingearnings per share (EPS) under the two-class method described in paragraphs 60and 61 of FASB Statement No. 128, *“Earningsper Share”*, or SFAS 128. The guidance applies to the calculation ofEPS under SFAS 128 for share-based payment awards with rights to dividends ordividend equivalents. FSP EITF 03-6-1 clarifies that unvested share-basedpayment awards that contain nonforfeitable rights to dividends or dividendequivalents (whether paid or unpaid) are participating securities and shall beincluded in the computation of EPS pursuant to the two class method. FSP EITF03-6-1 is effective for financial statements issued for fiscal years beginningafter December 15, 2008, and interim periods within those years. Allprior-period EPS data presented shall be adjusted retrospectively (includinginterim financial statements, summaries of earnings and selected financialdata) to conform with the provisions of this FSP. Early adoption is notpermitted. The Company does not expect the adoption of FSP EITF 03-6-1 willhave a material impact on its results of operations and financial condition.

 

**(4)****                               FairValue Measurements**

 

On January 1,2008, the Company adopted SFAS No. 157, *Fair ValueMeasurements*, (“SFAS No. 157”), and SFAS No. 159, *The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115*, (“SFAS No. 159”),for its financial assets and liabilities. The adoption of SFAS No. 157 didnot have a material impact on the Company’s financial position or results ofoperations. As permitted by FASB Staff Position No. FAS 157-2, *Effective Date of FASB Statement No. 157*, the Companyelected to defer the adoption of SFAS No. 157 for all nonfinancial assetsand nonfinancial liabilities, except those that are recognized or disclosed atfair value in the financial statements on a recurring basis, until January 1,2009. SFAS No. 159 permits entities to choose to measure many financialinstruments and certain other items at fair value that are not currentlyrequired to be measured at fair value. The Company did not elect to adopt thefair value option for eligible financial instruments under SFAS No. 159.

 

SFAS No. 157provides a framework for measuring fair value under U.S. GAAP and requiresexpanded disclosures regarding fair value measurements. SFAS No. 157defines fair value as the exchange price that would be received for an asset orpaid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date. Market participants arebuyers and sellers in the principal market that are (i) independent, (ii) knowledgeable,(iii) able to transact, and (iv) willing to transact.

 

SFAS No. 157requires the use of valuation techniques that are consistent with the marketapproach, the income approach and/or the cost approach. The market approachuses prices and other relevant information generated by market transactionsinvolving identical or comparable assets and liabilities. The income approachuses valuation techniques to convert future amounts, such as cash flows orearnings, to a single present amount on a discounted basis. The cost approachis based on the amount that currently would be required to replace the servicecapacity of an asset (replacement cost). Valuation techniques should beconsistently applied. SFAS No. 157 also establishes a fair value hierarchywhich requires an entity to maximize the use of observable inputs, whereavailable, and minimize the use of unobservable inputs when measuring fairvalue. The standard describes three levels of inputs that may be used tomeasure fair value:

 

**Level 1**      Quotedprices in active markets for identical assets or liabilities. The Company’sLevel 1 assets consist of cash equivalents. As of September 30, 2008, theCompany held cash equivalents of $42,078,012 held in money market funds.

 

**Level 2**      Observableinputs other than Level 1 prices, such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. The Company had noLevel 2 assets or liabilities at September 30, 2008.

 

**Level 3**      Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities. The Company had nomaterial Level 3 assets or liabilities at September 30, 2008.

 

The Company’sfinancial instruments consist mainly of cash and cash equivalents, short-termaccounts receivable, common stock in a publicly-traded company, accountspayable and debt obligations. Short-term accounts receivable and accountspayable are reflected in the accompanying consolidated financial statements atcost, which approximates fair value due to the short-term nature of theseinstruments.

 

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**(5)****                               Stock-BasedCompensation**

 

As of September 30,2008, the Company had two shareholder approved, share-based compensation plans:the 2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”) and the 2008 StockOption and Incentive Plan (the “2008 Plan”).

 

**Employee Stock Benefit Plans**

 

***Employee Stock Purchase Plan***

 

The 2004 ESPP Planwas adopted on May 13, 2004 and assumed by the Company in connection withthe Merger. All full time employees of the Company are eligible to participatein the 2004 ESPP Plan. A total of 12,500 shares of common stock are reservedfor issuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, eachparticipating employee may contribute up to 15% of his or her compensation topurchase up to 500 shares of common stock per year in any six-month offeringperiod and may withdraw from the offering at any time before stock ispurchased. Participation terminates automatically upon termination ofemployment. The purchase price per share of common stock in an offering is 85%of the lower of its fair market value at either the beginning of the offeringperiod or the applicable exercise date. At September 30, 2008, 9,885shares were available for issuance under the 2004 ESPP Plan.

 

The last purchaseperiod ended on December 31, 2007. As a consequence of the Merger, nopurchase period was offered beginning on January 1, 2008. The currentpurchase period began on July 1, 2008.

 

***Employee Stock Option Plan***

 

*Stock Option Plan Description*

 

On March 6,2008, the Company’s 2008 Plan was adopted at a special meeting of itsshareholders. The 2008 Plan replaced the 1999 Stock Option and Incentive Plan(the “1999 Plan”) and the Amended and Restated 1991 Stock Compensation Plan,which was an amendment and restatement of the Company’s 1985 Incentive OptionPlan. The 2008 Plan permits the granting of incentive stock options (intendedto qualify as such under Section 422A of the Internal Revenue Code of 1986,as amended), non-qualified stock options, stock appreciation rights,performance share units, restricted stock and other awards of restricted stockin lieu of cash bonuses to employees, consultants and outside directors.

 

The 2008 Planallows for a maximum of 1,500,000 shares of common stock to be issued prior to October 19,2017. The board of directors determines the term of each option, option price,and number of shares for which each option is granted and the rate at whicheach option vests. Options generally vest over four years. The term of eachoption cannot exceed ten years (five years for options granted to holders ofmore than 10% of the voting stock of the Company) and the exercise price ofstock options cannot be less than the fair market value of the common stock atthe date of grant (110% of fair market value for incentive stock optionsgranted to holders of more than 10% of the voting stock of the Company). The2008 Plan also provides for discretionary grants of non-qualified stock optionsto non-employee directors. Vesting of all employee and non-employee directorstock option awards is accelerated upon a change in control as defined in the2008 Plan.

 

In connection withthe Merger, the Company assumed the obligations of Celldex Research underCelldex Research’s Stock Option Plan (the “Celldex Research Plan”) and eachoutstanding option to purchase Celldex Research common stock (a “Celldex ResearchStock Option”) granted under the Celldex Research Plan. Each Celldex Research StockOption assumed by the Company is deemed to constitute an option to acquire, onthe same terms and conditions as were applicable under the Celldex Research Plan,shares of the Company’s common stock that have been adjusted consistent withthe ratio at which the Company’s common stock was issued in exchange forCelldex Research’s common stock in the Merger. As of March 7, 2008, theCompany assumed options to acquire 1,446,913 shares of its common stock at aweighted average exercise price of $8.35. The Celldex Research Stock Optionsgenerally vest over a two-to four-year period and the term of each option cannot exceed ten years from the date of grant. Noadditional awards will be issued under the Celldex Research Plan.

 

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*General OptionInformation*

 

A summary of stockoption activity under the 2008 Plan for the nine months ended September 30,2008, adjusted to reflect the Merger exchange ratio and a reverse stock splitof 1-for-12 effective March 7, 2008, is as follows:

 
| ** **                                                     | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (In Years)** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Outstanding at January 1                                  |       | 787,440    |       | $                                                      | 12.70      |                                                                     | 5.81       |   |
| Granted                                                        |       | 2,705,007  |       | 8.40                                                   |       |                                                                     |       |
| Exercised                                                      |       | —     |       | —                                                 |       |                                                                     |       |
| Canceled/forfeited                                             |       | (1,444,770 | )          | 10.63                                                  |       |                                                                     |       |
| Expired                                                        |       | (1,250     | )          | 29.13                                                  |       |                                                                     |       |
|                                                           |       |       |       |                                                   |       |                                                                     |       |
| Outstanding at September 30                               |       | 2,046,427  |       | $                                                      | 8.47       |                                                                     | 8.90       |   |
|                                                           |       |       |       |                                                   |       |                                                                     |       |
| Ending Vested and Expected to Vest at  September 30, 2008 |       | 1,853,254  |       | $                                                      | 8.48       |                                                                     | 8.88       |   |
|                                                           |       |       |       |                                                   |       |                                                                     |       |
| At September 30                                           |       |       |       |                                                   |       |                                                                     |       |
| Options exercisable                                            |       | 1,087,571  |       | $                                                      | 8.36       |                                                                     |       |   |

 

The weightedaverage fair value of options granted during the nine-month period ended September 30,2008 was $4.55.

 

*Non-Employee Grants*

 

The Company has historically granted stockoptions to consultants for services. These options were issued at or abovetheir fair market value on the date of grant and generally have four-yearvesting terms from date of grant. Should the Company or the consultantterminate the consulting agreements, any unvested options will be cancelled.Options issued to non-employees are marked-to-market, which means that as theCompany’s stock price fluctuates, the related expense either increases ordecreases. The Company recognized expense of $35,390 and $16,353 related tonon-employee stock options for the three months ended September 30, 2008and 2007, and $384,821and $48,959 for the nine months ended September 30,2008 and 2007, respectively. As of September 30, 2008, the Company hadtotal unrecognized compensation costs of approximately $0.2 million related tounvested non-employee options.

 

*Valuation and Expenses Information*

 

The followingtable summarizes stock-based compensation expense related to employee andnon-employee stock options and employee stock purchases for the three and ninemonths ended September 30, 2008 and 2007, respectively, which wasallocated as follows:

 
| ** **                             | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Research and development               |       | $                                                        | 272,499    |                                                    | $          | 165,158 |   | $ | 1,444,064 |   | $ | 541,716 |   |
| General and administrative             |       | 1,574,322                                                |       | 168,534                                                 |       | 2,841,558 |   | 538,968 |   |
| Total stock-based compensation expense |       | $                                                        | 1,846,821  |                                                    | $          | 333,692 |   | $ | 4,285,622 |   | $ | 1,080,684 |   |

 

During the quarterended March 31, 2008, the Company entered into an Option CancellationAgreement concurrent with Stock Option Grant Agreement with Celldex Research employees.The Option Cancellation Agreement provided for the cancellation of all previouslygranted options under the Celldex Research Plan while the Stock Option GrantAgreement provided for the re-grant of stock options pursuant to the OptionCancellation Agreement.  In addition, atthe consumption of the Merger, all options to purchase former Celldex Research commonstock then outstanding under Celldex Research’s 2005 Equity Incentive Plan (the“Celldex Research 2005 Plan”) was assumed by the Company and converted intooptions to purchase shares of the Company’s common stock. The number of sharessubject to the outstanding awards and related exercise price wasproportionately adjusted by the same exchange ratio as former Celldex Research shareholdersreceived in accordance with the provisions of the Celldex Research 2005 EquityIncentive Plan.  The Company consideredboth the re-grant of stock options and exchange of Celldex Research optionsinto options to acquire shares of the Company’s common stock as a modificationunder the provisions of SFAS 123R. The modification affected a total of 15employees, including members of the Celldex Research board of directors. Thetotal incremental compensation cost resulting from the modifications amountedto approximately $2.6 million, of which $0.9 million was related to vestedawards and was recognized immediately as stock based compensation in thequarter ended March 31, 2008.

 

In accordance withDr. Ryan’s Severance Agreement (which is discussed further in Note 15), theCompany granted Dr. Ryan fully vested stock options for 153,125 shares as ofJuly 16, 2008, the effective date of the Severance Agreement, and recorded $1.3million of stock-based compensation in general and administrative expenseduring the quarter ended September 30, 2008.

 

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Based on basic anddiluted weighted average common shares outstanding of 15,708,244 and13,695,092, the effect of stock-based compensation expense recorded for thethree- and nine-month periods ended September 30, 2008 had a $0.12 pershare and $0.31 per share impact on net loss per share, respectively.

 

As of September 30,2008, total compensation cost related to non-vested employee and non-employeedirector stock options not yet recognized was approximately $3.6 million, netof estimated forfeitures, which is expected to be recognized as expense over aweighted average period of 2.05 years. The total fair value of employeeand non-employee director stock options vested, including the incremental fairvalue for options vested that were modified, during the three and nine monthsended September 30, 2008 was $245,293 and $2,468,502, respectively

 

The fair values ofemployee and non-employee director stock options granted during the three andnine months ended September 30, 2008 and 2007 were valued using theBlack-Scholes model with the following assumptions:

 
| ** **                                                | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Expected stock price volatility (employees)               |       | 59                                                       | %          | 67                                                      | %          | 55-67 | % | 67 | % |
| Expected stock price volatility  (non-employee directors) |       | 61                                                       | %          | 67                                                      | %          | 57-67 | % | 67 | % |
| Expected option term (employees)                          |       | 4.75 Years                                               |       | 5.2 Years                                               |       | 3-6 Years |   | 5.2 Years |   |
| Expected option term (non-employee directors)             |       | 2.67-5.33 Years                                          |       | 5.2 Years                                               |       | 2.67-6 Years |   | 5.2 Years |   |
| Risk-free interest rate                                   |       | 2.75-3.27                                                | %          | 4.5                                                     | %          | 1.75-3.27 | % | 4.5 | % |
| Expected dividend yield                                   |       | None                                                     |       | None                                                    |       | None |   | None |   |

 

The Company usedits daily historical stock price volatility consistent with the expected termof grant as the basis for its expected volatility assumption in accordance withSFAS No. 123(R) and SAB 107 for its employee and non-employeedirector stock options and employee stock purchases. The Company has concludedthat its historical volatility is representative of expected future stock pricetrends. The expected volatility used by Celldex Research in 2007 was based onthe average volatility of a group of companies that Celldex Research believedwould be considered a peer group had it been a publicly held company.

 

The risk-freeinterest rate assumption is based upon observed interest rates appropriate forthe expected term of the Company’s employee and non-employee director stockoptions and employee stock purchases. The dividend yield assumption is based onthe Company’s history of zero dividend payouts and expectation that nodividends will be paid in the foreseeable future.

 

The expected termof employee and non-employee director stock options represents theweighted-average period the stock options are expected to remain outstanding.SAB 107 provides for a simplified method for estimating expected term for “plain-vanilla”options. The simplified method is based on the vesting period and thecontractual term for each grant or for each vesting tranche for awards withgraded vesting. The mid-point between the vesting date and the expiration dateis used as the expected term under this method. In December 2007, theSecurities and Exchange Commission released SAB 110, which extended the use ofthe simplified method if a company met certain criteria. The Company hasconcluded that the Merger represents a significant structural change in itsbusiness and in the terms of its share option grants such that its historicalexercise data may no longer provide a reasonable basis upon which to estimateexpected term. The Company has elected to follow the guidance of SAB 107 andSAB 110 and has adopted the simplified method in determining expected term forall of its stock option awards. There were 84,000 and 205,703 stock optionsgranted to non-employee directors during the three and nine months ended September 30,2008, respectively.

 

Forfeitures wereestimated based on historical experience by applying an eleven and zero percentforfeiture rate to employee and non-employee director stock option awardsgranted during the three and nine months ended September 30, 2008,respectively.

 

The Company hasnot recognized any tax benefits or deductions related to the tax effects ofemployee stock-based compensation as the Company carries a full deferred taxasset valuation allowance and has significant net operating loss carryforwardsavailable.

 

**(6)****                               RetirementSavings Plan**

 

The Company’s 401(k) Plan(the “401(k) Plan”) is intended to be a tax-qualified plan coveringsubstantially all employees. Under the terms of the 401(k) Plan, employeesmay elect to contribute up to 15% of their compensation, or the statutoryprescribed limits. The Company may make matching contributions of up to 4% of aparticipant’s annual salary. Benefit expense for the 401(k) Plan wasapproximately $51,399 and $34,216 for the nine months ended September 30,2008 and 2007, respectively.

 

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**(7)****                                 **Property andEquipment****

 

Property and equipmentincludes the following:

 
| ** **                                      | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Laboratory Equipment                            |       | $                            | 2,420,361  |                        | $          | 1,551,896 |   |
| Manufacturing Equipment                         |       | 1,203,678                    |       | —                      |       |
| Office Furniture and Equipment                  |       | 1,033,293                    |       | 405,581                     |       |
| Leasehold Improvements                          |       | 12,551,328                   |       | 2,046,663                   |       |
| Assets Held for Sale                            |       | 233,500                      |       | —                      |       |
| Construction in Progress                        |       | 470,483                      |       | —                      |       |
| Total Property and Equipment                    |       | 17,912,643                   |       | 4,004,140                   |       |
| Less Accumulated Depreciation and  Amortization |       | (3,721,672                   | )          | (2,086,104                  | )          |
|                                            |       | $                            | 14,190,971 |                        | $          | 1,918,036 |   |

 

A portion of the purchaseprice in the Merger totaling $15,170,702 has been allocated and recorded toacquired property and equipment above and was then reduced by approximately$2,606,649 of negative goodwill.

 

As a result of theMerger, the Company has converted its Fall River manufacturing facility toprovide mammalian cell culture production capabilities and has classifiedcertain manufacturing-related equipment having a fair value of $451,100 aslong-lived assets to be disposed of by sale. The fair value was establishedbased on quoted market prices by an equipment re-seller less estimated costs toremove and sell the equipment. During the quarter ended June 30, 2008, theCompany sold one of the long-lived assets held for sale with a recorded valueof $204,000 for $229,500 and recorded a gain of $25,500 on disposal of assets. Duringthe quarter ending September 30, 2008, the Company sold an additionallong-lived asset held for sale with a recorded value of $13,600 for $9,255 andrecorded a loss of $4,345.  In the ninemonths ending September 30, 2008, the Company disposed, by sale or abandonment,assets and assets held for sale totaling $384,607 and recorded a loss of$10,899.

 

Depreciation expense related to equipment andleasehold improvements was $720,598 and $164,077 for the three months ended September 30,2008 and 2007, respectively, and $1,790,175 and $543,969 for the nine monthsended September 30, 2008 and 2007, respectively.

 

**(8)****                                 **Intangibleand Other Assets****

 

Intangible and otherassets include the following:

 
| ** **                  | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Estimated  Lives**             | ** ** | **Gross  Intangible  Assets**   | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** | **Gross  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
| Intangible Assets:          |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Core Technology             |       | 4.5 - 11 years                   |       | $                               | 2,193,249  |   | $ | (455,391 | ) | $ | 1,737,858 |   | $ | 1,296,000 |   | $ | (263,097 | ) | $ | 1,032,902 |   |
| Developed Technology        |       | 8 years                          |       | 273,796                         |       | (19,623 | ) | 254,173 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
| Strategic Partner Agreement |       | 8 years                          |       | 629,499                         |       | (45,116 | ) | 584,383 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   |
|                        |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Total Intangible Assets     |       |                             |       | $                               | 3,096,544  |   | $ | (520,130 | ) | $ | 2,576,414 |   | $ | 1,296,000 |   | $ | (263,097 | ) | $ | 1,032,902 |   |

 

On March 7, 2008,the Merger was completed. Under the purchase method of accounting, the Companydetermined the identifiable intangible assets acquired based upon therespective fair values of certain technology and intellectual property acquiredand license agreement assumed. The Company has determined that this technologyhas alternative future uses and will be incorporated into a number of theCompany’s bacterial vaccine programs. A portion of the purchase price in thetransaction totaling $2,174,100 has been allocated and recorded to acquiredintangible assets above and then was reduced by approximately $373,557 ofnegative goodwill.

 

All of the Company’sintangible assets are amortized over their estimated useful lives. Totalamortization expense for intangible assets was $103,974 and $29,233 for thethree-month periods ended September 30, 2008 and 2007, respectively, and$257,032 and $87,700 for the nine-month periods ended September 30, 2008and 2007, respectively.

 

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The estimated futureamortization expense of intangible assets as of September 30, 2008 for theremainder of fiscal year 2008 and the five succeeding years is as follows:

 
| **Year ending December 31,** | ** ** | **Estimated  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|
| 2008 (remaining three months)               |       | $                                    | 103,974    |   |
| 2009                                        |       | 415,896                              |       |
| 2010                                        |       | 415,896                              |       |
| 2011                                        |       | 415,896                              |       |
| 2012                                        |       | 340,313                              |       |
| 2013 and thereafter                         |       | 884,441                              |       |
|                                             |            |                                      |            |  |

 

**(9)****                                 **Income Taxes****

 

On January 1, 2007,the Company adopted FASB Interpretation No. 48, Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement 109 (“FIN 48”). FIN 48prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements tax positions taken or expected to betaken on a tax return, including a decision whether to file or not to file in aparticular jurisdiction. As a result of the implementation of FIN 48, Celldexrecognized no material adjustment in the liability for unrecognized income taxbenefits. At adoption date and at September 30, 2008, Celldex had nomaterial unrecognized income tax benefits.

 

As of December 31,2007, the Company had federal and state net operating loss (“NOL”)carryforwards and federal and state research and development (“R&D”) creditcarryforwards, which may be available to offset future federal and state incometax liabilities which expire at various dates starting in 2008 and goingthrough 2027. Utilization of the NOL and R&D credit carryforwards may besubject to substantial annual limitation due to ownership change limitationsthat have occurred previously or that could occur in the future provided by Section 382of the Internal Revenue Code of 1986, as well as similar state provisions.These ownership changes may limit the NOL and R&D credit carryforwards thatcan be utilized annually to offset future taxable income and tax, respectively.In general, an ownership change, as defined by Section 382, results fromtransactions increasing the ownership of certain shareholders or public groupsin the stock of a corporation by more than 50 percentage points over athree-year period. Since the Company’s formation, the Company has raisedcapital through the issuance of capital stock on several occasions which,combined with the purchasing shareholders’ subsequent disposition of thoseshares, may have resulted in a change of control, as defined by Section 382,or could result in a change of control in the future upon subsequentdisposition. The Company believes the Merger may have generated an ownershipchange that could further affect the limitation in future years.

 

During the first quarterof 2008 the Company underwent a merger in which Celldex and Celldex Research becamea combined group for tax reporting purposes. The merger was treated as apurchase under SFAS 141 with Celldex Research being the accounting acquirer.Together they form a combined group and report income taxes as such with Celldexas the parent company and Celldex Research as the subsidiary. As a result ofthis merger, all of the prior tax attributes of both Celldex and Celldex Researchwill carry forward for potential future use subject to potential limitations.These tax attributes are included in the Company’s income tax provision.

 

Massachusetts, New Jerseyand Missouri are the three states in which the Company operates or has operatedand has income tax nexus. Open federal and state return years subject toexamination by major tax jurisdictions include the tax years ended December 31,2005, 2006 and 2007. Carryforward attributes that were generated prior to 2005may still be adjusted upon examination by the Internal Revenue Service if theyeither have been or will be used in a future period. The Company is currentlynot under examination by the Internal Revenue Service or any otherjurisdictions for any tax years.

 

The Company’s policy isto recognize interest and penalties related to uncertain tax positions in incometax expense. There have been no interest or penalties recognized in theconsolidated statement of operations and on the consolidated balance sheet as aresult of FIN 48 calculations. The Company has not recorded any interestand penalties on any unrecognized tax benefits since its inception.

 

As required by Statementof Financial Accounting Standards No. 109, management has evaluated thepositive and negative evidence bearing upon the realizability of its netdeferred tax assets, which are comprised principally of NOL, capitalizedR&D expenditures and R&D tax credit carryforwards. Management hasdetermined that it is more likely than not that Celldex will not recognize thebenefits of federal and state deferred tax assets and, as a result, a fullvaluation allowance was maintained at September 30, 2008 and December 31,2007.

 

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**(10)****                          **ProductDevelopment and Licensing Agreements****

 

The Company’s revenuefrom product development and licensing agreements was received pursuant tocontracts and arrangements with different organizations. A summary of thesecontracts follows:

 

*(A)**                           *GlaxoSmithKline plc (“Glaxo”)and Paul Royalty Fund II, L.P. (“PRF”)**

 

In 1997, the Companyentered into an agreement with Glaxo to collaborate on the development andcommercialization of the Company’s oral rotavirus strain and Glaxo assumedresponsibility for all subsequent clinical trials and all other developmentactivities. The Company’s licensed-in the rotavirus strain that was used todevelop Glaxo’s Rotarix® rotavirus vaccine in 1995 and owes a license fee of30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on net royaltiesreceived from Glaxo. The Company is obligated to maintain a license with CCHwith respect to the Glaxo agreement. All licensing fees are included inresearch and development expense. The term of the Glaxo agreement is throughthe expiration of the last of the relevant patents covered by the agreement,although Glaxo may terminate the agreement upon 90 days prior written notice.

 

In May 2005, theCompany entered into an agreement whereby an affiliate of PRF purchased aninterest in the******net******royaltiesthe Company will receive on worldwide sales of Rotarix®. Under the PRFagreement, the Company will retain 50% of future Glaxo milestone paymentsbeginning on the effective date of the agreement with PRF, with 70% of theremaining balance payable to PRF and 30% of the remaining balance payable toCCH, respectively. The Company’s retained interests in Rotarix® net royaltieswhich were not sold to PRF are recorded as product royalty revenue and acorresponding amount that is payable to CCH is recorded as royalty expense,which is included in research and development expense. For the three- andnine-month periods ended September 30, 2008, the Company recognizedrevenue of $922,918 and $1,914,550, including $225,000 related to the GSKmilestone payment discussed below, related to its retained interests inRotarix®, respectively, which is payable to CCH.

 

On April 3, 2008,Rotarix® received FDA market approval for the prevention of rotavirusgastroenteritis in infants, which triggered a $1.5 million milestonepayment to the Company from Glaxo, $750,000 of which the Company has retainedunder its agreement with PRF. In connection with the Company’s purchaseaccounting for the Merger, the present value of the Company’s retained amount,or $742,300, had been recorded as a current asset. During the quarter ended June 30,2008, the Company also recorded $225,000 in revenue and an offsetting amount inroyalty expense for the payable due to CCH for its portion of the Glaxomilestone. The market launch of Rotarix® by Glaxo in the U.S. market during thequarter ended September 30, 2008 resulted in a $10 million milestonepayment to the Company from PRF, which the Company received on October 1,2008. We have received $60 million in total milestone payments under the PRFagreement. At September 30, 2008, the Company had recorded a receivablefor the $10 million milestone payment due from PRF and recognized $946,800 ofother income as a result of the purchase accounting value assigned to the PRFmilestone payment at the time of the Merger.

 

Royalty rates on Rotarix®escalate from 7% to 10% based on net product sales in countries that have validpatent protection. These royalty rates are discounted by 30% for “non-patent”countries (primarily international markets). In September 2006, theCompany received notice from Glaxo that Glaxo would begin paying royalties onsales of Rotarix® vaccine at the lower of the two royalty rates under their1997 license agreement. Glaxo’s decision to pay the lower royalty rate (whichis 70% of the full rate) is based upon Glaxo’s assertion that Rotarix® is notcovered by the patents Glaxo licensed from the Company in Australia and certainEuropean countries.

 

If Glaxo’s positionstands, the royalties to which PRF is entitled will no longer be limited by a$27.5 million annual threshold, which the Company projected may have beenreached in later years as sales of Rotarix® increased. Irrespective of Glaxo’sposition, the Company will still retain the royalties on worldwide sales ofRotarix® once PRF receives 2.45 times the aggregate cash payments it makes toCelldex, though the potential amount of such residual royalties will be lowerif Glaxo’s position stands.

 

*(B)**                           *Glaxo and CorixaCorporation (“Corixa”)**

 

On December 21,2005, Corixa, a wholly-owned subsidiary of Glaxo, and Celldex Ltd (formerlyLorantis), entered into a termination agreement of their collaboration ofCDX-2101, or HepVax, for the development of a therapeutic vaccine for HepatitisB (the “Termination Agreement”). Under the terms of the Termination Agreement,Glaxo paid the Company the sum of approximately $1,632,000. In addition, andsubject to the terms and conditions of the Termination Agreement, Glaxo grantedto the Company a worldwide, fully paid up, royalty-free, perpetual,nonexclusive license under the Corixa Patent Rights, Corixa Know-How Rights andCorixa Licensed Technology (each as defined in the Termination Agreement): (a) touse RC-529SE in products being developed and/or commercialized by Celldex Ltdor its Permitted Sublicensees in the Lorantis Field; and (b) to make orhave made RC-529SE using RC-529 adjuvant for the limited use permitted by thelicense granted to reformulate Corixa’s proprietary adjuvant.

 

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The Company has concludedthat because the original collaboration between Corixa and Lorantis containedmultiple deliverables, EITF 00-21 applies. For the three- and nine-monthperiods ended September, 2008 and 2007, the Company recognized $116,540 and$349,619, respectively, of revenue under the Termination Agreement.

 

*(C)**                          *Pfizer Inc (“Pfizer”)**

 

*(1) Pfizer License and Development Agreement*

 

On April 16, 2008,the Company and Pfizer entered into a License and Development Agreement (the “PfizerAgreement”) under which Pfizer was granted an exclusive worldwide license to atherapeutic cancer vaccine candidate, CDX-110, in Phase 2 development for thetreatment of glioblastoma multiforme. ThePfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement,Pfizer made an upfront payment to the Company of $40 million and made a $10million equity investment in the Company. Pfizer will fund all developmentcosts for these programs. The Company is also eligible to receive milestonepayments exceeding $390 million for the successful development andcommercialization of CDX-110 and additional EGFRvIII vaccine products, as wellas royalties on any product sales. The Pfizer Agreement received clearanceunder the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) on May 19,2008, the effective date.

 

On May 27, 2008, the Company received $10 million from Pfizer inexchange for 781,250 shares of the Company’s common stock having a fair valueof $10,867,188, or $13.91 per share, on that date.  The $867,188 over the amount received fromPfizer was recorded as a reduction to deferred revenue of the $40 millionupfront payment received from Pfizer on June 18, 2008.

 

The Company has applied the provisions ofEmerging Issues Task Force (EITF) Issue No. 00-21 (“EITF 00-21”)*, Accounting for Revenue Arrangements with MultipleDeliverables,* and determined that its performance obligations underthis collaboration should be accounted for as a single unit of accounting. TheCompany’s deliverables under this collaboration primarily include an exclusivelicense to its CDX-110 product candidate and its EGFRvIII technologies,research and development services as required under the collaboration andparticipation in the joint clinical development committee. The Company hasestimated that its performance period under the collaboration will be 9.5 yearsbased on an assessment of the period over which the Company will have met itsperformance obligations under the collaboration. Revenue is being recognized ona straight-line basis over this period using the Contingency AdjustedPerformance Model (“CAPM”). The $40,000,000 up-front payment was recorded asdeferred revenue and this amount, less the $867,188 in excess fair value forthe Company’s common stock discussed above, is being amortized over the9.5-year performance period at a rate of $1,029,810 per quarter.

 

The agreement also provides for reimbursementby Pfizer of all costs incurred by the Company in connection with thecollaboration since the effective date. The Company will invoice Pfizer monthly for its reimbursable costs andrecord the invoiced amount as deferred revenue. These deferred revenue amounts will be amortized to revenue over theexpected 9.5-year performance period on a straight-line basis using the CAPMmodel.  For the three- and nine-monthperiods ended September 30, 2008, the Company had incurred and invoicedPfizer $1,471,234 and $2,843,688, respectively, in reimbursable costs relatedto the Pfizer collaboration.

 

The Company recorded revenue under thiscollaboration of $1,116,285 and $1,633,279, respectively, during the three- andnine-month periods ended September 30, 2008 which is included in “ProductDevelopment and Licensing Agreements” within the Revenue section of theConsolidated Statements of Operations for the three- and nine-month periodsended September 30, 2008. Of this amount, $1,029,810 and $1,521,829,respectively, was attributed to the amortization of the upfront payment and$86,475 and $111,450, respectively, was attributed to the amortization ofexpenses incurred by the Company for which Pfizer is obligated to reimburse theCompany.

 

In connection with theinitial deliverables under Pfizer Agreement as discussed further in Notes 11(C) and11(D), the Company has paid a sublicense fee of $2,365,174 to each of tworesearch universities, Duke University (“Duke”) and Thomas Jefferson University(“TJU”), and paid TJU an additional license fee of $500,000. The Company paidan additional sublicense fee to TJU of $1,634,826 in October 2008, whichwas fully accrued by the Company at September 30, 2008. The Company hasrecognized $180,663 and $270,995, respectively, of these costs as royaltyexpense during the three- and nine-month periods ended September 30, 2008and has recorded $6,594,179 as deferred costs in the “Other Assets” line item,in the Consolidated Balance Sheet at September 30, 2008.

 

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*(2) Pfizer Animal Health Agreement*

 

The Company entered intoa licensing agreement in December 2000 with Pfizer’s Animal HealthDivision whereby Pfizer has licensed Megan’s technology for the development ofanimal health and food safety vaccines. Under the agreement, the Company mayreceive additional milestone payments of up to $3 million based upon attainmentof specified milestones. The Company may receive royalty payments on eventualproduct sales. The term of this agreement is through the expiration of the lastof the patents covered by the agreement. The Company has no obligation to incurany research and development costs in connection with this agreement.

 

As of June 1, 2006,the Company entered into a Collaborative Research and Development Agreementwith Pfizer aimed at the discovery and development of vaccines to protectanimals. In 2007, further funded work at the Company on the joint researchprogram was terminated by Pfizer after the Company provided two of fourdeliverables to Pfizer.

 

*(D)**                          *Rockefeller University(“Rockefeller”) and Gates Grand Challenge Award**

 

The Company is developinga vaccine, CDX-2401, aimed at providing protection from infection with HIV, thevirus known to cause AIDS. This program is in a Bill & Melinda GatesFoundation funded partnership with collaborators at Rockefeller and the AaronDiamond AIDS Research Center, who have shown in model systems that protectiveimmunity can be induced with such a vaccine. Preclinical studies andmanufacturing development are in progress and payments to the Company are madeon a time and materials basis. For the three-month periods ended September 30,2008 and 2007, the Company recognized grant revenue from Rockefeller of$124,951 and $97,031, respectively, and $333,879 and $557,220 for thenine-month periods ending September 30, 2008 and 2007, respectively.

 

**(11)**                          CollaborationAgreements

** **

***(A)****                             **Rockefeller University*

** **

On November 1, 2005,the Company and Rockefeller University (“Rockefeller”) entered into a licenseagreement for the exclusive worldwide rights to human DEC-205 receptor, withthe right to sublicense the technology. The license grant is exclusive exceptthat Rockefeller may use and permit other nonprofit organizations to use thehuman DEC-205 receptor patent rights for educational and research purposes. Inaddition, the Company acknowledges that Rockefeller has granted Howard HughesMedical Institute (“HHMI”) a paid-up, nonexclusive, irrevocable license to usethe patent rights, biological materials, and technical information for HHMI’sresearch purposes, but with no right to sublicense. The Company may also berequired to pay royalties on any product sales. The royalties will be payableon a country-by-country and licensed product-by-licensed product basis untilthe date which is the later of (i) the expiration of the last to expire ofthe patents covering the licensed product in such country or (ii) tenyears following the first commercial sale of a licensed product in suchcountry.

 

The Company may berequired to pay license fees and milestone payments to Rockefeller with respectto development of the human DEC-205 receptor. These fees and milestones maytotal up to $2 million to $4 million per product candidate thatreceives approval from the FDA and equivalent foreign agencies.

 

***(B)****                             **Duke University Brain TumorCancer Center*

** **

On September 1,2006, the Company and Duke University Brain Tumor Cancer Center of Duke University(“Duke”) entered into a license agreement that gave the Company access andreference to the clinical data generated by Duke and its collaborators in orderfor the Company to generate its own filing with the FDA relating to its CDX-110product.

 

In exchange forreferencing all the Duke data, the Company paid Duke a one-time upfront paymentof $175,000 and issued to Duke 100,000 shares of the Company’s common stock,which the Company recorded in 2006 as a licensing expense in research anddevelopment. The estimated aggregate fair value of the common shares issued was$330,000.

 

The Company may berequired to pay license fees and milestone payments to Duke with respect todevelopment of the CDX-110 product. These fees and milestones may total up to$1.2 million if CDX-110 receives approval from the FDA and equivalentforeign agencies. The Company may also be required to pay royalties uponapproval of CDX-110. The royalties will be payable on a country-by-country andlicensed product-by-licensed product basis until the date of the expiration ofthe last to expire of the patents covering the licensed product in suchcountry.

 

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In connection with thePfizer Agreement discussed in Note 10(C)(1), the Company determined that$2,365,174 is payable to Duke as a sublicense fee. Duke has agreed that, at theCompany’s option, up to 50% of this amount can be paid to Duke using theCompany’s common stock. At September 30, 2008, the Company had recorded anaccrual for $1,182,587, which will be paid to Duke in the form of 81,512 sharesof common stock during the fourth quarter of 2008.

 

***(C)****                            **Ludwig Institute for CancerResearch*

** **

On October 20, 2006,the Company and Ludwig Institute for Cancer Research (“Ludwig”) entered into anagreement for the nonexclusive rights to six cancer tumor targets for use incombination with the Company’s APC Targeting Technology. The term of the agreementis for ten years.  As consideration forthe nonexclusive license, the Company agreed to pay an annual license fee of$7,500 and $2,500 for each full-length antigen and partial-length antigen,respectively, until such antigens enter a randomized Phase 1 clinical trial.

 

In consideration for thenonexclusive license, the Company may be required to pay license fees andmilestone payments to Ludwig for the use of the cancer targets in combinationwith the Company’s technology. The fees and milestones may total up to $1.5million to $2.5 million on a product candidate that receives approval from theFDA and equivalent foreign agencies. The Company may also be required to payroyalties upon approval of any product candidate. The royalties will be payableon a country-by-country and licensed product-by-licensed product basis untilthe date of the expiration of the last to expire of the patents covering thelicensed product in such country.

 

*(D)**                             ThomasJefferson University*

 

In February 2003, the Company entered into three exclusive licenseagreements with Thomas Jefferson University (“TJU”).  Under the license agreements, TJU has granteda worldwide fee-and royalty-bearing exclusive license.  Under these licenses, the Company will beobligated to pay TJU milestone payments which may total up to $1.4 million forthe first two licensed products developed during the term of the licenseagreements, an annual license fee of $45,000, patent and other expensesassociated with licenses, as well as royalties on net sales of licensedproducts during the term of the license agreements.  The Company also issued 100,000 shares of itscommon stock to TJU.  In the event thatTJU provides notice of default and the default is not cured within 60 days ofsuch notice, TJU may terminate the license agreements. In connection with thePfizer Agreement, the Company amended its licenses with TJU to add additionalsublicensing rights and made a $500,000 one-time license payment to TJU in June 2008.

 

As discussed in Note 10(C)(1), the Company paid a sublicense fee of$2,365,174 to TJU during the quarter ended September 30, 2008.  At September 30, 2008, the Company hadrecorded an accrual of $1,634,826 for additional sublicense fees payable to TJU,which was paid in October 2008.

 

***(E)****                             **SelectVaccines Limited (“Select Vaccines”)*

** **

In February 2007,the Company entered into a research and development partnership with SelectVaccines, a public Australian biotechnology company, focused on the use ofSelect Vaccines’ virus-like particles (“VLPs”) as a platform technology for thedevelopment of viral vaccines. Under the terms of the agreement, the Companymade an upfront equity investment of $735,000 in Select Vaccines and agreed tofund influenza vaccine research and development for two years, as well asprovide payments to Select Vaccines for the achievement of specific preclinicaland clinical development milestones. On November 1, 2007, the Companynotified Select Vaccines that, effective December 31, 2007, the Companywas exercising its rights to terminate its Collaboration and License Agreementwith Select Vaccines for strategic reasons.

 

In August 2008, theCompany sold its equity investment in Select Vaccine shares and recorded netproceeds of $250,882. The Company had classified its equity investment inSelect Vaccine shares as available for sale securities under SFAS 115, *Accounting for Certain Investments in Debt and EquitySecurities*, (“FAS 115”). During the quarter ended September 30,2008, the Company recorded a loss of $297,129 in connection with the sale ofits Select Vaccine shares.

 

***(F)****                             **3MCompany (“3M Company”)*

** **

On June 11, 2008,the Company and 3M Company entered into a license agreement for the exclusiveworldwide rights to access 3M Company’s proprietary Immune Response ModifierResiquimodTM (and additional Toll-LikeReceptor 7/8 agonists (“TLR”)) for clinical study with Celldex’sproprietary APC Targeting Technology,for use as vaccine adjuvants, with the right to sublicense thetechnology.

 

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The Company paid 3MCompany a one-time upfront license fee which was charged to research anddevelopment expense in the three months ended June 30, 2008. The Companymay be required to pay annual license fees and milestone payments to 3M Companywith respect to development of ResiquimodTM. The Company may also be required to pay royalties upon approvalof any product candidate. The royalties will be payable on a country-by-countryand licensed product-by-licensed product basis until the date of the expirationof the last to expire of the patents covering the licensed product in suchcountry.

 

**(12)**                          **RelatedParty Transactions**

 

The Company and Medarexhave entered into the following agreements, each of which was approved by amajority of its independent directors who did not have an interest in thetransaction. These agreements include:

 

·                  An Assignmentand License Agreement that provides for the assignment of certain patent andother intellectual property rights and a license to certain Medarex technology;

 

·                  A Research andCommercialization Agreement which provides us with certain rights to obtainexclusive commercial licenses to proprietary monoclonal antibodies raisedagainst certain antigens;

 

·                  An AffiliationAgreement, which, among other things, details Medarex’s obligation to electindependent directors to the Company’s board of directors and contains certainrestrictions, effective for a period of 36 months from April 6, 2004, onMedarex’s ability to acquire additional shares of the Company’s common stockand to sell shares of the Company’s common stock;

 

·                  A MasterServices Agreement, which sets forth Medarex’s agreement to provide us withcertain services to be mutually agreed upon, which may include, among others,clinical and regulatory assistance.

 

The Company may berequired to pay license fees and milestone payments to Medarex with respect toany antibodies developed using its HuMab-Mouse technology. These fees andmilestones may total up to $7 million to $10 million per antibodythat receives approval from the FDA and equivalent foreign agencies.

 

The Company may also berequired to pay royalties on any product sales. The royalties will be payableon a country-by-country and licensed product-by-licensed product basis untilthe date which is the later of (i) the expiration of the last to expire ofthe patents covering the licensed product in such country or (ii) tenyears following the first commercial sale of a licensed product in suchcountry.

 

The Company and Medarexentered into a settlement and mutual release agreement on October 19,2007, whereby the parties agreed to a settlement with respect to a disputedreturn of capital related to certain unsuccessful initial public offering coststhat were funded by Medarex on behalf of the Company in prior years. TheCompany agreed to issue to Medarex 351,691 of the Company’s shares equal invalue to $3,038,617, based on the per share price of $8.64 set on the secondtrading day prior to the closing date of the Merger. Medarex has agreed toamend certain terms of the existing Research and Commercialization Agreementand Assignment and License Agreement. Both parties have agreed to mutualreleases under the settlement and mutual release agreement.

 

**(13)****                          **LoansPayable****

 

In December 2003,the Company entered into a Lease Agreement (the “Lease Agreement”), a SecuredPromissory Note: Equipment Loan (the “Secured Promissory Note”) and a SecurityAgreement with the Massachusetts Development Finance Agency (“MassDevelopment”),an economic development entity for the Commonwealth of Massachusetts, for theCompany to occupy and build-out a manufacturing facility in Fall River,Massachusetts.

 

*(A)**                           *Loan Payable**

 

Under the LeaseAgreement, the Company received a Specialized Tenant Improvement Loan of$1,227,800 to finance the build-out of its Fall River facility which wasrecorded as leasehold improvements. The Company is amortizing the leaseholdimprovements over the remaining expected lease term. Principal and interestpayments on the loan are due monthly using an amortization period of 15 yearsand an interest rate of 5.5% per annum.

 

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In connection with theMerger, the Company recorded $722,683 as the fair value of the loan payablebased on current market interest rates available to the Company for long-termliabilities with similar terms and maturities. At September 30, 2008, theCompany has recorded a loan payable of $674,935 to MassDevelopment, of which$55,982 is classified as current and $618,953 as long-term.

 

*(B)**                           *Note Payable**

 

Under the SecuredPromissory Note, the Company received $903,657 from MassDevelopment to financethe purchases of manufacturing and laboratory equipment to be placed in itsFall River facility (the “Loan”). The Loan has a term of 84 months and aninterest rate of 5.5% per annum. The Loan is collateralized by all of theequipment purchased with the principal amount. The net book values of thesecollateralized assets at September 30, 2008 were $250,008.

 

In connection with theMerger, the Company recorded $366,251 as the fair value of the note payablebased on current market interest rates available to the Company for long-termliabilities with similar terms and maturities. At September 30, 2008, thebalance of the note payable to MassDevelopment was $277,723, of which $109,816is classified as current and $167,907 as long-term.

 

The following tablesummarizes the Company’s approximate contractual obligations to MassDevelopmentwith respect to the loan and note payable:

 
| ** **                  | ** ** | **Loan Payable** | ** ** | **Note Payable** | ** ** |
|-----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **Principal**         | ** ** | **Interest**          | ** ** | **Total** | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| 2008 (remaining six months) |       | $                     | 13,600     |                  | $          | 8,600 |   | $ | 22,200 |   | $ | 25,800 |   | $ | 3,700 |   | $ | 29,500 |   |
| 2009                        |       | 81,900                |       | 48,500                |       | 130,400 |   | 160,200 |   | 16,900 |   | 177,100 |   |
| 2010                        |       | 81,900                |       | 43,900                |       | 125,800 |   | 169,400 |   | 7,800 |   | 177,200 |   |
| 2011                        |       | 81,900                |       | 39,400                |       | 121,300 |   | 46,900 |   | 500 |   | 47,400 |   |
| 2012                        |       | 81,900                |       | 34,900                |       | 116,800 |   | — |   | — |   | — |   |
| Thereafter                  |       | 579,600               |       | 115,800               |       | 695,400 |   | — |   | — |   | — |   |
| Total Obligation            |       | $                     | 920,800    |                  | $          | 291,100 |   | $ | 1,211,900 |   | $ | 402,300 |   | $ | 28,900 |   | $ | 431,200 |   |
|                        |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Less: Current Portion       |       | 75,000                |       |                  |       |   |   | 145,200 |   |   |   |   |   |
|                        |       |                  |       |                  |       |   |   |   |   |   |   |   |   |
| Total Long-Term Portion     |       | $                     | 845,800    |                  |       |   |   |   | $ | 257,100 |   |   |   |   |   |

 

**(14)****                          **Commitmentsand Contingencies****

 

*(A)**                           *Commitments for theNeedham, Massachusetts Facility**

 

In November 2005,the Company entered into a lease amendment that extended its lease oflaboratory and office space in Needham, Massachusetts through April, 2017 andreduced the Company’s leased space to approximately 35,200 square feet. Underthis lease amendment, the Company is obligated to pay an escalating base annualrent ranging from $879,700 to $1,161,200 during the remaining lease term.

 

*(B*)*                            Commitmentsfor the Fall River, Massachusetts Facility*

 

In December 2003,the Company entered into a lease with MassDevelopment to occupy and build-outan 11,800 square foot manufacturing facility in Fall River, Massachusetts. Thelease has an initial seven-year term that expires in December 2010 and tworenewal options of five years each. Management has determined that it isreasonably assured that the Company will exercise one five-year renewal option.Therefore, the Company is amortizing leasehold improvements made to the FallRiver facility over the remaining original lease term plus one five-yearrenewal term. In November 2005 and December 2006, the Company amendedthe MassDevelopment lease to increase the rentable space to approximately14,300 and 16,200 square feet, respectively, at the Fall River facility.

 

*(C)**                          Commitmentsfor the Philipsburg, New Jersey Facility*

 

The Company leasesapproximately 20,000 square feet of office and laboratory space inPhillipsburg, New Jersey. The lease has an initial five-year term which expiresin August 2011. Under the lease agreement, the Company is obligated to payan annual rent of approximately $347,700 plus certain common area maintenancecosts.

 

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As an incentive to enterinto a lease agreement with the Phillipsburg landlord, the Company receivedfour months of rent-free occupancy of the facilities, and the Company isamortizing this over the original five-year term of the lease. In addition, thelandlord provided the Company an allowance on future rent payments towardstenant improvements that the Company made to the facilities and that credit isalso included in deferred rent and is being amortized over the lease term.Construction of the tenant improvements was completed in August 2006.

 

The Company entered intoa letter of credit facility with a national U.S. financial institution for$177,000, which is collateralized by a security deposit for the leased facilityin Phillipsburg, New Jersey. The total amount of the security deposit isrecorded as other assets on the Company’s consolidated balance sheets.

 

*(D)         *Commitments***to Licensors under CertainIntellectual Property License Agreements*

 

The Company has certainobligations to pay licensors based on payments received by the Company from itslicensees. The Company believes that it has in the past, and is continuing tosatisfy its payment obligations to its licensors based on the Company’sinterpretation of its license agreements with those licensors. If a licensorwas to disagree with the calculation of payments made by the Company pursuantto the license agreements, then the Company may be required to make additionallicense payments to one or more licensors. There can be no assurances that alicensor will not dispute the Company’s interpretation of those licenseagreements or the Company’s calculation of payments due. Accordingly, theCompany may have a contingent liability, in an amount which it cannot determinewith precision, based on the risk that such additional payments may have to bemade. There can be no assurances that a license payment, once made, will not bethe subject of a later dispute by either the licensor or the Company.

 

*(E)         Commitments for theOperating Leases*

 

Obligations for base rentand common area maintenance costs (CAM) under these and other non-cancelableoperating leases as of September 30, 2008 are approximately as follows:

 
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008 (remaining three months)               |       | $          | 413,000    |   |
| 2009                                        |       | 2,534,600  |       |
| 2010                                        |       | 2,605,600  |       |
| 2011                                        |       | 2,507,000  |       |
| 2012                                        |       | 2,189,100  |       |
| 2013 and thereafter                         |       | 9,711,400  |       |
| Total minimum lease payments                |       | $          | 19,960,700 |   |

 

The Company’s total rentand CAM for all operating leases was approximately $652,620 and $72,715 for thethree- month periods and $1,487,196 and $218,390 for the nine-month periodsended September 30, 2008 and 2007, respectively.

 

**(15)****         **SeveranceArrangements****

 

In May 2008, Dr. Una S. Ryan, who had been the ChiefExecutive Officer and President of the Company, informed the Company’s Board ofher intention to depart from the Company pending negotiation of the terms ofher separation. The Company and Dr. Ryan executed a separation agreementeffective July 16, 2008 (the “Separation Agreement”) setting forth suchterms regarding Dr. Ryan’s separation from the Company. The SeparationAgreement provides, among other things, for: (i) a lump sum cash paymentof $1,323,203, plus interest in the amount of $10,784, which is payable on November 8,2008; (ii) a mutual general release; (iii) payment of insurancepremiums under COBRA for 18 months; (iv) reimbursement of attorneys’ feesup to $30,000 and (v) vesting of options to purchase 153,125 shares of Companycommon stock (of the options to purchase 612,500 shares of Company common stockwhich had been granted to Dr. Ryan on March 7, 2008). The remainderof Dr. Ryan’s options terminated as of July 16, 2008. The SeparationAgreement also provided for Dr. Ryan’s resignation, effective July 16,2008, from her position as a director of the Company and each of itssubsidiaries in connection with the execution of the Separation Agreement. At June 30,2008, the Company accrued the full amount of Dr. Ryan’s lump sum severancepayment of $1,323,203, which was consistent with the terms of her existingemployment agreement, a prorated proportion of the interest payable, thepresent value of the expected COBRA benefits totaling $31,485, and reimbursableattorney fees of $30,000 as these expenses were determinable and probable at June 30,2008.  During the quarter ended September 30,2008, the Company paid the reimbursable attorney fees.

 

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With respect to Dr. Ryan’s options, the Company concluded thatstock-based compensation expense of $1.3 million, included under G&Aexpense, for the fully vested options granted to Dr. Ryan in connectionwith the Separation Agreement was appropriately recorded in July 2008 whenthe criteria for establishing a grant date under SFAS 123(R) were met.

 

**The Company and Dr. RobertF. Burns, formerly the President and Chief Executive Officer of CelldexResearch, entered into a separation and mutual release agreement dated as of October 19,2007, under which Dr. Burns’ employment was terminated, effective as of February 15,2008. Until such date, Dr. Burns had no obligation to render services tothe Company, although he was to hold himself available to consult with theCompany by telephone at reasonable times. As severance, the Company wasobligated to pay to Dr. Burns the sum of £33,333 for nine consecutivemonths, commencing with the first payment on March 15, 2008, and a paymentof £100,000 on December 15, 2008, in each case less applicablewithholdings and other customary payroll deductions. Dr. Burns is alsoentitled to the continuation of benefits until February 15, 2010. Aportion of Dr. Burns’ stock options became fully vested and exercisable onFebruary 15, 2008, and he may exercise them for up to three yearsfollowing that date. Dr. Burns and the Company provided one another withmutual releases under such separation and mutual release agreement.**

** **

As Dr. Burns has notprovided substantive service to the Company since October 19, 2007, theseseverance benefits, which in the aggregate equal $1,014,017, havebeen accrued in the consolidated financial statements as of December 31,2007. In addition, stock-based compensation has been adjusted for themodification of Dr. Burns’ stock option awards in accordance with SFAS No. 123(R).

 

The following table setsforth an analysis of the severance costs, which are included in accruedliabilities in the consolidated balance sheet as of September 30, 2008 andDecember 31, 2007:

 
| ** **             | ** ** | **Balance at  December 31,** | ** ** | ** **  | ** ** | ** **         | ** ** | **Balance at  September 30,** | ** ** |
|------------------------|------------|----------------------------------------|------------|-------------|------------|--------------------|------------|-----------------------------------------|------------|
| ** **             | ** ** | **2007**                               | ** ** | **Charges** | ** ** | **Paid Cash** | ** ** | **2008**                                | ** ** |
|                   |       |                                   |       |        |       |               |       |                                    |       |
| Severance and benefits |       | $                                      | 1,014,017  |        | $          | 1,382,385          |       | $                                       | (659,799   | ) | $ | 1,736,603 |   |
|                        |            |                                        |            |             |            |                    |            |                                         |            |  |  |  |  |

 

**(16)****         **Merger of Celldexand Celldex Research****

 

On March 7, 2008, Celldex(formerly AVANT Immunotherapeutics, Inc.) completed the Merger with Celldex Research(formerly Celldex Therapeutics Inc.) with Celldex Research considered theaccounting acquirer, even though Celldex issued common stock and was thesurviving legal entity in the transaction. Celldex issued 8,309,420 shares of Celldex’scommon stock in exchange for all of the outstanding capital stock of CelldexResearch, on the basis of 4.65 shares of Celldex common stock for each share ofCelldex Research common stock such that Celldex Research shareholders owned 58%of Celldex common stock on a fully diluted basis and Celldex shareholdersretained 42%. Celldex also issued 351,692 shares having a value of $3,038,617in settlement of a payable due Medarex. The purchase price of $47,570,867 andrepresents the shares attributable to Celldex shareholders and consisted of (i) the 6,265,889shares outstanding of Celldex common stock on the effective date of the Mergervalued at $46,875,372 and (ii) estimated transaction costs totaling$695,495.

 

The acquisition has beenaccounted for as a purchase with Celldex Research the accounting acquirer.Consequently, the operating results of Celldex since March 7, 2008 havebeen included in the consolidated results of operations. The purchase price wasallocated to the acquired tangible and identifiable intangible assets andassumed liabilities, based upon their fair value at the date of acquisition, asfollows:

 
| Tangible assets acquired                                     |   | $          | 34,959,482 |   |
|--------------------------------------------------------------|--------|------------|------------|--------|
| Less: Liabilities assumed                                    |   | (3,945,067 | )          |
| Net tangible assets acquired                                 |   | $          | 31,014,415 |   |
| Intangible assets acquired:                                  |   |       |       |
| Core Technology                                              |   | 897,249    |       |
| Developed Technology                                         |   | 273,796    |       |
| Strategic Partner Agreement                                  |   | 629,499    |       |
| In-Process Research and Development  (“IPR&D”) |   | 14,755,908 |       |
| Total                                                        |   | $          | 47,570,867 |   |

 

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The values assigned to theintangible assets acquired, including the IPR&D, were determined based onfair market value using a risk adjusted discounted cash flow approach. Fairvalues were then reduced by $6,041,597 of negative goodwill. The Company is abiotechnology enterprise and its resources are substantially devoted toresearch and development at the date of the Merger. Management is responsiblefor determining the fair value of the acquired IPR&D.

 

Each of the Company’sthree significant research and development projects in-process were valuedthrough detailed analysis of product development data concerning the stage ofdevelopment, time and resources needed to complete the project, expectedincome-generating ability and associated risks. The value of IPR&D wasdetermined by estimating the costs to develop the purchased in-processtechnology into commercially viable products, estimating the net cash flowsfrom such projects and discounting the net cash flows back to their presentvalues. The probability of success and discount rates used for each projecttake into account the uncertainty surrounding the successful development andcommercialization of the purchased in-process technology. The resulting netcash flows for these projects were based on management’s best estimates ofrevenue, cost of sales, research and development costs, selling, general andadministrative costs, and income taxes for each project and the net cash flowsreflect assumptions that would be used by market participants.

 

The significantassumptions underlying the valuations included potential revenues, costs ofcompletion, the timing of product approvals and the selection of appropriateprobability of success and discount rates. None of the Company’s IPR&Dprojects have reached technological feasibility nor do they have anyalternative future use. Consequently, in accordance with U.S. GAAP, the fairvalue allocated to IPR&D was charged as an expense in the Company’sconsolidated financial statements as of the date of acquisition. The remainingacquired intangible assets arising from the acquisition are being amortized ona straight line basis over their estimated lives, which range from 4.5 to 8years.

 

As of September 30,2008, the technological feasibility of the projects had not yet been reachedand no significant departures from the assumptions included in the valuationanalysis had occurred. Substantial additional research and development will berequired prior to reaching technological feasibility. In addition, each productneeds to successfully complete a series of clinical trials and to receive FDAor other regulatory approval prior to commercialization. The Company is alsodependent upon the activities of its collaborators in developing, manufacturingand marketing its products. There can be no assurance that these projects willever reach feasibility or develop into products that can be marketedprofitably, nor can there be assurance that the Company and its collaboratorswill be able to develop, manufacture and commercialize these products before theCompany’s competitors. If these products are not successfully developed and donot become commercially viable, the Company’s financial condition and resultsof operations could be materially affected.

 

The following unauditedpro forma financial summary is presented as if the operations of Celldex andCelldex Research were combined as of the beginning of the periods beingreported on. The unaudited pro forma combined results are not necessarilyindicative of the actual results that would have occurred had the acquisitionbeen consummated at that date or of the future operations of the combinedentities. The following pro forma financial summary includes charges forin-process research and development of $14,755,908 and $14,440,009 for thethree- and nine-month periods in 2008 and 2007, respectively, which arematerial non-recurring charges.

 
| **Three Months Ended September 30,** | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|
| Revenue                                                  |       | $          | 2,358,136  |       | $          | 920,135 |   |
| Net loss                                                 |       | (7,656,157 | )          | (9,671,553 | )          |
| Basic and diluted net loss per share                     |       | (0.51      | )          | (0.65      | )          |
|                                                          |            |            |            |            |            |  |  |

 
| **Nine Months Ended September 30,** | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Revenue                                                 |       | $           | 6,028,003  |        | $          | 2,961,268 |   |
| Net loss                                                |       | (45,074,256 | )          | (41,586,440 | )          |
| Basic and diluted net loss per share                    |       | (3.02       | )          | (2.80       | )          |
|                                                         |            |             |            |             |            |  |  |

 

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***Safe HarborStatement under the Private Securities Litigation Reform Act of 1995:****  This quarterly report on Form 10-Qcontains forward-looking statements within the meaning of the federalsecurities laws. You can identify forward-looking statements by the use of thewords “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,”“should,” “may,” “plan,” “intend,” “assume” and other expressions which predictor indicate future events and trends to and which do not relate to historicalmatters. You should not rely on forward-looking statements, because theyinvolve known and unknown risks, uncertainties and other factors, some of whichare beyond the control of Celldex. These risks, uncertainties and other factorsmay cause the actual results, performance or achievements of Celldex to bematerially different from the anticipated future results, performance orachievements expressed or implied by the forward-looking statements.*

 

*There are a number of important factors that couldcause the actual results to differ materially from those expressed in anyforward-looking statements made by Celldex. These factors include, but are notlimited to: (1) the successful integration of the business, multipletechnologies and programs of the two companies that merged together in 2008 toform the Company; (2) the ability to adapt Celldex’s APC TargetingTechnology*TM* to develop new, safe and effective vaccinesagainst oncology and infectious disease indications; (3) the ability toadapt Celldex’s vectoring systems to develop new, safe and effective orallyadministered vaccines against disease causing agents; (4) the ability tosuccessfully complete product research and further development, includinganimal, pre-clinical and clinical studies, and commercialization of CDX-110,CDX-1307, CholeraGarde*®* (Peru-15), Ty800, ETEC E. coli vaccine, andother products and Celldex’s expectations regarding market growth; (5) thecost, timing, scope and results of ongoing safety and efficacy trials ofCDX-110, CDX-1307, CholeraGarde*®* (Peru-15), Ty800, ETEC E. coli vaccine andother preclinical and clinical testing; (6) the ability to negotiatestrategic partnerships or other disposition transactions for Celldex’scardiovascular programs, including TP10 and CETi; (7) the ability ofCelldex to manage multiple clinical trials for a variety of product candidates;(8) the volume and profitability of product sales of Megan*® *Vac1, Megan*® *Egg and other future products; (9) Glaxo’sprocess of obtaining regulatory approval for the sale of Rotarix*®* in major commercial markets, as well as thetiming and success of worldwide commercialization of Rotarix*®* or Glaxo, which is not within our control, (10) Glaxo’sstrategy and business plans to launch and supply Rotarix*®* worldwide, including in the U.S. and othermajor markets, which is not within our control, and its payment of royalties toCelldex; (11) Pfizer’s and our strategy and business plans concerning thecontinued development and commercialization of CDX-110; (12) Celldex’sexpectations regarding its technological capabilities and expanding its focusto broader markets for vaccines; (13) changes in existing and potentialrelationships with corporate collaborators; (14) the availability, cost,delivery and quality of clinical and commercial grade materials produced atCelldex’s own manufacturing facility or supplied by contract manufacturers andpartners; (15) the timing, cost and uncertainty of obtaining regulatory approvals;(16) Celldex’s ability to develop and commercialize products before competitorsthat are superior to the alternatives developed by such competitors; (17)Celldex’s ability to retain certain members of management;(18) Celldex’sexpectations regarding research and development expenses and general andadministrative expenses; (19) Celldex’s expectations regarding cash balances,capital requirements, anticipated royalty payments (including those from PaulRoyalty Fund), revenues and expenses, including infrastructure expenses;(20) the ability to obtain substantial additional funding; (21) Celldex’sbelief regarding the validity of its patents and potential litigation; and (22)certain other factors that might cause Celldex’s actual results to differ materiallyfrom those in the forward-looking statements including those set forth underthe headings “Business,” “Risk Factors” and Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in the Company’sannual report on Form 10-K for the year ended December 31, 2007 andother reports that Celldex files with the Securities and ExchangeCommission.  You should carefully reviewall of these factors, and you should be aware that there may be other factorsthat could cause these differences. These forward-looking statements were basedon information, plans and estimates at the date of this report, and we do notpromise to update any forward-looking statements to reflect changes inunderlying assumptions or factors, new information, future events or otherchanges.*

 

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**Item 2.****Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

As used herein, the terms“we,” “us,” “our,” the “Company”, or “Celldex” refer to Celldex Therapeutics, Inc.,a Delaware corporation organized in 1983 (formerly known as AVANTImmunotherapeutics, Inc.) and its subsidiaries: Celldex Research Corporation (“CelldexResearch”), Celldex Therapeutics, Ltd. (“Celldex Ltd”) and Megan Health, Inc.(“Megan”). The Company’s principalactivity since our inception has been research and product developmentconducted on our own behalf, as well as through joint development programs withseveral pharmaceutical companies and other collaborators. The Company changedits name from AVANT Immunotherapeutics, Inc. to Celldex Therapeutics, Inc. onOctober 1, 2008.

 

## **CRITICAL ACCOUNTING POLICIES**

##  

The Company’s accountingpolicies are set forth in Note 3 to these unaudited consolidated financialstatements. The Company considers its most critical accounting policies includerevenue recognition for agreements entered into with various collaborators, theamortization policy for acquired intangible assets and the estimates of costsincurred and assumptions made in recording accrued clinical research andcontract manufacturing costs and assumptions made in calculating the fair valueof stock-based compensation expense.

 

## **OVERVIEW**

##  

We are abiopharmaceutical company that uses novel applications of immunology to developproducts for the prevention and treatment of diseases. We are developing abroad portfolio of vaccines and targeted immunotherapeutics addressing a widerange of applications including oncology, infectious and inflammatory diseases.These include therapeutic cancer vaccines, monoclonal antibodies, single-dose,oral vaccines that protect against important disease-causing infectious agentsand a treatment to reduce complement-mediated tissue damage. We are advancing arobust pipeline of clinical and preclinical product candidates, the mostadvanced of which are for treatment of various cancers. Our lead programs aretherapeutic cancer vaccines designed to instruct the patient’s immune system torecognize and destroy cancer cells.

 

Our strategy is todemonstrate proof-of-concept for our product candidates before leveraging theirvalue through partnerships or, in appropriate situations, continuing late stagedevelopment ourselves. Demonstrating proof-of-concept for a product candidategenerally involves bringing it through Phase 1 clinical trials and one ormore Phase 2 clinical trials so that we are able to demonstrate, based onhuman trials, good safety data for the product candidate and some dataindicating its effectiveness. Our current collaborations encompass thecommercialization of an oral human rotavirus vaccine, the development of oralcholera, typhoid fever, ETEC and HIV vaccines, and vaccines addressed to humanfood safety and animal health. Our product candidates address large marketopportunities for which we believe current therapies are inadequate ornon-existent.

 

We are targeting itsefforts where it can add the greatest value to the development of its productsand technologies. Its goal is to demonstrate clinical proof-of-concept for eachproduct, and then seek excellent partners to help see those products through tocommercialization. We thus leverage the value of its technology portfoliothrough corporate, governmental and non-governmental partnerships. Thisapproach allows us to maximize the overall value of its technology and productportfolio while best ensuring the expeditious development of each individualproduct.

 

On March 7, 2008, weclosed the merger (the “Merger”) contemplated by the Agreement and Plan ofMerger dated October 19, 2007 by and among Celldex (formerly AVANTImmunotherapeutics, Inc.), Callisto Merger Corporation (“Merger Sub”), a whollyowned subsidiary of Celldex, and Celldex Research (formerly CelldexTherapeutics, Inc.) (the “Merger Agreement”). Pursuant to the terms of theMerger Agreement, Merger Sub merged with and into Celldex Research, withCelldex Research as the surviving company and a wholly-owned subsidiary of theCompany. The total value of the transaction was approximately $75 million.Approximately 8.7 million shares were issued to the former Celldex Research shareholdersin connection with the Merger. The Merger created a NASDAQ-listed,fully-integrated and diversified biopharmaceutical company with a deep pipelineof product candidates addressing high-value indications including oncology,infectious and inflammatory diseases. Celldex Research and Celldex shareholdersown 58% and 42% of the combined company on a fully diluted basis, respectively.Effective October 1, 2008, the Company changed its name from AVANTImmunotherapeutics, Inc. to Celldex Therapeutics, Inc.

 

Our board of directorsapproved a 1-for-12 reverse stock split of the Company’s common stock, whichbecame effective on March 7, 2008. As a result of the reverse stock split,each twelve shares of common stock were combined and reclassified into oneshare of common stock and the total number of shares outstanding was reducedfrom approximately 180 million shares (including the shares issued toformer Celldex Research stockholders in the Merger) to approximately15 million shares.

 

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The Merger was accountedfor using the purchase method of accounting and was treated as an acquisitionby Celldex Research of Celldex with Celldex Research being considered theaccounting acquirer based on the application of criteria specified in Statementof Financial Accounting Standards “SFAS” No. 141,*Business Combinations,* (“SFAS141”), even though Celldex was the issuer of common stock and the survivinglegal entity in the transaction. Under the purchase method of accounting, thedeemed purchase price was allocated to Celldex’s underlying tangible andidentifiable intangible assets acquired and liabilities assumed based upontheir respective fair values with any excess deemed purchase price allocated togoodwill. However, the valuation analysis conducted by the Company determinedthat the fair value of assets acquired and the fair value of liabilitiesassumed by Celldex Research exceeded the estimated purchase price for Celldex,resulting in negative goodwill of approximately $6.0 million. Inaccordance with SFAS 141*,* the negative goodwill has been allocated to all of theacquired assets which are non-financial and non-current assets, includingproperty and equipment, identifiable intangible assets, and in-process researchand development. See Note 16 to the Company’s consolidated financial statementsfor additional information.

 

Because Celldex Research wasdetermined to be the acquirer for accounting purposes, the historical financialstatements of Celldex Research became the historical financial statements ofthe Company. Accordingly, the financial statements of the Company prior to theMerger reflect the financial position, results of operations and cash flows ofCelldex Research, which, during the historical periods presented in the accompanyingconsolidated financial statements, was majority-owned by Medarex, Inc. (“Medarex”).Following the Merger, the financial statements of the current period reflectthe financial position, results of operation and cash flows of the Company. Theresults of operations of Celldex are included in the results of operations ofthe Company beginning March 8, 2008. Accordingly, except as otherwisediscussed below, this report reflects the financial condition, results ofoperations and liquidity of the Company at September 30, 2008 andhistorically of Celldex Research on a stand-alone basis for all periods priorto March 8, 2008. The financial condition, results of operations andliquidity of the Company as of the three- and nine-month periods ended September 30,2008 and 2007 may not be indicative of the Company’s future performance orreflect what the Company’s financial conditions, results of operations andliquidity would have been had the Merger been consummated as of January 1of each respective year or had the Company operated as a separate, stand-aloneentity during the periods presented.

 

## **RESEARCH AND DEVELOPMENT ACTIVITIES**

##  

Our products are derivedfrom a broad set of complementary technologies which have the ability toutilize the human immune system and enable the creation of preventative andtherapeutic agents. We are using these technologies to develop vaccines andtargeted immunotherapeutics that prevent or treat cancer and disease caused byinfectious organisms, and treatment vaccines that modify undesirable activityby the body’s own proteins or cells. A number of our immunotherapeutic andvaccine product candidates are in various stages of clinical trials. We expectthat a large percentage of our research and development expenses will beincurred in support of our current and future clinical trial programs. Below isa table of our currently active programs:

 

**CURRENTPROGRAMS AND PARTNERSHIPS**

 
| **Technology**              | ** ** | **Product**                     | ** ** | **Indication/Field**                                      | ** ** | **Partner**              | ** ** | **Status**                   |
|-----------------------------|------------|---------------------------------|------------|-----------------------------------------------------------|------------|--------------------------|------------|------------------------------|
|                        |       |                            |       |                                                      |       |                     |       |                         |
| **ONCOLOGY**                |       | CDX-110                         |       | Glioblastoma Multiforme                                   |       | Pfizer                   |       | Phase 2b/3                   |
|                        |       | CDX-1307                        |       | Colorectal, Bladder, Pancreas, Ovarian and  Breast Tumors |       | —                   |       | Phase 1                      |
|                        |       | CDX-1401                        |       | Solid Tumors                                              |       | —                   |       | Pre-clinical                 |
| ** **                  | ** ** | ** **                      | ** ** | ** **                                                | ** ** | ** **               | ** ** | ** **                   |
| **INFECTIOUS DISEASE**      |       | CholeraGarde®Ty800         |       | Cholera   Typhoid fever                                   |       | IVI  NIH                 |       | Phase 2b   Phase 2 |
|                        |       | ETEC                            |       | Enterotoxigenic  *E coli*  infection                      |       | NIH                      |       | Phase 1                      |
|                        |       | CDX-2401                        |       | HIV                                                       |       | Rockefeller University   |       | Pre-clinical                 |
|                        |       |                            |       |                                                      |       |                     |       |                         |
| **INFLAMMATORY****DISEASE** |       | TP10                            |       | Transplantation   AMD                                     |       | —  —           |       | Phase 2   Pre-clinical  |
| ** **                  | ** ** | ** **                      | ** ** | ** **                                                | ** ** | ** **               | ** ** | ** **                   |
| MARKETED PRODUCTS           | ** ** | Rotarix®

Megan®Vac 1 | ** ** | Rotavirus infection

Salmonella infection in chicken      | ** ** | GlaxoSmithKline

Lohmann | ** ** | Marketed

Marketed           |
|                        | ** ** | Megan®Egg                  | ** ** | Salmonella infection in laying hens and eggs              | ** ** | Lohmann                  | ** ** | Marketed                     |

 

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**PROGRAM DEVELOPMENTS**

 

**A.****            CancerVaccine Development Programs**

 

*CDX-110:*  Our lead clinical development program,CDX-110, is a peptide-based immunotherapy that targets the tumor specificmolecule called EGFRvIII, a functional variant of the naturally expressedepidermal growth factor receptor (“EGFR”), a protein which has been wellvalidated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not presentin normal tissues, and has been shown to be a transforming oncogene that candirectly contribute to the cancer cell growth.

 

EGFRvIII is commonlypresent in glioblastoma multiforme, or GBM, the most common and aggressive formof brain cancer, and has also been observed in various other cancers such asbreast, ovarian, prostate, colorectal, and head & neck cancer. Withour partner Pfizer, we are currently pursuing the development of CDX-110 forGBM therapy, and plan to expand the clinical development into other cancersthrough additional clinical studies.

 

Initial clinicaldevelopment of EGFRvIII immunotherapy was lead by collaborating investigatorsat the Brain Center at Duke Comprehensive Cancer Center and at M.D. AndersonCancer Center in Houston, Texas. The results from the Phase 1 (VICTORI) and Phase2a (ACTIVATE) studies, which enrolled 16 and 21 patients, respectively, havedemonstrated a significant increase in the time to disease progression (greaterthan 113%) in the patients who were vaccinated, and also in overall survivalrates (greater than 100%), both relative to appropriately matched historicalcontrols. An extension of the Phase 2a program (ACT II) at the same twoinstitutions has enrolled 23 additional GBM patients treated in combinationwith temozolomide (the current standard of care). Preliminary results from thisstudy (ACT II) currently estimates median overall survival to be 33.1 months,although the median has not yet been reached. The survival of a matchedhistorical control group was 14.3 months and a subgroup treated with temozolomide(TMZ) of 15.2 months, with a p value = 0.0078. Overall time to progression forCDX-110 was 16.6 months compared with 6.4 months for the historical controlgroup.

 

We initiated aPhase 2b/3 randomized study of CDX-110 combined with standard of care,temozolomide,versus standard of care alone in patients with GBM in May 2007. We intendto open a total of over 30 sites in the United States and Canada during 2008.The FDA has granted orphan drug designation for CDX-110 for the treatment ofEGFRvIII expressing GBM as well as fast track designation.

 

On April 16, 2008,the Company and Pfizer, Inc. (“Pfizer”) entered into a License andDevelopment Agreement (the “Pfizer Agreement”) under which Pfizer was grantedan exclusive worldwide license to CDX-110. The Pfizer Agreement also gives Pfizer exclusive rights to the use of EGFRvIIIvaccines in other potential indications. Under the Pfizer Agreement,Pfizer made an upfront payment to the Company of $40 million and made a $10million equity investment in the Company. Pfizer will fund all developmentcosts for these programs. The Company is also eligible to receive milestonepayments exceeding $390 million for the successful development andcommercialization of CDX-110 and additional EGFRvIII vaccine products, as wellas royalties on any product sales. The Pfizer Agreement received clearanceunder the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) inthe second quarter of 2008.

 

*CDX-1307:*  The Company has developed an APC TargetingTechnologyTM that utilizes fully human monoclonalantibodies to directly target specialized types of immune system cells, knownas antigen presenting cells. The Company is advancing several clinical andpreclinical product candidates that use APC Targeting TechnologyTM to manipulate critical types of antigenpresenting cells, known as dendritic cells and macrophages, which are key cellswithin the immune system. Because these cells are largely responsible forinitiating the immune system’s disease-fighting mechanisms, the Companybelieves that product candidates using its technology will create more potentimmune responses than standard vaccination strategies.

 

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The Company’s lead APCTargeting TechnologyTM product candidate, CDX-1307, is in developmentfor the treatment of epithelial tumors such as colorectal, pancreatic, bladder,ovarian and breast cancers. CDX-1307 targets the beta chain of human chorionicgonadotropin, known as hCG-B, which is an antigen often found in epithelialtumors. The presence of hCG-B in these cancers correlates with a poor clinicaloutcome, suggesting that this molecule may contribute to tumor growth. Normaladult tissues have minimal expression of hCG-B; therefore, targeted immuneresponses are not expected to generate significant side effects.

 

Fifty (50) patientswith epithelial cancers have been treated in Phase 1 clinical trials ofCDX-1307 at the Duke Comprehensive Cancer Center. The immunotherapy has beenwell tolerated, and one patient with pancreatic cancer demonstrated a reductionin tumor burden, with only minor adverse events observed (reddening at theinjection site). The investigators at the Duke Comprehensive Cancer Center wereawarded a two year $500,000 grant from the Avon Foundation and the NationalCancer Institute to support Phase 1 work in breast cancer. The safety of CDX-1307in combination with defined immune stimulators will next be evaluated withintent to enter Phase 2 research in 2009.

 

*CDX-1401:*  The Company is developing CDX-1401, anotherAPC-Targeting vaccine, for treatment of malignant melanoma and a variety ofsolid tumors which express the proprietary cancer antigen NY-ESO-1, which theCompany licensed from the Ludwig Institute for Cancer Research in 2006. TheCompany believes that preclinical studies have shown that CDX-1401 is effectivefor activation of human T-cell responses against NY-ESO-1. Further preclinicalstudies and manufacturing process optimization are in progress, with an INDfiling planned for the first quarter of 2009.

 

**B.****                                   InfectiousDisease Development Programs**

 

Utilizing its *Cholera*- and*Salmonella*-vectoreddelivery technologies together with its drying and preservation technologies,we have been developing a new generation of vaccines that have an ideal productprofile: safe, effective, oral, single-dose, rapidly protective and increasedthermostability.

 

*CholeraGarde® Vaccine:*  CholeraGarde® represents the Company’s mostadvanced bacterial vaccine program designed to be a safe, effectivesingle-dose, oral vaccine. In December 2002, the International VaccineInstitute (“IVI”) initiated a Phase 2 study of CholeraGarde® inBangladesh, where cholera is endemic. In July 2005, Bangladesh studyresults in children and infants showed CholeraGarde® to be well tolerated andhighly immunogenic, with 77% of children aged 9 months to 5 years generatingprotective immune responses.  Previouslypublished results showed the vaccine to be well tolerated and immunogenicagainst the cholera organism in the adult portion of this trial.

 

In August 2006, IVIreceived $21 million in funding from the Bill & Melinda Gates Foundationfor a Cholera Vaccine Initiative (“CHOVI”), which will include conductingfurther clinical trials of CholeraGarde®. IVI plans to conduct Phase 2 clinical trials of CholeraGarde® inBangladesh, India and Thailand beginning in the second half of 2008 followed byPhase 3 field studies. IVI will be purchasing clinical materials produced atthe Company’s Fall River, MA manufacturing facility for the trials.

 

We have decided to focusonly on the fully-funded opportunity for CholeraGarde® in the developing world.We have determined that the high clinical costs of its own Phase 3 clinicaltrials in the United States and the investment in a commercial manufacturingfacility are not justified by the limited market opportunities for a choleravaccine in developed countries at this time.

 

*Ty800 Typhoid Fever Vaccine:*  The Company has developed an oral vaccine tooffer rapid, single-dose protection against *Salmonella typhi*, the cause oftyphoid fever. Ty800 is targeted for both the travelers’ market and global healthneeds. In 2006, the National Institute of Allergy and Infectious Disease (“NIAID”)of the National Institutes of Health (“NIH”) initiated a Phase 1/2in-patient dose-ranging clinical trial aimed at demonstrating the safety andimmunogenicity of the Ty800 typhoid fever vaccine. NIAID funded the productionof Ty800 vaccine for clinical testing and completed the Phase 1/2 trial ata NIH-funded clinical site in 2007. Results showed the single-dose, oralvaccine to be well tolerated and immunogenic, with over 90% of vaccinatedsubjects generating immune responses. We initiated our own sponsoredPhase 2 trial of Ty800 in July 2007. Preliminary results reported in April 2008from the study showed that the single-dose, oral vaccine was well tolerated andimmunogenic, demonstrating that the desired immune response was achieved.Incidence of reactogenicity symptoms and adverse events post-vaccination weresimilar to placebo. Importantly, immunogenic response was dose-dependent.Positive immune response or seroconversion (prospectively defined as a 4-foldincrease in anti-LPS titers over pre-dose level) rates were 65.5% (36/55) and80% (44/55) in the low and high dose groups, respectively, and wassignificantly (p<0.001) higher than placebo.

 

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*Travelers’Vaccines:*  We haveseveral travelers’ vaccine programs in pre-clinical development—all addressingimportant causes of serious diarrheal diseases worldwide. In November 2007,we entered into an agreement with the Division of Microbiology and InfectiousDiseases of the NIAID, whereby NIAID will sponsor a Phase 1 study of Celldex’sinvestigational single-dose, oral vaccine designed to offer combined protectionagainst both enterotoxigenic *Escherichiacoli* (ETEC) and cholera. In June 2008, NIAID initiated aPhase 1 trial of the ETEC vaccine candidate at Cincinnati Children’sHospital Medical Center. The Company’s long-term goal is to develop acombination vaccine containing Cholera, Ty800, and ETEC as a “super entericvaccine” to address the travelers’ market.

 

*CDX-2401:*  The Company is also using its APC TargetingTechnologyTM to develop vaccines against infectious disease.  The lead program is CDX-2401, anAPC-Targeting prophylactic vaccine, aimed at providing protection frominfection with HIV, the virus known to cause AIDS. This program is in a Bill &Melinda Gates Foundation funded partnership with collaborators at RockefellerUniversity in New York City, who have shown in model systems that protectiveimmunity can be induced with such a vaccine. Preclinical studies andmanufacturing development are in progress and the Company, with itscollaborators, plans to initiate Phase 1 clinical studies in the firsthalf of 2009.

 

**C.****                                   InflammatoryDisease Programs**

 

*TP10:*  We have been developing immunotherapeuticsthat inhibit a part of the immune system called the complement system. Thecomplement system is a series of proteins that are important initiators of thebody’s acute inflammatory response against disease, infection and injury.Excessive complement activation also plays a role in some persistentinflammatory conditions. Our lead compound, TP10, a soluble form of naturallyoccurring Complement Receptor 1, has effectively shown to inhibit theactivation of the complement cascade in animal models and in human clinicaltrials. We believe that regulating the complement system could have therapeuticand prophylactic applications in several acute and chronic conditions,including reperfusion injury from surgery or ischemic disease, organtransplant, multiple sclerosis, rheumatoid arthritis, age-related maculardegeneration (“AMD”), and myasthenia gravis. The Company is currently defining the most appropriate clinical development path forTP10.

 

**D.****                                   MarketedProducts**

 

*RotavirusVaccine:*  Rotavirus isa major cause of diarrhea and vomiting in infants and children. In 1997, welicensed our oral rotavirus strain to Glaxo. All of the ongoing development forthis program is being conducted and funded by Glaxo. Glaxo gained approval forits rotavirus vaccine, Rotarix®, in Mexico in July 2004, which representedthe first in a series of worldwide approvals and commercial launches for theproduct. Glaxo subsequently launched Rotarix® in additional Latin American andAsian Pacific countries during 2005 – 2007. Additionally, Glaxo filed formarket approval with the European regulatory authorities in late 2004, whichtriggered a $2 million milestone payment to the Company. In February 2006,the European Commission granted approval of Rotarix® in the European Union,which triggered a $4 million milestone payment from Glaxo. On April 3,2008, Rotarix® received approval from the FDA for the prevention of rotavirusgastroenteritis in infants. FDA approval triggered a $1.5 million milestonepayment from Glaxo, of which $750,000 was retained by the Company. Welicensed-in the rotavirus strain in 1995 and owe a license fee of 30% toCincinnati Children’s Hospital Medical Center (“CCH”) on net royalties receivedfrom Glaxo. In May 2005, the Company entered into an agreement whereby anaffiliate of Paul Royalty Fund (“PRF”) purchased an interest in the net royaltiesthe Company will receive on worldwide sales of Rotarix® (see Note 10(A) ofour unaudited consolidated financial statements). The market launch of Rotarix®by Glaxo in the U.S. market during the quarter ended September 30, 2008resulted in a $10 million milestone payment to the Company from PRF, whichthe Company received on October 1, 2008. We have received $60 million intotal milestone payments under the PRF agreement.

 

In September 2006,the Company received notice from Glaxo that Glaxo would begin paying royaltieson sales of Rotarix® vaccine at the lower of two royalty rates under their 1997license agreement. Glaxo’s decision to pay the lower royalty rate (which is 70%of the full rate) is based upon Glaxo’s assertion that Rotarix® is not coveredby the patents Glaxo licensed from the Company in Australia and certainEuropean countries. We are analyzing various options to counter Glaxo’sassertions and protect the Company’s rights.

 

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If Glaxo’s positionstands, the royalties to which PRF is entitled will no longer be limited by a$27.5 million annual threshold, which the Company projected may have beenreached in later years as sales of Rotarix® increased. Irrespective of Glaxo’sposition, the Company will still retain the royalties on worldwide sales ofRotarix® once PRF receives 2.45 times the aggregate cash payments it makes to theCompany, though the potential amount of such residual royalties will be lowerif Glaxo’s position stands.

 

*Megan*®*Vac***1**and**Megan**®*Egg***Vaccines:** On December 1, 2000, the Company acquired all of the outstandingcapital stock of Megan. Megan has commercialized three veterinary vaccines;ArgusTM SC, licensed by the United States Department of Agriculture (“USDA”) in March 1998and marketed by Intervet, Inc., and Megan®Vac 1 and Megan®Egg, licensed bythe USDA in November 1998 and 2003, respectively, and marketed by LohmannAnimal Health International (“LAHI”). Because the Company’s focus is on humanhealth care, in September 2002, we appointed LAHI as the exclusivedistributor of our Megan Health poultry vaccines in North America. LAHIperforms all marketing and distribution activities of Megan’s marketed productsfor the commercial poultry market and pays us product royalties.

 

## **TECHNOLOGY LICENSING**

##  

We have adopted abusiness strategy of out-licensing technology that does not match itsdevelopment focus or where it lacks sufficient resources for the technology’sefficient development or where certain uses of the technology are outside ofour focus. For example, when the Company acquired Megan, it entered into alicensing agreement in December 2000 with Pfizer’s Animal Health Divisionto leverage the value of Megan’s oral vaccine technology in a significantmarket opportunity (animal health and human food safety) outside of the Company’sown focus on human health care. Under this Pfizer agreement, we may receiveadditional milestone payments of up to $3 million based upon attainment ofspecified milestones. We may receive royalty payments on eventual productsales. The term of this agreement is through the expiration of the last of thepatents covered by the agreement.

 

**RESULTS OF OPERATIONS**

 

**Three-MonthPeriod Ended****September 30****, 2008 as Compared****with the Three-Month Period Ended September 30****, 2007**

 

The Company reported aconsolidated net loss of $7,656,158, or $0.49 per share, for the third quarterended September 30, 2008, compared with a net loss of $4,057,018, or $0.49per share, for the third quarter ended September 30, 2007. The increasedloss is primarily attributable to the combined operations of Celldex andCelldex Research beginning March 8, 2008. The weighted average common shares outstanding used to calculate net lossper common share was 15,708,244 in 2008 and 8,309,420 in 2007.

 

*Revenue:*  Total revenue increased to $2,358,136 for thethird quarter of 2008 compared to $268,974 for the third quarter of 2007.

 

Product development andlicensing revenue increased to $1,245,442 in 2008 from $116,539 in 2007primarily due to the recognition of $1,116,285 of Pfizer deferred revenue. Forthe three months ended September 30, 2008 and 2007, the Company alsorecognized $116,539 of revenue under the Corixa termination agreement.

 

Product royalty revenuewas $975,009 in 2008, consisting of $922,918 related to the Company’s retainedinterests in Rotarix® net royalties which were not sold to PRF and which isequal to the amount payable to CCH by the Company and $52,091 related toroyalties on Megan®Vac 1 and Megan®Egg product sales. There was no productroyalty revenue in 2007.

 

Contract and grantrevenue decreased by $14,750 to $137,685 for work performed in 2008 from$152,435 in 2007 primarily due to lower levels of vaccine development workbillable to Harvard under an SBIR grant in 2008, offset in part by increasedvaccine development work billable to Rockefeller in 2008.

 

*OperatingExpense:*  Total operating expense increased to$10,936,114 for the third quarter of 2008 compared to $4,446,235 for the thirdquarter of 2007.

 

Research and developmentexpense increased $3,515,057 to $6,626,059 from $3,111,002 in 2007. Theincrease in the third quarter of 2008 compared to the third quarter of 2007 wasprimarily due to increases in personnel expenses of $1,084,930, license/royaltyfees of $922,918 associated with Rotarix® royalty revenue, facility rent of$586,884, and depreciation expense of $546,659.

 

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General andadministrative expense increased $2,900,081 to $4,206,081 in the third quarterof 2008 compared to $1,306,000 in the third quarter of 2007 and was primarilyattributed to increases in personnel costs of $1,625,806, including $1.3million stock-based compensation expense related to Dr. Ryan’s fullyvested options, patent expenses of $312,958, allocation of operating expensesof $361,059, shareholder relations expense of $168,383, and audit and taxexpense of $171,857.

 

Amortization expense ofacquired intangible assets was $103,974 and $29,233 in 2008 and 2007,respectively.

 

*Investment and Other Income, Net:*  Interest and other income increased $801,477to $921,820 for the third quarter of 2008 compared to $120,243 for the thirdquarter of 2007. The increase was due to the recognition of $946,800 in incomefrom Paul Capital as a result of the purchase accounting value assigned to the$10 million payment for the *Rotarix* U.S.launch, offset in part by the loss on sale of Select Vaccine shares.

 

**Nine-MonthPeriod Ended****September 30****, 2008 as Compared****with the Nine-Month Period Ended September 30****, 2007**

 

The Company reported aconsolidated net loss of $40,047,350, or $2.92 per share, for the nine monthsended September 30, 2008, compared with a net loss of $10,844,558, or$1.31 per share, for the nine months ended September 30, 2007. The netloss for the nine months ended September 30, 2008 includes the combinedoperating expenses for the two companies and a one-time non-cash charge of$14,755,908 for purchased in-process research and development related to theMerger which closed in March 2008. Theweighted average common shares outstanding used to calculate net loss percommon share was 13,695,092 in 2008 and 8,309,420 in 2007.

 

*Revenue:*  Total revenue increased to $4,467,145 for thefirst nine months of 2008 compared to $1,022,198 for the first nine months of2007.

 

Product development andlicensing revenue increased to $2,235,810 in 2008 from $349,617 in 2007primarily due to the recognition of $1,633,279 of Pfizer deferred revenue and$225,000 of Glaxo milestone revenue payable to CCH. For the nine months ended September 30,2008 and 2007, the Company recognized $349,619 of revenue under the Corixatermination agreement.

 

Product royalty revenuewas $1,812,131 in 2008, consisting of $1,689,550 related to the Company’sretained interests in Rotarix® net royalties which were not sold to PRF andwhich is equal to the amount payable to CCH by the Company and $122,581 relatedto royalties on Megan®Vac 1 and Megan®Egg product sales. There was no productroyalty revenue in 2007.

 

Contract and grantrevenue decreased by $253,377 to $419,204 for work performed in 2008 from$672,581 in 2007 primarily due to lower levels of vaccine development workbillable to Rockefeller and Harvard in 2008.

 

*OperatingExpense:*  Total operating expense increased to$45,581,760 for the first nine months of 2008 compared to $12,241,890 for thefirst nine months of 2007. Operating expense for 2008 includes a one-timenon-cash charge of $14,755,908 for purchased in-process research anddevelopment related to the Merger in March 2008.

 

Research and developmentexpense increased $10,473,162 to $18,743,353 from $8,270,191 in 2007. Theincrease in the first nine months of 2008 compared to the first nine months of2007 was primarily due to increases in personnel expenses of $3,600,583,including stock-based compensation of $902,348, clinical trial costs of$1,929,613, license/royalty fees of $2,682,212, facility rent of $1,289,585,and $1,233,347 of depreciation expense. The Company expects research anddevelopment expense to increase during the remainder of 2008 as a result of theMerger.

 

General andadministrative expense increased $7,941,467 to $11,825,467 in the first ninemonths of 2008 compared to $3,884,000 in the first nine months of 2007 and wasprimarily attributed to increases in personnel costs of $3,659,695, includingstock-based compensation of $993,494 and $1.3 million for Dr. Ryan’sseverance options, consulting expense of $516,850, allocation of operatingexpenses of $834,918, patent expense of $1,420,205, and insurance expenses of$485,060. The Company expects general and administrative expense to increaseduring the remainder of 2008 due to the Merger.

 

Amortization expense ofacquired intangible assets was $257,032 and $87,699 in 2008 and 2007,respectively.

 

*Investment and Other Income, Net:*  Interest and other income increased $692,131to $1,067,265 for the first nine months of 2008 compared to $375,134 for thefirst nine months of 2007. The increase was due to the recognition of $946,800income from Paul Capital relating to the $10 million payment for the*Rotarix* U.S. launch, offset in part by the loss on sale ofSelect Vaccine shares.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

At September 30,2008, the Company’s principal sources of liquidity consisted of cash and cashequivalents of $42,697,228. The Company’s cash and cash equivalents are highlyliquid investments with a maturity of three months or less at the date ofpurchase and consist of time deposits and investments in money market mutualfunds with commercial banks and financial institutions. Also, the Companymaintains cash balances with financial institutions in excess of insuredlimits. The Company does not anticipate any losses with respect to such cashbalances.

 

The use of the Company’scash flows for operations has primarily consisted of salaries and wages for itsemployees, facility and facility-related costs for its offices, laboratoriesand manufacturing facility, fees paid in connection with preclinical studies,clinical studies, contract manufacturing, laboratory supplies and services,consulting fees, and legal fees. To date, the primary sources of cash flowsfrom operations have been payments received from the Company’s collaborativepartners and from government entities. In general, the Company’s sources ofcash flows from operations for the foreseeable future will be upfront licensepayments, payments for the achievement of milestones, product royalty payments,payments under government contracts and grants and funded research anddevelopment under collaboration agreements that the Company may receive. Thetiming of any new collaboration agreements, government contracts or grants andany payments under these agreements, contracts or grants cannot be easilypredicted and may vary significantly from quarter to quarter.

 

Net cash provided byoperating activities was $16,985,941 for the first nine months of 2008 comparedto cash used of $5,766,594 for the first nine months of 2007. The increase innet cash provided in operating activities was primarily attributed to Pfizer’supfront payment to the Company of $40 million, a decrease in prepaid and otherassets and an increase in accounts payable and accrued expense, partiallyoffset by increased net losses and an increase in accounts and otherreceivables. The Company expects that cash used in operations will increase inthe remainder of 2008.

 

Cash provided byinvesting activities was $9,960,357 for the first nine months of 2008 compared to cash used in investing activitiesof $75,246 during 2007. The change inamounts between years primarily reflects the impact of the Merger.

 

Net cash provided byfinancing activities was $10,891,225 for the first nine months of 2008 compared to $173,450 for the first nine months of 2007. The increase innet cash provided in financing activities was primarily due to the Pfizer’s $10million equity investment in the Company and increases in the related partyloan due to Medarex, offset in part by payments of long-term liabilities.

 

On April 16, 2008,the Company and Pfizer entered into an agreement under which Pfizer was grantedan exclusive worldwide license to a therapeutic cancer vaccine candidate,CDX-110, in Phase 2 development for the treatment of glioblastomamultiforme.  The agreement also gives Pfizer exclusive rights to the use of EGFRvIII vaccines in other potentialindications. Under the licensing and development agreement, Pfizer madean upfront payment to the Company of $40 million and made a $10 million equityinvestment in the Company. Pfizer will fund all development costs for theseprograms. The Company is also eligible to receive milestone payments exceeding$390 million for the successful development and commercialization of CDX-110and additional EGFRvIII vaccine products, as well as royalties on any productsales. The Pfizer Agreement received clearance under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) in the second quarter of 2008.

 

On April 3, 2008,Rotarix® received FDA market approval for the prevention of rotavirusgastroenteritis in infants which triggered a $1.5 million milestonepayment to the Company from Glaxo, $750,000 of which the Company has retainedunder its agreement with PRF. Rotarix® is now licensed in over 100 countriesworldwide including the U.S. and the European Union. Glaxo’s U.S. market launchof Rotarix® during the third quarter of 2008 result in a $10 millionmilestone payment from PRF, which the Company received on October 1, 2008.

 

During the remainder of 2008and in 2009, the Company may take steps to raise additional capital including,but not limited to, the licensing of technology programs with existing or newcollaborative partners, possible business combinations, or the issuance of commonstock via private placements or public offerings. We believe that our currentcash and cash equivalents are sufficient to fund planned operations for atleast the next twelve months. While we may continue to seek capital through anumber of means, there can be no assurance that additional financing will beavailable on acceptable terms, if at all, particularly in light of the recentdisruptions in the financial markets and the Company’s negotiating position incapital-raising efforts may worsen as existing resources are used. There isalso no assurance that the Company will be able to enter into furthercollaborative relationships. Additional equity financing may be dilutive to theCompany’s stockholders; debt financing, if available, may involve significantcash payment obligations and covenants that restrict the Company’s ability tooperate as a business; and licensing or strategic collaborations may result inroyalties or other terms which reduce the Company’s economic potential fromproducts under development.

 

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**AGGREGATE CONTRACTUAL OBLIGATIONS**

 

The following tablesummarizes the Company’s contractual obligations at September 30, 2008 andthe effect such obligations and commercial commitments are expected to have onits liquidity and cash flow in future years. These obligations, commitments andsupporting arrangements represent payments based on current operatingforecasts, which are subject to change:

 
| ** **                     | ** ** | **Total** | ** ** | **2008**  | ** ** | **2009-2011** | ** ** | **2012-2013** | ** ** | **Thereafter** | ** ** |
|--------------------------------|------------|-----------|------------|-----------|------------|---------------|------------|---------------|------------|----------------|------------|
| Contractual  obligations:      |       |      |       |      |       |          |       |          |       |           |       |
| Operating lease  obligations   |       | $         | 19,960,700 |      | $          | 413,000       |       | $             | 7,647,200  |           | $          | 4,462,600 |   | $ | 7,437,900 |   |
| Loan Payable*                  |       | 1,211,900 |       | 22,200    |       | 377,500       |       | 228,900       |       | 583,300        |       |
| Note Payable*                  |       | 431,200   |       | 29,500    |       | 401,700       |       | —        |       | 3⁄4         |       |
| Licensing obligations          |       | 3,345,000 |       | 15,000    |       | 1,630,000     |       | 1,055,000     |       | 645,000        |       |
| Severance obligations          |       | 1,769,000 |       | 1,733,300 |       | 35,700        |       | —        |       | 3⁄4         |       |
| Total contractual  obligations |       | $         | 26,717,800 |      | $          | 2,213,000     |       | $             | 10,092,100 |           | $          | 5,746,500 |   | $ | 8,666,200 |   |
|                           |       |      |       |      |       |          |       |          |       |           |       |
| Commercial commitments:        |       |      |       |      |       |          |       |          |       |           |       |
| Clinical development           |       | $         | 9,121,500  |      | $          | 1,503,100     |       | $             | 7,618,400  |           | $          | — |   | $ | — |   |
| Total commercial  commitments  |       | $         | 9,121,500  |      | $          | 1,503,100     |       | $             | 7,618,400  |           | $          | — |   | $ | — |   |

 

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*                                         includesinterest obligations

 

In the future, we may oweroyalties and other contingent payments to our licensors based on theachievement of developmental milestones, product sales and specified otherobjectives. These potential future obligations are not included in the abovetable.

 

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**Item 3.****                          ****Quantitative and Qualitative Disclosures about MarketRisk**

 

The Company owns financial instruments thatare sensitive to market risk as part of its investment portfolio. The Company’sinvestment portfolio is used to preserve its capital until it is used to fundoperations, including its research and development activities. None of thesemarket-risk sensitive instruments are held for trading purposes. The Companyinvests its cash primarily in money market mutual funds. These investments areevaluated quarterly to determine the fair value of the portfolio. The Company’sinvestment portfolio includes only marketable securities with active secondaryor resale markets to help insure liquidity. The Company has implementedinvestment policies regarding the amount and credit ratings of investments.Because of the short-term nature of these investments, the Company does notbelieve it has material exposure due to market risk. The impact to the Company’sfinancial position and results of operations from likely changes in interestrates is not material.

 

The Company does not utilize derivativefinancial instruments. The carrying amounts reflected in the consolidated balancesheet of cash and cash equivalents, accounts receivables and accounts payableapproximates fair value at September 30, 2008 due to the short-termmaturities of these instruments.

 

**Item 4.****                           Controls and Procedures**

 

*Evaluation ofDisclosure Controls and Procedures*

 

The Company, theregistrant, maintains disclosure controls and procedures that are designed toprovide reasonable assurance that information required to be disclosed by theCompany in its reports that it files and submits under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized, and reported within time periods specified by the SEC’s rules andforms, and that such information is accumulated and communicated to itsmanagement, including its interim Chief Executive Officer and Chief FinancialOfficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

As required by Rule 13a15 under the Exchange Act, as of September 30, 2008, we carried out anevaluation under the supervision and with the participation of our management,including our interim Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of our disclosure controls andprocedures as of the quarter ended September 30, 2008. In designing andevaluating our disclosure controls and procedures, we and our managementrecognize that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating and implementing possible controls and procedures.

 

Based upon thatevaluation, our interim Chief Executive Officer and our Chief Financial Officerhave concluded that as of September 30, 2008, as a result of the materialweaknesses discussed below, our disclosure controls and procedures were noteffective.

 

*Changes inInternal Control Over Financial Reporting.*

 

On October 22, 2007,Celldex (formerly AVANT Immunotherapeutics, Inc.) and Celldex Research(formerly Celldex Therapeutics, Inc.), a privately-held company, announced thesigning of a definitive Agreement and Plan of Merger, dated October 19,2007, by and between Celldex, Callisto Merger Corporation (“Merger Sub”) andCelldex Research (the “Merger Agreement”). On March 7, 2008, the Companycompleted the merger of Merger Sub, a wholly owned subsidiary of the Company,with and into Celldex Research (the “Merger”). The Merger with Celldex Researchwas accounted for using the purchase method of accounting and was treated foraccounting purposes as an acquisition by Celldex Research of Celldex withCelldex Research being considered the “accounting acquirer” based on theapplication of criteria specified in Statement of Financial AccountingStandards “SFAS” No. 141, Business Combination, (“SFAS 141”), even though Celldexwas the issuer of common stock and the surviving legal entity and registrant inthe transaction. Because Celldex Research was determined to be the acquirer foraccounting purposes, the historical financial statements of Celldex Research,which had prior to the Merger been a privately-held company, became thehistorical financial statements of the Company. Accordingly, the financialstatements of the Company prior to the Merger reflect the financial position,results of operations and cash flows of Celldex Research only, which during thehistorical periods presented in the accompanying consolidated financialstatements, was then a privately-held company which was majority-owned byMedarex, Inc. (“Medarex”). Following the Merger, the financial statementsof the current period reflect the financial position, results of operation andcash flows of the Company. The results of operations of Celldex are included inthe results of operations of the Company beginning March 8, 2008.

 

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The Merger with CelldexResearch and the integration of the operations and the finance functions haveresulted in changes that have materially affected, or are reasonably likely tomaterially affect, the combined Company’s internal control over financialreporting (as defined in Rules 13a 15(f) and 15d 15(f) under theExchange Act) during the quarter ended September 30, 2008.

 

A material weakness is a deficiency, or a combination of deficiencies,in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the Company’s annual or interimfinancial statements will not be prevented or detected on a timely basis.Management identified the following material weaknesses in the Company’sinternal control over financial reporting during its first and third quartersand has determined that such material weaknesses have not yet been fullyremediated and therefore are continuing as of September 30, 2008.

 

·                       CelldexResearch did not maintain an effective segregation of duties.  Specifically, certain authority andresponsibility were not appropriately assigned and delegated to employeeswithin the organization.

 

·                       CelldexResearch did not maintain an effective control over financial statement closingprocess.  Specifically, Celldex did notmaintain formal, written policies and procedures governing the financial closeand reporting process to ensure an accurate and timely financial statementclosing process.  This control deficiencyresulted in misstatements to employee benefit expense, research and developmentexpense, stock-based compensation expense and accrued liability accounts andrelated financial disclosures.

 

·                       As a resultof the Merger and the increased complexity of the Company’s operations, thesize and experience of the Company’s accounting staff is insufficient.

 

Additionally, the abovematerial weaknesses could result in misstatements of financial statementaccounts and disclosures related to the Company’s business that would resultsin a material misstatement of the consolidated financial statements that wouldnot be prevented or detected.

 

*Remediation ofMaterial Weakness*

 

Management is in theprocess of reviewing and, as necessary, revising its assignment of authorityand responsibility as well as its policies and procedures with respect to itscontrols over the financial statement closing process and is seeking additionalresources to ensure that all reasonable steps will be taken to correct thismaterial weakness. As part of this process, management expects the Merger with Celldexto facilitate the remediation of material weaknesses and enhancement ofinternal controls as the accounting function for Celldex Research has now beenassumed by Celldex, which has experience in the requirements applicable topublicly-traded companies. The material weaknesses will not be consideredremediated until additional resources are in place and the Celldex internalcontrols are operational for a sufficient period of time and are tested, andmanagement has concluded that the controls are designed and operatingeffectively.

 

**PART II — OTHER INFORMATION**

 

## **Item1.****                           LegalProceedings**

##  

None.

 

## **Item1A.****                  RiskFactors**

##  

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2007, which could materially affect ourbusiness, financial condition or future results. The risks described in ourAnnual Report on Form 10-K may not be the only risks facing the Company.Additional risks and uncertainties not currently known to the Company or thatthe Company currently deems to be immaterial also may materially adverselyaffect the Company’s business, financial condition and/or operating results.

 

There were no materialchanges to the risk factors previously disclosed in our Annual Report on Form 10-Kfiled with the Securities and Exchange Commission on March 18, 2008.

 

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## **Item 4.****                           Submissionof Matters to a Vote of Security Holders**

##  

On September 25, 2008, the Company held itsAnnual Meeting of Stockholders at which the stockholders (i) elected sevendirectors to our Board of Directors; (ii) ratified the appointment ofPricewaterhouseCoopers LLP as our independent registered public accounting firmfor the year ending December 31, 2008; and (iii) approved anamendment to our Certificate of Incorporation to change our name to “CelldexTherapeutics, Inc.”.

 

At the Annual Meeting of Stockholders, the following votes weretabulated for the proposal before the Company’s Stockholders:

 

PROPOSAL I

 

Election of Directors:

 

| ** **                | ** ** | **Number of Shares/Votes** | ** ** |
|---------------------------|------------|--------------------------------------|------------|
| ** **                | ** ** | **For**                              | ** ** | **Authority Withheld** | ** ** |
| Charles R.  Schaller      |       | 12,501,866                           |       | 137,737 |   |
| Herbert J. Conrad         |       | 12,502,353                           |       | 137,250 |   |
| Larry Ellberger           |       | 12,514,731                           |       | 124,872 |   |
| George O. Elston          |       | 12,514,766                           |       | 124,837 |   |
| Karen Shoos Lipton        |       | 12,502,631                           |       | 136,972 |   |
| Rajesh B. Parekh, Ph.D.   |       | 12,513,116                           |       | 126,487 |   |
| Harry H. Penner, Jr. |       | 12,478,807                           |       | 160,796 |   |

 

PROPOSAL II

 

Ratification of the appointment ofPricewaterhouseCoopers LLP:

 

| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | ** **  | ** ** | ** **  | ** ** |
| 15,598,748 |       | 35,406      |       | 5,449       |       |

** **

PROPOSAL III

 

Approval of an amendment to the Certificateof Incorporation to change the Company’s name from AVANT Immunotherapeutics,Inc. to “Celldex Therapeutics, Inc.”:

 

| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | ** **  | ** ** | ** **  | ** ** |
| 12,519,810 |       | 106,830     |       | 12,963      |       |

** **

**Thenumber of shares issued, outstanding and eligible to vote as of the record dateof August 15, 2008 was 15,708,244. A quorum was present with 12,639,603 shares represented by proxies or80.46% of the eligible voting shares.**

 

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## **Item6.****                           Exhibits**

 
| 3.1                    |   | Third Restated Certificate of Incorporation of the Company,  incorporated by reference to Exhibit 3.1 of the Company’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                                                            |
|------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2                    |   | Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.1  of the Company’s Registration Statement on Form S-4 (Reg.  No. 333-59215), filed July 16, 1998 with the Securities and  Exchange Commission.                                                                                               |
| 3.3                    |   | Second Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.2  of the Company’s Registration Statement on Form S-4 (Reg.  No. 333-59215), filed July 16, 1998 with the Securities and  Exchange Commission.                                                                                        |
| 3.4                    |   | Third Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.1  of the Company’s Quarterly Report on Form 10-Q, filed May 10, 2002  with the Securities and Exchange Commission.                                                                                                                          |
| 3.5                    |   | Fourth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to  Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on  March 11, 2008 with the Securities and Exchange Commission.                                                                                                                  |
| 3.6                    |   | Fifth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to  Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on  March 11, 2008 with the Securities and Exchange Commission.                                                                                                                   |
| **3.7                  |   | Sixth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company.                                                                                                                                                                                                                                                                                                         |
| 4.3                    |   | Amendment No. 2 to Shareholder Rights Agreement dated  November 5, 2004, between the Company and Computershare Trust Company,  N.A. (formerly EquiServe Trust Company, N.A.), as Rights Agent, incorporated  by reference to Exhibit 10.1 of the Company’s Registration Statement on  Form 8-A1G/A, filed on March 7, 2008 with the Securities and Exchange  Commission. |
|    10.1 |   | License and Development Agreement, dated as of April 16, 2008,  between Celldex Research Corporation (formerly known as Celldex Therapeutics,  Inc.) and Pfizer Vaccines LLC, incorporated by reference to Exhibit 10.1  of the Company’s quarterly report on Form 10-Q filed on May 19,  2008 with the Securities and Exchange Commission.*                                  |
| **10.2                 |   | Common Stock Purchase Agreement dated May 27, 2008 between the  Company and Pfizer Vaccines, incorporated by reference to Exhibit 10.2  of the Company’s Quarterly Report on Form 10-Q, filed August 11,  2008 with the Securities and Exchange Commission.*                                                                                                                  |
| **31.1                 |   | Certification of President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                 |
| **31.2                 |   | Certification of Senior Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                                     |
| ***32.1                |   | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                                                                       |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
|                        |
|                   | *      |                                                                                                                                                                                                                                                                                                                                                                                                   | Portions of this document have been omitted and filed separately with  the Securities and Exchange Commission pursuant to a request for confidential  treatment in accordance with Rule 24b-2 of the Securities Exchange Act  of 1934 as amended. |
|                   | **     |                                                                                                                                                                                                                                                                                                                                                                                                   | Filed herewith. |
|                   | ***    |                                                                                                                                                                                                                                                                                                                                                                                                   | Furnished herewith. |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| ** **                    | ** ** | ** ** | ** ** | **CELLDEX THERAPEUTICS, INC.** |
|-------------------------------|------------|------------|------------|--------------------------------|
|                          |       |       |       |                           |   |
|                          |       |       |       | BY:                            |   |
|                          |       |       |       |                           |   |
|                          |       |       |       |                           | /s/ ANTHONY S. MARUCCI |
| Dated: November 10, 2008 |       |       |       |                           | Anthony S. Marucci |
|                          |       |       |       |                           | President and Chief Executive Officer |
|                          |       |       |       |                           | (Principal Executive Officer) |
|                          |       |       |       |                           |   |
|                          |       |       |       |                           | /s/ AVERY W. CATLIN |
| Dated: November 10, 2008 |       |       |       |                           | Avery W. Catlin |
|                          |       |       |       |                           | Senior Vice President, Treasurer |
|                          |       |       |       |                           | and Chief Financial Officer |
|                          |       |       |       |                           | (Principal Financial and |
|                          |       |       |       |                           | Accounting Officer) |

 

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**EXHIBITINDEX**

 
| **Exhibit  No.**       | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                           |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                    |       | Third Restated Certificate of Incorporation of the Company,  incorporated by reference to Exhibit 3.1 of the Company’s Registration  Statement on Form S-4 (Reg. No. 333-59215), filed July 16,  1998 with the Securities and Exchange Commission.                                                                                                                               |
| 3.2                    |       | Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.1  of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215),  filed July 16, 1998 with the Securities and Exchange Commission.                                                                                                   |
| 3.3                    |       | Second Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.2  of the Company’s Registration Statement on Form S-4 (Reg. No. 333-59215),  filed July 16, 1998 with the Securities and Exchange Commission.                                                                                            |
| 3.4                    |       | Third Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.1  of the Company’s Quarterly Report on Form 10-Q, filed May 10, 2002  with the Securities and Exchange Commission.                                                                                                                             |
| 3.5                    |       | Fourth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.1  of the Company’s Current Report on Form 8-K, filed on March 11,  2008 with the Securities and Exchange Commission.                                                                                                                          |
| 3.6                    |       | Fifth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company, incorporated by reference to Exhibit 3.2  of the Company’s Current Report on Form 8-K, filed on March 11,  2008 with the Securities and Exchange Commission.                                                                                                                           |
| **3.7                  |       | Sixth Certificate of Amendment of Third Restated Certificate of  Incorporation of the Company.                                                                                                                                                                                                                                                                                                            |
| 4.3                    |       | Amendment No. 2 to Shareholder Rights Agreement dated November 5,  2004, between the Company and Computershare Trust Company, N.A. (formerly  EquiServe Trust Company, N.A.) as Rights Agent, incorporated by reference  to Exhibit 10.1 of the Company’s Registration Statement on Form 8-A1G/A,  filed on March 7, 2008 with the Securities and Exchange Commission. |
|    10.1 |       | License and Development Agreement, dated as of April 16, 2008,  between Celldex Research Corporation (formerly known as Celldex Therapeutics,  Inc.) and Pfizer Vaccines LLC, incorporated by reference to Exhibit 10.1  of the Company’s quarterly report on Form 10-Q filed on May 19,  2008 with the Securities and Exchange Commission.*                                     |
| **10.2                 |       | Common Stock Purchase Agreement dated May 27, 2008 between the  Company and Pfizer Vaccines, incorporated by reference to Exhibit 10.2  of the Company’s Quarterly Report on Form 10-Q, filed August 11,  2008 with the Securities and Exchange Commission.*                                                                                                                     |
| **31.1                 |       | Certification of Interim President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                            |
| **31.2                 |       | Certification of Senior Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                                        |
| ***32.1                |       | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                                                                          |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
|                        |
|                   | *          | Portions of this  document have been omitted and filed separately with the Securities and  Exchange Commission pursuant to a request for confidential treatment in  accordance with Rule 24b-2 of the Securities Exchange Act of 1934 as  amended.                                                                                                                                                   |
|                   | **         | Filed herewith.                                                                                                                                                                                                                                                                                                                                                                                           |
|                   | ***        | Furnished herewith.                                                                                                                                                                                                                                                                                                                                                                                       |

 

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