Table ofContents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

----

 

**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 March 31, 2009**

** **

**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 or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

**119 Fourth Avenue, Needham, Massachusetts 02494**

(Address of principal executive offices) (Zip Code)

 

**(781) 433-0771**

(Registrant’s telephone number, including area code)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).Yes * *oNo x

 

As of May 4, 2009,15,820,593 shares of common stock, $.001 par value per share, were outstanding.

 

 

 

----

Table ofContents

 

**CELLDEX THERAPEUTICS, INC.**

 

**FORM 10-QThree Months Ended March 31, 2009Table of Contents**

** **
| **Part I—Financial  Information**                                                          | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                 |       |       |
| Item 1. Unaudited Financial  Statements.                                                             |       |       |
|                                                                                                 |       |       |
| Consolidated Balance Sheets  at March 31, 2009 and December 31, 2008                       |       |       |
|                                                                                                 |       |       |
| Consolidated Statements of  Operations for the Three Months Ended March 31, 2009 and 2008       |       |       |
|                                                                                                 |       |       |
| Consolidated Statements of  Cash Flows for the Three Months Ended March 31, 2009 and 2008       |       |       |
|                                                                                                 |       |       |
| 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 6.  Exhibits.                                                                                   |       |       |
|                                                                                                 |       |       |
| Signatures                                                                                           |       |       |
|                                                                                                 |       |       |
| Exhibit Index                                                                                   |       |       |
|                                                                                                 |       |       |
| Certifications                                                                                       |       |       |

 

2

----

Table ofContents

 

**PART I—FINANCIAL INFORMATION**

**Item 1. Unaudited Financial Statements**

 

**CELLDEXTHERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

** **
| ** **                                                                                                                                                                              | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                              | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                         |       |                     |       |                        |       |
| Cash and Cash Equivalents                                                                                                                                                               |       | $                        | 39,364,362 |                        | $          | 44,257,286 |   |
| Accounts and Other Receivables                                                                                                                                                          |       | 1,077,107                |       | 1,826,685                   |       |
| Prepaid and Other Current Assets                                                                                                                                                        |       | 1,397,361                |       | 992,473                     |       |
| Total Current Assets                                                                                                                                                                    |       | 41,838,830               |       | 47,076,444                  |       |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Property and Equipment, Net                                                                                                                                                             |       | 13,015,741               |       | 13,567,180                  |       |
| Intangible Assets, Net                                                                                                                                                                  |       | 2,131,623                |       | 2,472,440                   |       |
| Other Assets                                                                                                                                                                            |       | 6,496,643                |       | 6,677,171                   |       |
| Total Assets                                                                                                                                                                            |       | $                        | 63,482,837 |                        | $          | 69,793,235 |   |
| ** **                                                                                                                                                                              | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current Liabilities:                                                                                                                                                                    |       |                     |       |                        |       |
| Accounts Payable                                                                                                                                                                        |       | $                        | 1,497,573  |                        | $          | 2,153,393 |   |
| Accrued Expenses                                                                                                                                                                        |       | 4,358,929                |       | 3,841,159                   |       |
| Payable Due Medarex                                                                                                                                                                     |       | 2,957,248                |       | 2,957,248                   |       |
| Current Portion of Deferred Revenue                                                                                                                                                     |       | 5,024,729                |       | 4,931,327                   |       |
| Current Portion of Long-Term Liabilities                                                                                                                                                |       | 213,464                  |       | 218,459                     |       |
| Total Current Liabilities                                                                                                                                                               |       | 14,051,943               |       | 14,101,586                  |       |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Deferred Revenue                                                                                                                                                                        |       | 36,586,370               |       | 36,488,713                  |       |
| Other Long-Term Liabilities                                                                                                                                                             |       | 1,054,323                |       | 1,069,257                   |       |
| Total Liabilities                                                                                                                                                                       |       | 51,692,636               |       | 51,659,556                  |       |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Commitments and Contingent Liabilities (Notes 11 and 15)                                                                                                                                |       |                     |       |                        |       |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Stockholders’ Equity:                                                                                                                                                              |       |                     |       |                        |       |
| Convertible Preferred Stock, $.01 Par Value; 3,000,000 Shares  Authorized; No Shares Issued and Outstanding at March 31, 2009 and  December 31, 2008                          |       | —                   |       | —                      |       |
| Common Stock, $.001 Par Value; 297,000,000 Shares Authorized;  15,820,593 and 15,789,756 Shares Issued and Outstanding at March 31,  2009 and December 31, 2008, respectively |       | 15,821                   |       | 15,790                      |       |
| Additional Paid-In Capital                                                                                                                                                              |       | 138,033,698              |       | 136,661,181                 |       |
| Accumulated Other Comprehensive Income                                                                                                                                                  |       | 2,593,577                |       | 2,605,726                   |       |
| Accumulated Deficit                                                                                                                                                                     |       | (128,852,895             | )          | (121,149,018                | )          |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Total Stockholders’ Equity                                                                                                                                                         |       | 11,790,201               |       | 18,133,679                  |       |
|                                                                                                                                                                                    |       |                     |       |                        |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                         |       | $                        | 63,482,837 |                        | $          | 69,793,235 |   |

 

See accompanying notes to unaudited consolidated financial statements

 

3

----

Table ofContents

 

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

**(Unaudited)**

 
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **March 31,  2009**         | ** ** | **March 31,  2008** | ** ** |
| **REVENUE:**                                                                  | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Product Development and Licensing Agreements                                  |       | $                                | 1,501,847  |   | $ | 119,864 |   |
| Contracts and Grants                                                          |       | 139,343                          |       | 27,534 |   |
| Product Royalties                                                             |       | 2,090,457                        |       | — |   |
|                                                                          |       |                             |       |   |   |
| Total Revenue                                                                 |       | 3,731,647                        |       | 147,398 |   |
| ** **                                                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Research and Development                                                      |       | 8,685,941                        |       | 4,486,774 |   |
| General and Administrative                                                    |       | 3,341,253                        |       | 3,032,758 |   |
| Gain on Sale of Assets                                                        |       | (604,492                         | )          | — |   |
| Charge for In-Process Research and Development                                |       | —                           |       | 14,755,908 |   |
| Amortization of Acquired Intangible Assets                                    |       | 95,309                           |       | 48,894 |   |
|                                                                          |       |                             |       |   |   |
| Total Operating Expense                                                       |       | 11,518,011                       |       | 22,324,334 |   |
|                                                                          |       |                             |       |   |   |
| Operating Loss                                                                |       | (7,786,364                       | )          | (22,176,936 | ) |
|                                                                          |       |                             |       |   |   |
| Investment and Other Income, Net                                              |       | 82,487                           |       | 46,254 |   |
|                                                                          |       |                             |       |   |   |
| Net Loss                                                                      |       | $                                | (7,703,877 | ) | $ | (22,130,682 | ) |
|                                                                          |       |                             |       |   |   |
| Basic and Diluted Net Loss Per Common Share (See Note 3)                      |       | $                                | (0.49      | ) | $ | (2.19 | ) |
|                                                                          |       |                             |       |   |   |
| Shares Used in Calculating Basic and Diluted Net Loss per Share (See  Note 3) |       | 15,818,946                       |       | 10,127,435 |   |

 

See accompanying notes tounaudited consolidated financial statements

 

4

----

Tableof Contents

 

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

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2009**         | ** ** | **March 31,  2008** | ** ** |
| **Cash Flows from Operating Activities:**                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Loss                                                                     |       | $                                | (7,703,877 | ) | $ | (22,130,682 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating  Activities: |       |                             |       |   |   |
| Depreciation and Amortization                                                |       | 685,596                          |       | 353,126 |   |
| Amortization of Intangible Assets                                            |       | 95,309                           |       | 48,894 |   |
| Gain on Sale or Disposal of Assets                                           |       | (598,428                         | )          | — |   |
| Stock-Based Compensation Expense                                             |       | 1,112,470                        |       | 1,622,380 |   |
| In-Process Research and Development                                          |       | —                           |       | 14,755,908 |   |
| Changes in Operating Assets and Liabilities:                                 |       |                             |       |   |   |
| Accounts and Other Receivables                                               |       | 749,578                          |       | (4,987 | ) |
| Prepaid and Other Current Assets                                             |       | (404,888                         | )          | (110,026 | ) |
| Other Assets                                                                 |       | 180,664                          |       | — |   |
| Accounts Payable and Accrued Expenses                                        |       | 111,950                          |       | 1,265,405 |   |
| Deferred Revenue                                                             |       | 191,059                          |       | (107,372 | ) |
| Other Long-Term Liabilities                                                  |       | 30,595                           |       | 616 |   |
|                                                                         |       |                             |       |   |   |
| Net Cash Used in Operating Activities                                        |       | (5,549,972                       | )          | (4,306,738 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash Flows from Investing Activities:**                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash Acquired in the Acquisition of AVANT, Net of Transaction Costs          |       | —                           |       | 10,750,255 |   |
| Restricted Cash Deposits                                                     |       | (136                             | )          | (435 | ) |
| Acquisition of Property and Equipment                                        |       | (140,321                         | )          | (12,498 | ) |
| Proceeds from Sale or Disposal of Assets                                     |       | 850,100                          |       | — |   |
|                                                                         |       |                             |       |   |   |
| Net Cash Provided by Investing Activities                                    |       | 709,643                          |       | 10,737,322 |   |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash Flows from Financing Activities:**                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Proceeds from Stock Issuances                                            |       | 10,078                           |       | — |   |
| Related Party Loan Due to Medarex                                            |       | —                           |       | 148,115 |   |
| Payments of Other Long-Term Liabilities                                      |       | (50,524                          | )          | (19,259 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Cash (Used in) Provided by Financing Activities                          |       | (40,446                          | )          | 128,856 |   |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents                 |       | (12,149                          | )          | (50,426 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net (Decrease) Increase in Cash and Cash Equivalents                         |       | (4,892,924                       | )          | 6,509,014 |   |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash and Cash Equivalents at Beginning of Period                             |       | 44,257,286                       |       | 4,909,530 |   |
|                                                                         |       |                             |       |   |   |
| Cash and Cash Equivalents at End of Period                                   |       | $                                | 39,364,362 |   | $ | 11,418,544 |   |
|                                                                         |       |                             |       |   |   |
| **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 |   |
| Unpaid Capitalized Merger Costs                                              |       | $                                | —     |   | $ | 150,441 |   |
| Shares Issued to Executive Officers                                          |       | $                                | 250,000    |   | $ | — |   |
| **Supplemental Disclosure of Cash Flow Information**                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash Paid for Interest                                                       |       | $                                | 52,398     |   | $ | — |   |

 

See accompanying notes to unaudited consolidated financial statements

 

5

----

Table of Contents

 

**CELLDEX THERAPEUTICS, INC.Notes to Unaudited Consolidated Financial Statements**

**March 31, 2009**

** **

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

 

Celldex Therapeutics, Inc. (formerlyknown as AVANT Immunotherapeutics, Inc.) (the “Company” or “Celldex”) isengaged in the discovery, development and commercialization of products thatharness the human immune system to prevent and treat disease. The Company isdeveloping a portfolio of vaccines and targeted immunotherapeutics addressing awide range of applications including oncology, infectious and inflammatorydiseases. The portfolio includes a pipeline of therapeutic cancer vaccines,monoclonal antibodies, single-dose, oral vaccines aimed at protecting travelersand people in regions where infectious diseases are endemic and a treatment toreduce complement-mediated tissue damage. The Company is advancing a pipelineof clinical and preclinical product candidates, the most advanced of which arefor treatment of various cancers. The Company’s lead programs are therapeuticcancer vaccines designed to instruct the patient’s immune system to recognizeand destroy cancer cells. The Company further leverages the value of itstechnology portfolio through corporate, governmental and non-governmentalpartnerships. One successful collaboration resulted in the Company’s license ofa rotavirus strain to GlaxoSmithKline that was used in the development of anoral human rotavirus vaccine. Current collaborations encompass the developmentof vaccines addressed to cancer therapies, global health, human food safety andanimal health. The Company’s product candidates address large marketopportunities for which the Company believes current therapies are inadequateor non-existent.

 

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

 

At the special meeting of the Company’sshareholders held on March 6, 2008 in connection with the Merger,stockholders approved four proposals: (i) the issuance of shares of theCompany’s common stock pursuant to the Merger Agreement in the amount necessaryto result in the former Celldex Research stockholders owning 58% of the Company’scommon stock on a fully diluted basis, (ii) an amendment to the Company’sThird Restated Certificate of Incorporation to increase the number ofauthorized shares to 300,000,000, (iii) an amendment to the Company’sThird Restated Certificate of Incorporation to effect a reverse stock split ina ratio ranging from one-for-twelve to one-for-twenty of all the issued andoutstanding shares of the Company’s common stock, the final ratio to bedetermined by the Company’s board of directors and (iv) adoption of the2008 Stock Option and Incentive Plan.

 

Also, pursuant to the terms of the MergerAgreement, former Celldex Research shareholders received 4.96 shares of the Company’scommon stock in exchange for each share of Celldex Research common stock andClass A common stock they owned at the effective time of the Merger, pluscash in lieu of fractional shares. The Company also assumed all of CelldexResearch’s stock options outstanding at the effective time of the Merger.

 

The Company implemented a 1-for-12 reversestock split of the Company’s common stock on March 7, 2008. As a result ofthe reverse stock split, each twelve shares of common stock were combined andreclassified into one share of common stock and the total number of sharesoutstanding was reduced from approximately 180 million shares (includingthe shares issued to former Celldex Research stockholders in the Merger) toapproximately 15 million shares.

 

The Merger was accounted for using thepurchase method of accounting and was treated as an acquisition by CelldexResearch of Celldex (then AVANT), 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”),even though Celldex (then AVANT) was the issuer of common stock and thesurviving legal entity in the transaction. Under the purchase method ofaccounting, the deemed purchase price was allocated to AVANT’s underlyingtangible and identifiable intangible assets acquired and liabilities assumedbased upon the respective fair value of each with any excess deemed purchaseprice allocated to goodwill. 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 purchase price for AVANT,resulting in negative goodwill of approximately $6.0 million. In accordancewith SFAS 141, the negative goodwill has been allocated to all of theacquired assets that were non-financial and non-current assets, includingproperty and equipment, identifiable intangible assets, and in-process researchand development. See Note 17 for additional information.

 

6

----

Tableof Contents

 

Because Celldex Research was determined to bethe acquirer for accounting purposes, the historical financial statements ofCelldex Research became the historical financial statements of the Company asof the closing of the Merger. Accordingly, the financial statements of theCompany 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 reflect the financial position, results of operationand cash flows of the combined companies. The results of operations of AVANTare 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 companies at March 31, 2009 and for the period from theMerger through March 31, 2009.

 

The Company’s cash and cash equivalents atMarch 31, 2009 were $39,364,362. Its working capital at March 31,2009 was $27,786,887. The Company incurred a loss of $7,703,877 for the threemonths ended March 31, 2009. Net cash used in operations for the threemonths ended March 31, 2009 was $5,549,972. The Company believes that cashinflows from existing grants and collaborations, interest income on investedfunds and its current cash and cash equivalents will be sufficient to meetestimated working capital requirements and fund operations beyond March 31,2010. The working capital requirements of the Company are dependent on severalfactors including, but not limited to, the costs associated with research anddevelopment programs, pre-clinical and clinical studies, manufacture ofclinical materials and the scope of collaborative arrangements.

 

During 2009, Celldex may take steps to raiseadditional capital to meet its long-term liquidity needs including, but notlimited 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. The Company believesthat its current cash and cash equivalents are sufficient to fund plannedoperations for at least the next twelve months. While the Company continues toseek capital through a number of means, there can be no assurance thatadditional financing will be available on acceptable terms, if at all,particularly in light of the recent disruptions in the financial markets andthe Company’s negotiating position in capital-raising efforts may worsen asexisting resources are used. There is also no assurance that the Company willbe able to enter into further collaborative relationships. Additional equityfinancing may be dilutive to the Company’s stockholders; debt financing, ifavailable, may involve significant cash payment obligations and covenants thatrestrict the Company’s ability to operate as a business; and licensing orstrategic collaborations may result in royalties or other terms that reduce theCompany’s economic potential from products under development. If the Company isunable to raise the funds necessary to meet its long-term liquidity needs, itmay have to delay or discontinue the development of programs, license outprograms earlier than expected, raise funds at significant discount or on otherunfavorable terms, if at all, or evaluate a sale of all or a part of theCompany.

 

**(2)          Interim Financial Statements**

 

The accompanying unauditedconsolidated financial statements for the three months ended March 31,2009 and 2008 include the consolidated accounts of the Company and itswholly-owned subsidiaries, and have been prepared in accordance withinstructions to Form 10-Q and Article 10 of Regulation S-X. In theopinion of management, the information contained herein reflects alladjustments that are necessary to fairly state the Company’s financial positionat March 31, 2009 and the results of operations for the three months endedMarch 31, 2009 and 2008. The Company’s financial conditions, results ofoperations and liquidity for the three months ended March 31, 2009 are notnecessarily indicative of results for any future interim period or for the fullyear.

 

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America (“U.S. GAAP”)have been omitted, although the Company believes that the disclosures included,when read in conjunction with the Company’s Annual Report on Form 10-K forthe year ended December 31, 2008 are adequate to make the informationpresented not misleading. The accompanying December 31, 2008 consolidatedbalance sheet was derived from audited financial statements of Celldex, butdoes not include all disclosures required by U.S. GAAP.

 

7

----

Tableof Contents

 

**(3)****                              ****Significant AccountingPolicies**

 

*Basis of Presentation*

* *

The consolidated financial statements includethe accounts of Celldex Therapeutics, Inc. and its direct and indirectwholly-owned subsidiaries: Celldex Research, Celldex Therapeutics, Ltd. (“Celldex Ltd”)and Megan Health, Inc. (“Megan”). All intercompany transactions have beeneliminated in consolidation.

 

*Cash and Cash Equivalents*

* *

Cash and cash equivalents consist of cash andshort-term investments with original maturities of three months or less. Cashand cash equivalents are stated at cost, which approximates fair value. At March 31,2009, investments were primarily in money market mutual funds.

 

Celldex may invest its cash in debtinstruments of financial institutions, government entities and corporations,and mutual funds. The Company has established guidelines relative to creditratings, 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 one financial institution in the United Kingdom.

 

*Fair Value of Financial Instruments*

* *

The Company enters into various types offinancial instruments in the normal course of business. The carrying amounts ofthe Company’s cash and cash equivalents, accounts receivable, accounts payableand accrued expenses approximate their fair values due to the short-term natureof these items. Receivables are concentrated in the pharmaceutical industry.Management considers the likelihood of market credit risk to be remote.

 

*Accounts Receivable and Significant Customers*

* *

Trade accounts receivable are recorded at theinvoiced amount and do not bear interest. The Company has not historicallyexperienced credit losses from its accounts receivable and therefore has notestablished an allowance for doubtful accounts. The Company does not have anyoff-balance-sheet credit exposure related to its customers.

 

Accounts and otherreceivables consist of the following:

 
| ** ** | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------|------------|--------------------------|------------|-----------------------------|------------|
| Trade      |       | $                        | 1,030,708  |                        | $          | 1,690,029 |   |
| Other      |       | 46,399                   |       | 136,656                     |       |
|       |       | $                        | 1,077,107  |                        | $          | 1,826,685 |   |

 

At March 31, 2009 and December 31, 2008,trade receivables primarily consist of $937,131 and $1,431,382, respectively,due from Pfizer (see Note 10).

 

For the three months ended March 31, 2009,revenue from GlaxoSmithKline plc and Pfizer Inc represented 58% and 35%,respectively, of total Company revenue. For the three months endedMarch 31, 2008, certain customers represented more than 10% of totalCompany revenue. Such concentration was due to low levels of revenue in theperiod, and these customers in future periods are not expected to represent 10%or more of total Company revenue.

 

8

----

Tableof Contents

 

*Long-Lived Assets*

* *

In the ordinary course of its business, theCompany incurs substantial costs to construct property and equipment. Thetreatment of costs to construct these assets depends on the nature of the costsand the stage of construction. Costs incurred in the project planning anddesign phase, and in the construction and installation phase, are capitalizedas part of the cost of the asset. The Company stops capitalizing costs when theasset is substantially complete and ready for its intended use.

 

For manufacturing property and equipment, theCompany also capitalizes the cost of validating these assets for the underlyingmanufacturing process. Celldex completes the capitalization of validation costswhen the asset is substantially complete and ready for its intended use. Costscapitalized include incremental labor and fringe benefits, and directconsultancy services.

 

Property and equipment is stated at cost anddepreciated over the estimated useful lives of the related assets using thestraight-line method. Laboratory equipment and office furniture and equipmentare depreciated over a five-year period and computer equipment is depreciatedover a three-year period. Manufacturing equipment is amortized over a seven- toten-year period. Leasehold improvements are amortized over the shorter of theestimated useful life or the non-cancelable term of the related lease,including any renewals that are reasonably assured of occurring. Property andequipment under construction is classified as construction in progress and isdepreciated or amortized only after the asset is placed in service.Expenditures for maintenance and repairs are charged to expense whereas thecosts of significant improvements which extend the life of the underlying assetare capitalized. Upon retirement or sale, the cost of assets disposed of andthe related accumulated depreciation are eliminated and the related gains orlosses are reflected in net income.

 

*Accounting for the Impairment of Long-Lived Assets*

* *

The Company periodically evaluates its long-livedassets, primarily property and equipment and intangible assets for potentialimpairment under SFAS No. 144, *Accountingfor the Impairment of Long-Lived Assets,* (“SFAS 144”). The Companyperforms these evaluations whenever events or changes in circumstances suggestthat the carrying amount of an asset or group 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 an indicator ofpotential impairment exists, the carrying values of the assets are evaluated inrelation to the operating performance and future undiscounted cash flows of theunderlying asset. The net book value of an asset is adjusted to fair value ifits expected future undiscounted cash flows are less than its book value. TheCompany charges impairments of the long-lived assets to operations if itsevaluations indicate that the carrying value of these assets is notrecoverable. When the Company determines that the carrying value of intangibleassets or long-lived assets is not recoverable, the Company may be required torecord impairment charges for these assets that have not been previouslyrecorded.  Management identified noindicators of impairment at March 31, 2009.

 

*Accounting for Patent Costs*

* *

Patent costs are expensed to general andadministrative expenses as incurred, as recoverability of such expenditures isuncertain. Certain patent costs are reimbursed by the Company’s productdevelopment and licensing partners. Any reimbursed patent costs are recorded asproduct development and licensing agreement revenues in the Company’s financialstatements.

 

9

----

Table of Contents

 

*Interest Capitalization*

* *

The Company capitalizes interest cost as partof the historical cost of acquiring certain assets during the period of timerequired to get the asset ready for its intended use. The amount of capitalizedinterest is limited to the amount of interest incurred by the Company and hasnot been significant to the Company’s financial position or results ofoperations.

 

*Operating Leases*

* *

The Company presently has three facilitiesthat are located at Phillipsburg, New Jersey, and Needham and Fall River,Massachusetts, under non-cancellable operating lease agreements for office,laboratory and manufacturing space. The rent payments for the three locationsescalate over the lease term. Rent expense is recorded on a straight-line basisover the terms of the leases, including any renewals that are reasonablyassured of occurring. The difference between rent expense and amounts paidunder the lease agreements is recorded as deferred rent liability 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.

 

*Intangible Assets*

* *

The Company has acquired intangible assets,which include core technology, developed technology and a strategic partneragreement, through the Merger and the acquisition of Lorantis Limited (“Lorantis”).These acquired intangible assets are being amortized on a straight-line basisover their estimated lives, which range from 4.5 to 11 years. Thedetermination of the amortization period involves estimates and judgments onmanagement’s part. Any significant changes in the Company’s estimates orassumptions could impact the carrying value of acquired intangible assets. TheCompany evaluates the recoverability of these assets when facts andcircumstances suggest the asset could be impaired in accordance withSFAS 144.

 

In January 2009, the Company sold its poultryvaccine assets and wrote off the remaining unamortized balance of the relateddeveloped technology intangible asset. See Note 8 for additional information.

 

*Revenue Recognition*

* *

The Company accounts for revenue arrangementsthat include multiple deliverables in accordance with Emerging Issues TaskForce (“EITF”) No. 00-21, *Accountingfor Revenue Arrangements with Multiple Deliverables* (“EITF 00-21”).EITF 00-21 addresses how to determine whether an arrangement involvingmultiple deliverables contains more than one unit of accounting. In applyingthe guidance, revenue arrangements with multiple deliverables can only beconsidered as separate units of accounting if (i) the delivered item hasvalue to the customer on a standalone basis, (ii) there is objective andreliable evidence of the fair value of the undelivered items and (iii) ifthe right of return exists, delivery of the undelivered items is consideredprobable and substantially in the control of the vendor. If these criteria arenot met, the revenue elements must be considered a single unit of accountingfor purposes of revenue recognition.

 

Payments received to fund certain researchactivities are recognized as revenue in the period in which the researchactivities are performed. Payments received in advance that are related tofuture performance are deferred and recognized as revenue when the researchprojects are performed.

 

10

----

Tableof Contents

 

The Company has entered into various licenseand development agreements with pharmaceutical and biotechnology companies. Theterms of the agreements typically include non-refundable license fees, fundingof research and development, payments based upon achievement of certainmilestones and royalties on net product sales. Non-refundable license fees arerecognized as contract and license fee revenue when the Company has acontractual right to receive such payments, provided that (i) acontractual arrangement exists, (ii) the contract price is fixed ordeterminable, (iii) the collection of the resulting receivable isreasonably assured and (iv) the Company has no further performanceobligations under the license agreement. Upfront non-refundable fees associatedwith license and development agreements where the Company has continuing performanceobligations under the terms of the agreement are recorded as deferred revenueand recognized as revenue over the estimated service period as the Companycompletes its obligations. Where the Company’s level of effort is relativelyconstant over the performance period or no other pattern is estimable, therevenue is recognized on a straight-line basis. Revenue is limited to thelesser of the cumulative amount of payments received or the cumulative amountof revenue earned, as determined using the straight-line basis, as of theperiod ending date. If the estimated service period is subsequently modified,the period over which the upfront fee is recognized is modified accordingly ona prospective basis. The determination of the performance period involvesjudgment 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 are recognized as revenueupon the achievement of mutually agreed milestones, provided that (i) themilestone event is substantive and its achievement is not reasonably assured atthe inception of the agreement, and (ii) there is no continuingperformance obligations associated with the milestone payment. Revenues frommilestone payments related to arrangements under which the Company hascontinuing performance obligations are recognized as revenue upon achievementof the milestone only if all of the following conditions are met: (i) themilestone payments are non-refundable; (ii) achievement of the milestonewas not reasonably assured at the inception of the arrangement;(iii) substantive effort is involved in achieving the milestone; and,(iv) the amount of the milestone is reasonable in relation to the effortexpended or the risk associated with achievement of the milestone. If any ofthese conditions are not met, the milestone payments are deferred andrecognized as revenue over the term of the arrangement as Celldex completes itsperformance obligations.

 

The Company has capitalized and deferredcosts incurred in connection with the one-time signing and upfront payment (theinitial deliverable) received with respect to a multiple deliverablearrangement. If there is deemed a single unit of accounting for such anarrangement, the capitalized deferred costs are amortized over the expectedperformance period of the arrangement.

 

Revenue from contracts and grants, includingU.S. government grants under Small Business Innovation Research (“SBIR”), isrecognized as the services are performed and recorded as effort is expended onthe contracted work and billed to the government or the Company’s contractualpartner. Product royalty revenue consists of payments received from licenseesfor a portion of sales proceeds from products that utilize Celldex’s licensedtechnologies and are recognized when the amount of and basis for such royaltypayments are reported to the Company 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.

 

*Research and Development Costs*

* *

Research and development costs, includinginternal and contract research costs, are expensed as incurred. Research anddevelopment expenses consist mainly of clinical trial costs, manufacturing ofclinical material, toxicology and other studies, salaries, depreciation,technology access fees, royalty fees, including the cost of Rotarix® royaltyrevenues retained by the Company, and funding of outside research. Costs toacquire technologies that are utilized in research and development that have noalternative future use are expensed as incurred.

 

*Acquired In-Process Research and Development*

* *

Acquired In-Process Research and Development(“IPR&D”) represents the fair value assigned to research and developmentprojects that the Company acquires that have not been completed at the date ofacquisition and which have no future alternative use. As described more fullybelow, on January 1, 2009, Company’s adopted SFAS No. 141(R), *Business Combinations,* (“SFAS 141(R)”).  Prior to the adoption of SFAS 141(R), theCompany expensed the fair value of IPR&D to research and developmentexpense as of the acquisition date in accordance with SFAS 141.

 

11

----

Tableof Contents

 

The value assigned to acquired IPR&D isdetermined by estimating the costs to develop the acquired technology intocommercially viable products, estimating the resulting net cash flows from theprojects, and discounting the net cash flows to present value. The revenue andcosts projections used to value IPR&D were, as applicable, reduced based onthe probability of developing a new drug. Additionally, the projectionsconsidered the relevant market sizes and growth factors, expected trends intechnology, and the nature and expected timing of new product introductions by theCompany and the Company’s competitors. The resulting net cash flows from suchprojects are based on management’s estimates of revenues, cost of sales,operating expenses, and income taxes from such projects. The rates utilized todiscount the net cash flows to their present value were commensurate with thestage of development of the projects and uncertainties in the economicestimates used in the projections described above.

 

If these projects are not successfullydeveloped, the operations of the company may be adversely affected in futureperiods. Additionally, the value of other acquired intangible assets may becomeimpaired. The Company believes that the assumptions used in the Company’sIPR&D analysis were reasonable at the time of the respective acquisition.No assurance can be given, however, that the underlying assumptions used toestimate expected project revenues, development costs or profitability, or theevents associated with such projects, will transpire as estimated.

 

*Clinical Research and Contract Manufacturing Accruals*

* *

Most of the Company’s clinical trials areperformed by third-party contract research organizations (“CROs”) and certainclinical supplies are manufactured by contract manufacturing organizations (“CMOs”).Invoicing from these third parties may be monthly based upon services performedor based upon milestones achieved. The Company accrues these expenses basedupon its assessment of the status of each study or manufacturing activity andthe work completed, and upon information obtained from the CROs and CMOs.

 

*Foreign Currency Translation*

* *

The financial statements of Celldex Ltdhave been translated into U.S. dollars in accordance with SFAS No. 52, *Foreign Currency Translation*. All assetand liability accounts have been translated using the exchange rates in effectat the balance sheet date. Revenues and expenses have been translated using theaverage exchange rate for the period. Translated gains and losses resultingfrom the changes in exchange rates have been reported in other comprehensiveincome (loss). As of March 31, 2009 and December 31, 2008, theaccumulated unrealized foreign exchange translation gains included inaccumulated other comprehensive income were $2,593,577 and $2,605,726,respectively.

 

*Income Taxes*

* *

The Company accounts for income taxes inaccordance with the provisions of SFAS No. 109, *Accounting For Income Taxes*, (“SFAS 109”).  The Company uses the asset and liabilitymethod to account for income taxes, including the recognition of deferred taxassets and deferred tax liabilities for the anticipated future tax consequencesattributable to differences between financial statement amounts and theirrespective tax bases. Quarterly, the Company reviews its deferred tax assetsfor recovery. A valuation allowance is established when the Company believesthat it is more likely than not that its deferred tax assets will not berealized. Changes in valuation allowances from period to period are included inthe Company’s tax provision in the period of change.

 

*Net Loss Per Share*

* *

The Company computes and reports earnings pershare in accordance with the provisions of SFAS No. 128, *Earnings Per Share,*(“SFAS 128”). Thecomputations 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 at March 31,2009. Options to purchase 2,773,318 and 2,463,579 shares of common stock werenot included in the March 31, 2009 and 2008 computation of diluted netloss per share, respectively, because inclusion of such shares would have ananti-dilutive effect on net loss per share.

 

12

----

Tableof Contents

 

*Comprehensive Loss*

* *

SFAS No. 130, *Reporting Comprehensive Income,* (“SFAS 130”)established the standards for reporting and displaying comprehensive income(loss) in financial statements. Comprehensive income (loss) is defined toinclude all changes in stockholders’ equity during the period other than thosechanges that result from investments by and distributions to stockholders.  The Company had a total comprehensiveloss of $7,716,026 and $22,241,512 for the three months ended March 31, 2009and 2008, respectively.  The differencebetween total comprehensive loss and net loss for the three months ended March31, 2009 is due to unrealized foreign exchange translation losses.  Thedifference between total comprehensive loss and net loss for the three monthsended March 31, 2008 is due to an unrealized equity investment loss andunrealized foreign exchange translation losses.

 

*Stock-Based Compensation*

* *

The Company accounts for stock-based awardsunder SFAS No. 123 (revised 2004), *Share-BasedPayment*, (“SFAS 123(R)”), which requires the measurement andrecognition of compensation expense for all share-based payment awards made toemployees and directors including employee stock options and employee stockpurchases related to the Employee Stock Purchase Plan (“employee stockpurchases”) based on estimated grant date fair values.

 

Compensation expense for all share-basedpayment awards to employees are recognized using the straight-line method overthe term of vesting or performance. As stock-based compensation expenserecognized in the consolidated statement of operations is based on awardsultimately expected to vest, compensation expense has been reduced forestimated forfeitures. SFAS 123(R) requires forfeitures to be estimated atthe time of grant and revised, if necessary, in subsequent periods if actualforfeitures differ from those estimates.

 

The Company estimates the fair value of share-basedawards granted using the Black-Scholes option-pricing model (“Black-Scholesmodel”). The Company’s determination of fair value of share-based paymentawards on the date of grant using an option-pricing model is affected by theCompany’s stock price as well as assumptions regarding a number of highlycomplex and subjective variables. These variables include, but are not limitedto, the Company’s expected stock price volatility over the term of the awards,and actual and projected employee stock option exercise behaviors.

 

SFAS 123(R) did not change theaccounting guidance for how the Company accounts for options issued to non-employees.The Company accounts for options issued to non-employees in accordance withSFAS 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*.The value of such options is periodically re-measured and income or expense isrecognized during the vesting terms.

 

See Note 5 for additional information.

 

*Use of Estimates*

* *

The preparation of the financial statementsin conformity with U.S. GAAP requires management to make estimates andassumptions that affect reported amounts and disclosures. Actual results coulddiffer from those estimates.

 

*Segment Information*

* *

SFAS No. 131, *Disclosures about Segments of an Enterprise and Related Information*,establishes standards for reporting information on operating segments ininterim and annual financial statements. The Company has determined that it isengaged in one industry segment, which is the business of development,manufacturing and commercialization of novel therapeutics for human healthcare. Management uses consolidated financial information in determining how toallocate resources and assess performance and reviews the Company’s operatingresults on an aggregate basis and manages the Company’s operations as a singleoperating segment.

 

13

----

Tableof Contents

 

*Recent Accounting Pronouncements*

* *

**SFAS 141(R) and SFAS 160:**  On January 1, 2009, the Company adopted SFAS 141(R)and SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARBNo. 51,* (“SFAS 160”), which introduce significant changesin the accounting for and reporting of business acquisitions and noncontrollinginterests in a subsidiary. Due to the fact that the adoption ofSFAS 141(R) and SFAS 160 are applicable to future acquisitions completed after January 1,2009 and the Company did not have any business combinations this quarter, theadoption of SFAS 141(R) and SFAS 160 did not have an impact on theCompany’s financial statements or results of operations.

 

**EITF 07-1:**  OnJanuary 1, 2009, the Company adopted EITF 07-01,*Accounting for Collaborative Arrangements Related tothe Development and Commercialization of Intellectual Property*,(“EITF 07-01”), which prescribes the accounting for collaborations existing afterJanuary 1, 2009. EITF 07-01 requires certain transactions betweencollaborators to be recorded in the income statement on either a gross or netbasis within expenses when certain characteristics exist in the collaborationrelationship. The adoption of EITF 07-1 did not have a material impact on theCompany’s financial statements or results of operations as it relates to anyjoint operating activities under current collaborations.The Company will have to evaluate the impact of EITF 07-01 on futurecollaborations that the Company may enter into.

 

**FSP No. FAS 142-3:**  On January 1, 2009, the Company adoptedFinancial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No.FAS 142-3, *Determination of the UsefulLife of Intangible Assets* (“FSP FAS 142-3”). FSP FAS 142-3amends the factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS 142. The intent of FSP FAS 142-3 is to improve theconsistency between the useful life of a recognized intangible under SFAS 142and the period of expected cash flows used to measure fair value of the assetunder SFAS 141 and other U.S. GAAP. The adoption of FSP FAS 142-3 did not have a material impact on theCompany’s financial statements or results of operations.

 

**SFAS 162:**  In May 2008, FASB issued SFAS No. 162, *“The Hierarchy of Generally Accepted AccountingPrinciples”,* (“SFAS 162”). This Standard identifies the sources of accountingprinciples and the framework for selecting the principles to be used in thepreparation of financial statements that are presented in conformity withgenerally accepted accounting principles in the U.S. The adoption of thisstandard will not have a material impact on the Company’s financial statementsor results of operations.

 

**EITF 03-6-1:**  On January 1, 2009, the Company adopted FSPNo. EITF 03-6-1, *“Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities”*, (“FSP EITF 03-6-1”). FSP EITF 03-6-1addresses whether instruments granted in share-based payment transactions areparticipating securities prior to vesting and, therefore, need to be includedin the earnings allocation in computing earnings per share (EPS) under the two-classmethod described in paragraphs 60 and 61 of SFAS 128. The guidanceapplies to the calculation of EPS under SFAS 128 for share-based paymentawards with rights to dividends or dividend equivalents. FSP EITF 03-6-1clarifies that unvested share-based payment awards that contain nonforfeitablerights to dividends or dividend equivalents (whether paid or unpaid) areparticipating securities and shall be included in the computation of EPSpursuant to the two class method. FSP EITF 03-6-1 requires all prior-periodEPS data presented to be adjusted retrospectively (including interim financialstatements, summaries of earnings and selected financial data). The adoption ofFSP EITF 03-6-1 did not have amaterial impact on the Company’s financial statements or results of operations.

 

14

----

Table of Contents

 

**(4)****         ****Fair Value Measurements**

 

On January 1, 2008, the Company adopted SFAS No. 157, *Fair Value Measurements*, (“SFAS 157”),and SFAS No. 159, *The Fair Value Optionfor Financial Assets and Financial Liabilities Including an amendment of FASBStatement No. 115*, (“SFAS 159”), for its financial assetsand liabilities. The adoption of SFAS 157 did not have a material impacton the Company’s financial position or results of operations. As permitted byFASB Staff Position No. FAS 157-2, *EffectiveDate of FASB Statement No. 157*, the Company elected to deferthe adoption of SFAS 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, until January 1, 2009.SFAS 159 permits entities to choose to measure many financial instrumentsand certain other items at fair value that are not currently required to bemeasured at fair value. The Company did not elect to adopt the fair valueoption for eligible financial instruments under SFAS 159.

 

SFAS 157 provides a framework for measuring fair value underU.S. GAAP and requires expanded disclosures regarding fair value measurements.SFAS 157 defines fair value as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants on the measurement date. Marketparticipants are buyers and sellers in the principal market that are (i) independent,(ii) knowledgeable, (iii) able to transact, and (iv) willing totransact.

 

SFAS 157 requires the use of valuation techniques that areconsistent with the market approach, the income approach and/or the costapproach. The market approach uses prices and other relevant informationgenerated by market transactions involving identical or comparable assets andliabilities. The income approach uses valuation techniques to convert futureamounts, such as cash flows or earnings, to a single present amount on adiscounted basis. The cost approach is based on the amount that currently wouldbe required to replace the service capacity of an asset (replacement cost).Valuation techniques should be consistently applied. SFAS 157 alsoestablishes a fair value hierarchy which requires an entity to maximize the useof observable inputs, where available, and minimize the use of unobservable inputswhen measuring fair value. The standard describes three levels of inputs thatmay be used to measure fair value:

 

| **Level 1** | Quoted  prices in active markets for identical assets or liabilities. The Company’s  Level 1 assets consist of cash equivalents. As of March 31, 2009  and December 31, 2008, the Company held cash equivalents of $38,859,134  and $43,456,657 in money market funds, respectively.                                                                                                                   |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **Level 2** | Observable  inputs other than Level 1 prices, such as quoted prices for similar  assets or liabilities; quoted prices in markets that are not active; or other  inputs that are observable or can be corroborated by observable market data  for substantially the full term of the assets or liabilities. The Company had  no Level 2 assets or liabilities at March 31, 2009 and  December 31, 2008. |
| ** **       |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **Level 3** | Unobservable  inputs that are supported by little or no market activity and that are  significant to the fair value of the assets or liabilities. The Company had  no material Level 3 assets or liabilities at March 31, 2009 and  December 31, 2008.                                                                                                                                                      |

 

The Company’s financial instruments consist mainly of cash and cashequivalents, short-term accounts receivable, accounts payable and debtobligations. Short-term accounts receivable and accounts payable are reflectedin the accompanying consolidated financial statements at cost, whichapproximates fair value due to the short-term nature of these instruments.Based on current market interest rates available to the Company for long-termliabilities with similar terms and maturities, the Company believes the fairvalue of the loan payable and note payable approximates its carrying value at March 31,2009.

 

 **(5)****        ****Stock-Based Compensation**

 

As of March 31, 2009, the Company had two shareholder approved,share-based compensation plans: the 2004 Employee Stock Purchase Plan (the “2004ESPP Plan”) and the 2008 Stock Option and Incentive Plan (the “2008 Plan”).

 

15

----

Table ofContents

 

***Employee Stock Purchase Plan***

 

The 2004 ESPP Plan was adopted on May 13, 2004 and assumed by theCompany in connection with the Merger. All full time employees of the Companyare eligible to participate in the 2004 ESPP Plan. A total of 12,500 shares ofcommon stock are reserved for issuance under the 2004 ESPP Plan. Under the 2004ESPP Plan, each participating employee may contribute up to 15% of his or hercompensation to purchase up to 100 shares of common stock per year in anysix-month offering period and may withdraw from the offering at any time beforestock is purchased. 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.

 

Duringthe three months ended March 31, 2009, the Company issued 1,497 sharesunder the 2004 ESPP Plan. No shares were issued during the three months ended March 31,2008. At March 31, 2009, 8,388 shares were available for issuance underthe 2004 ESPP Plan.

 

Thecurrent purchase period began on January 1, 2009. For the three monthsended March 31, 2009, the Company calculated the stock-based compensationexpense related to the 2004 ESPP Plan using the Black-Scholes model with thefollowing assumptions: risk-free interest rate of .28%, expected term of sixmonths, expected volatility rate of 98%, and no expected dividend yield.  Based on these assumptions, the stock-basedcompensation expense related to the 2004 ESPP Plan for the three months ended March 31,2009 was not significant.

 

***Employee Stock Option and IncentivePlan***

 

*Stock Option Plan Description*

 

On March 6, 2008, the Company’s 2008 Plan was adopted at a specialmeeting of its shareholders. The 2008 Plan replaced the 1999 Stock Option andIncentive Plan (the “1999 Plan”) and the Amended and Restated 1991 StockCompensation Plan, which was an amendment and restatement of the Company’s 1985Incentive Option Plan. The 2008 Plan permits the granting of incentive stockoptions (intended to qualify as such under Section 422A of the InternalRevenue Code of 1986, as amended), non-qualified stock options, stockappreciation rights, performance share units, restricted stock and other awardsof restricted stock in lieu of cash bonuses to employees, consultants andoutside directors.

 

The 2008 Plan allows for a maximum of 1,500,000 shares of common stockto be issued prior to October 19, 2017. The board of directors determinesthe term of each option, option price, and number of shares for which eachoption is granted and the rate at which each option vests. Options generallyvest over a period not to exceed four years. The term of each option cannotexceed ten years (five years for options granted to holders of more than 10% ofthe voting stock of the Company) and the exercise price of stock options cannotbe less than the fair market value of the common stock at the date of grant(110% of fair market value for incentive stock options granted to holders ofmore than 10% of the voting stock of the Company). The 2008 Plan also providesfor discretionary grants of non-qualified stock options to non-employeedirectors. Vesting of all employee and non-employee director stock option awardsis accelerated upon a change in control as defined in the 2008 Plan.

 

In connection with the Merger, the Company assumed the obligations ofCelldex Research under Celldex Research’s 2005 Equity Incentive Plan (the “CelldexResearch 2005 Plan”) and each outstanding option to purchase Celldex Researchcommon stock (a “Celldex Research Stock Option”) granted under the CelldexResearch 2005 Plan. Each Celldex Research Stock Option assumed by the Companyis deemed to constitute an option to acquire, on the same terms and conditionsas were applicable under the Celldex Research 2005 Plan, shares of the Company’scommon stock that have been adjusted consistent with the ratio at which theCompany’s common stock was issued in exchange for Celldex Research’s commonstock in the Merger. As of March 7, 2008, the Company assumed options toacquire 1,446,913 shares of its common stock at a weighted average exerciseprice of $8.35. The Celldex Research Stock Options generally vest over a two-tofour-year period and the term of each option cannot exceed ten years from thedate of grant. No additional awards will be issued under the Celldex Research2005 Plan.

 

16

----

Table ofContents

 

*General Option Information*

 

A summary of stock option activity under the 2008 Plan and the CelldexResearch 2005 Plan for the three months ended March 31, 2009 is asfollows:

 
| ** **                                                        | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (In Years)** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Outstanding at January 1, 2009                               |       | 2,070,993  |       | $                                                      | 8.39       |                                                                     | 8.69       |   |
| Granted                                                           |       | 702,325    |       | 8.51                                                   |       |                                                                     |       |
| Exercised                                                         |       | —     |       | —                                                 |       |                                                                     |       |
| Canceled/forfeited                                                |       | —     |       | —                                                 |       |                                                                     |       |
| Expired                                                           |       | —     |       | —                                                 |       |                                                                     |       |
|                                                              |       |       |       |                                                   |       |                                                                     |       |
| Outstanding at March 31, 2009                                |       | 2,773,318  |       | $                                                      | 8.42       |                                                                     | 8.40       |   |
|                                                              |       |       |       |                                                   |       |                                                                     |       |
| Options Vested and Expected to Vest at March 31, 2009        |       | 2,556,553  |       | $                                                      | 8.43       |                                                                     | 8.41       |   |
| Options Exercisable at March 31, 2009                        |       | 1,478,402  |       | 8.44                                                   |       | 8.38                                                                     |       |
| Options Available for Grant                                       |       | 143,841    |       |                                                   |       |                                                                     |       |
| Weighted Average Fair Value of Options Granted During the Quarter |       | $          | 5.33       |                                                   |       |                                                                     |       |   |
|                                                                   |            |            |            |                                                        |            |                                                                          |            |  |  |

 

The aggregate intrinsic value of options outstanding at March 31,2009 was $48,449.

 

*Shares Issued to Executive Officers*

 

In January 2009, the Company granted 29,340 shares of common stockfrom the 2008 Plan to its executive officers. The value of these shares was$250,000 on the grant date.

 

*Non-Employee Grants*

 

The Company has historically granted stock options to consultants forservices. These options were issued at or above their fair market value on thedate of grant and generally have four-year vesting terms from date of grant.Should the Company or the consultant terminate the consulting agreements, anyunvested options will be cancelled. Options issued to non-employees aremarked-to-market, which means that as the Company’s stock price fluctuates, therelated expense either increases or decreases. The Company recognized expenseof $28,983 and $16,440 related to non-employee consultant stock options for thethree months ended March 31, 2009 and 2008, respectively.

 

*Valuation and Expenses Information*

 

The following table summarizes stock-based compensation expense relatedto employee and non-employee stock options and employee stock purchases for thethree months ended March 31, 2009 and 2008, respectively:

 
|                                                  |   | **Three months ended  March 31,** |       |
|-------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                  |   | **2009**                                         | ** ** | **2008** |   |
| Research and development                              |   | $                                                | 399,965    |   | $ | 980,457 |   |
| General and administrative                            |   | 712,505                                          |       | 641,923 |   |
| Total stock-based compensation expense                |   | $                                                | 1,112,470  |   | $ | 1,622,380 |   |
|                                                  |   |                                             |       |   |   |
| Impact on basic and diluted net loss per common share |   | $                                                | (0.07      | ) | $ | (0.16 | ) |

 

17

----

Table ofContents

 

During the three months ended March 31, 2008, the Company enteredinto an Option Cancellation Agreement concurrent with a Stock Option GrantAgreement with Celldex Research employees. The Option Cancellation Agreementprovided for the cancellation of all previously granted options under theCelldex Research 2005 Plan while the Stock Option Grant Agreement provided forthe re-grant of stock options pursuant to the Option Cancellation Agreement. Inaddition, at the consumption of the Merger, all options to purchase formerCelldex Research common stock then outstanding under the Celldex Research 2005Plan were assumed by the Company and converted into options to purchase sharesof the Company’s common stock. The number of shares subject to the outstandingawards and related exercise price was proportionately adjusted by the same exchangeratio as former Celldex Research shareholders received in accordance with theprovisions of the Celldex Research 2005 Plan.

 

The Company considered both the re-grant of stock options and exchangeof Celldex Research options into options to acquire shares of the Company’scommon stock as a modification under the provisions of SFAS 123(R). Themodification affected a total of 15 employees, including members of the CelldexResearch board of directors. The total incremental compensation cost resulting fromthe modifications amounted to approximately $2.6 million, of which$0.9 million was related to vested awards and was recognized immediatelyas stock based compensation in the three months ended March 31, 2008.

 

As of March 31, 2009, total compensation cost related tonon-vested employee and non-employee director stock options not yet recognizedwas approximately $5.2 million, net of estimated forfeitures, which isexpected to be recognized as expense over a weighted average period of3.00 years. The total fair value of employee and non-employee directorstock options vested during the three months ended March 31, 2009 was$1,394,343.

 

The fair values of employee and non-employee director stock optionsgranted during the three months ended March 31, 2009 and 2008 were valuedusing the Black-Scholes model with the following assumptions:

 
| ** **                                               | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                               | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Expected stock price volatility (employees)              |       | 68                                               | %          | 55-67 | % |
| Expected stock price volatility (non-employee directors) |       | —                                           |       | 57-67 | % |
| Expected option term (employees)                         |       | 6.25  Years                                      |       | 3-6  Years |   |
| Expected option term (non-employee directors)            |       | —                                           |       | 4-6  Years |   |
| Risk-free interest rate                                  |       | 1.85  – 2.67                                | %          | 1.5-3.5 | % |
| Expected dividend yield                                  |       | 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 123(R) and Securities and Exchange Commission (“SEC”) StaffAccounting Bulletin No. 110 (“SAB 110”) for its employee and non-employee directorstock options and employee stock purchases. The Company has concluded that itshistorical volatility is representative of expected future stock price trends.

 

The risk-free interest rate assumption is based upon observed interest ratesappropriate for the expected term of the Company’s employee and non-employeedirector stock options and employee stock purchases. The dividend yieldassumption is based on the Company’s history of zero dividend payouts andexpectation that no dividends will be paid in the foreseeable future.

 

The expected term of employee and non-employee director stock optionsrepresents the weighted-average period the stock options are expected to remainoutstanding. SAB 110 provides for a simplified method for estimatingexpected term for “plain-vanilla” options if a company meets certain criteria.The simplified method is based on the vesting period and the contractual termfor each grant or for each vesting tranche for awards with graded vesting. Themid-point between the vesting date and the expiration date is used as theexpected term under this method.  TheCompany has concluded that the Merger represents a significant structuralchange in its business and in the terms of its share option grants such thatits historical exercise data may no longer provide a reasonable basis uponwhich to estimate expected term. The Company has elected to follow the guidanceof SAB 110 and has adopted the simplified method in determining expectedterm for all of its stock option awards. There were no stock options granted tonon-employee directors during the three months ended March 31, 2009.

 

Forfeitures were estimated based on historical experience by applying aten and zero percent forfeiture rate to employee and non-employee directorstock option awards granted during the three months ended March 31, 2009,respectively.

 

18

----

Table ofContents

 

The Company has not recognized any tax benefits or deductions relatedto the tax effects of employee stock-based compensation as the Company carriesa full deferred tax asset valuation allowance and has significant net operatingloss carryforwards available.

 

**(6)****         ****Retirement Savings Plan**

 

The Company’s 401(k) Plan (the “401(k) Plan”) is intended tobe a tax-qualified plan covering substantially all employees. Under the termsof the 401(k) Plan, employees may elect to contribute up to 15% of theircompensation, or the statutory prescribed limits. The Company may make 50%matching contributions on up to 4% of a participant’s annual salary. Benefitexpense for the 401(k) Plan was $40,000 and $27,715 for the three monthsended March 31, 2009 and 2008, respectively.

 

**(7)****          ****Property and Equipment**

 

Property and equipmentincludes the following:

 
| ** **                                     | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Laboratory Equipment                           |       | $                        | 2,445,404  |                        | $          | 2,448,848 |   |
| Manufacturing Equipment                        |       | 1,510,189                |       | 1,507,806                   |       |
| Office Furniture and Equipment                 |       | 1,104,160                |       | 1,085,549                   |       |
| Leasehold Improvements                         |       | 12,568,567               |       | 12,564,529                  |       |
| Construction in Progress                       |       | 177,851                  |       | 70,796                      |       |
| Total Property and Equipment                   |       | 17,806,171               |       | 17,677,528                  |       |
| Less Accumulated Depreciation and Amortization |       | (4,790,430               | )          | (4,110,348                  | )          |
|                                           |       | $                        | 13,015,741 |                        | $          | 13,567,180 |   |

 

During the three months ended March 31, 2009, the Company disposedof, by sale or abandonment, property and equipment having a net book value of$6,164 and recorded a net loss of $6,064. The Company had no disposals during the three months ended March 31,2008.

 

Depreciation and amortization expense related to property and equipmentwas $685,596 and $353,126 for the three months ended March 31, 2009 and2008, respectively.

 

**(8)****          ****Intangible and Other Assets**

 

Intangible assets includethe following:

 
| ** **                                      | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **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  |   | $ | (606,165 | ) | $ | 1,587,084 |   | $ | 2,193,249 |   | $ | (530,778 | ) | $ | 1,662,471 |   |
| Strategic Partner Agreement                     |       | 8  years                     |       | 629,499                         |       | (84,960 | ) | 544,539 |   | 629,499 |   | (65,038 | ) | 564,461 |   |
| Asset Held for Sale – Developed Technology |       | 8  years                     |       | —                          |       | — |   | — |   | 273,796 |   | (28,288 | ) | 245,508 |   |
| Total Intangible Assets                         |       |                         |       | $                               | 2,822,748  |   | $ | (691,125 | ) | $ | 2,131,623 |   | $ | 3,096,544 |   | $ | (624,104 | ) | $ | 2,472,440 |   |

 

19

----

Table ofContents

 

At December 31, 2008, the Company classified the intangible asset “developedtechnology” related to the Megan poultry vaccines as a long-lived asset to bedisposed of by sale due to the Company’s negotiations with Lohmann AnimalHealth International (“LAHI”).  On January 9,2009, the Company entered into a purchase agreement (“LAHI Agreement”) to sellits poultry vaccines assets to LAHI. Under the LAHI Agreement, LAHI paid anupfront fee of $850,000 and agreed to pay potential milestone payments.  The Company recorded a gain of $604,492 inthe consolidated statement of operations related to the LAHI Agreement based onthe upfront fee less the net book value of the related asset.

 

All of the Company’s intangible assets are amortized over their estimateduseful lives. Total amortization expense for intangible assets was $95,309 and$48,894 for the three months ended March 31, 2009 and 2008, respectively.

 

The estimated future amortization expense of intangible assets as of March 31,2009 and the five succeeding years and thereafter is as follows:

 
| **Year ending December 31,** | ** ** | **Estimated  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|
| 2009 (remaining nine months)                | ** ** | $                                    | 285,927    | ** ** |
| 2010                                        | ** ** | 381,236                              | ** ** |
| 2011                                        | ** ** | 381,236                              | ** ** |
| 2012                                        | ** ** | 305,653                              | ** ** |
| 2013                                        | ** ** | 230,071                              | ** ** |
| 2014 and thereafter                         | ** ** | 547,500                              | ** ** |
|                                             |            |                                      |            |  |

 

Other long-term assetsinclude the following:

 
| ** **                                        | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Deferred Sublicense Income Royalty Fees (Note 10) |       | $                        | 6,232,853  |                        | $          | 6,413,515 |   |
| Deposits                                          |       | 263,790                  |       | 263,656                     |       |
|                                              |       | $                        | 6,496,643  |                        | $          | 6,677,171 |   |

 

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

 

During the first quarter of 2008 the Company underwent a merger inwhich Celldex Therapeutics, Inc. (then AVANT) and Celldex Research becamea combined group for tax reporting purposes. The merger was treated as apurchase under SFAS 141 with Celldex Research being the accountingacquirer. Together they form a combined group and report income taxes assuch with Celldex as the parent company and Celldex Research as the subsidiary.As a result of this merger, all of the prior tax attributes of both Celldex andCelldex Research will carry forward for potential future use subject topotential limitations.

 

As of December 31, 2008, the Company had federal and state netoperating loss (“NOL”) carryforwards of approximately $227,164,000 and$82,685,000, respectively, and federal and state research and development (“R&D”)credit carryforwards of approximately $10,425,000 and $6,972,000, respectively.The federal and state net operating loss and R&D credit carryforwardsrelate primarily to the acquisition of AVANT in the first quarter of 2008. TheCompany also has a wholly owned subsidiary with net operating losses ofapproximately $34,416,000. These combined losses and credits, which expire atvarious dates starting in 2009 and going through 2028, may be available tooffset future federal, state and foreign income tax liabilities. Utilization ofthe NOL and R&D credit carryforwards may be subject to substantial annuallimitation due to ownership change limitations that have occurred previously orthat could occur in the future provided by Section 382 of the InternalRevenue Code of 1986, as well as similar state provisions. These ownershipchanges may limit the NOL and R&D credit carryforwards that can be utilizedannually to offset future taxable income and tax, respectively. In general, an ownershipchange, as defined by Section 382, results from transactions increasingthe ownership of certain shareholders or public groups in the stock of acorporation by more than 50 percentage points over a three-year period.Since the Company’s formation, the Company has raised capital and completedacquisitions through the issuance of capital stock on several occasions whichmay have resulted in one or more changes of control, as defined by Section 382,or could result in a change of control in the future upon subsequentdisposition.

 

20

----

Table ofContents

 

The Company is currently undertaking a study to assess whether anownership change occurred as a result of the Merger or whether there have beenmultiple ownership changes since the Company’s formation.  This study is not yet complete.  If the Company has experienced a change ofcontrol at any time since its formation, utilization of its NOL or tax creditcarryforwards would be subject to an annual limitation under Section 382.Further, until a study is completed and any limitations known, no amounts arebeing presented as an uncertain tax position under FIN 48.

 

In addition to uncertainties surrounding the use of NOL carryforwardsin a change of control, the Company has orphan drug and research anddevelopment credits included in its deferred tax asset. The uncertainties inthese components arise from judgments in the allocation of costs utilized tocalculate these credits. The Company has not conducted studies to analyze thesecredits to substantiate the amounts due to the significant complexity and costassociated with such study. Any limitation may result in expiration of aportion of the NOL or tax credits carryforwards before utilization. Further,until a study is completed and any limitation known, no amounts are beingpresented as an uncertain tax position under FIN 48.

 

Massachusetts, New Jersey and Missouri are the three states in whichthe Company primarily operates or has operated and has income tax nexus. Openfederal and state return years subject to examination by major taxjurisdictions include the tax years ended December 31, 2005, 2006, 2007and 2008 (which has not yet been filed). Carryforward attributes that weregenerated prior to 2005 may still be adjusted upon examination by the InternalRevenue Service if they either have been or will be used in a future period.The Company is currently not under examination by the Internal Revenue Serviceor any other jurisdictions for any tax years.

 

On January 1, 2007, the Company adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement109 (“FIN 48”). FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statementstax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file in a particular jurisdiction. As aresult of the implementation of FIN 48, Celldex recognized no materialadjustment in the liability for unrecognized income tax benefits. As a resultof the adoption of FIN 48 there is no material impact of unrecognizedincome tax benefits.

 

The Company’s policy is to recognize interest and penalties related touncertain tax positions in income tax expense. There have been no interest orpenalties recognized in the consolidated statement of operations and on theconsolidated balance sheet as a result of FIN 48 calculations. The Companyhas not recorded any interest and penalties on any unrecognized tax benefitssince its inception.

 

As required by SFAS 109, management has evaluated the positive andnegative evidence bearing upon the realizability of its net deferred taxassets, which are comprised principally of net operating loss carryforwards,capitalized R&D expenditures and R&D tax credit carryforwards.Management has determined that it is more likely than not that Celldex will notrecognize the benefits of federal and state deferred tax assets and, as aresult, a full valuation allowance was maintained at March 31, 2009 and December 31,2008.

 

**(10)****         **Significant Revenue Arrangements****

 

Total revenue recognized in connection with contracts and arrangementswith different organizations for the three months ended March 31, 2009 and2008 was $3,731,647 and $147,398, respectively. A summary of the significantcontracts and arrangements follows:

 

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

 

In 1997, the Company entered into an agreement with Glaxo tocollaborate on the development and commercialization of the Company’s oralrotavirus strain and Glaxo assumed responsibility for all subsequent clinicaltrials and all other development activities. The Company’s licensed-in therotavirus strain that was used to develop Glaxo’s Rotarix® rotavirus vaccine in1995 and owes a license fee of 30% to Cincinnati Children’s Hospital MedicalCenter (“CCH”) on net royalties received from Glaxo. The Company is obligatedto maintain a license with CCH with respect to the Glaxo agreement. Alllicensing fees are included in research and development expense. The term ofthe Glaxo agreement is through the expiration of the last of the relevantpatents covered by the agreement, although Glaxo may terminate the agreementupon 90 days prior written notice.

 

21

----

Table ofContents

 

In May 2005, the Company entered into an agreement whereby anaffiliate of PRF purchased an interest in the net royalties the Company willreceive on worldwide sales of Rotarix®. Under the PRF agreement, the Companyretained 50% of Glaxo milestone payments beginning on the effective date of theagreement with PRF, with 70% and 30% of the remaining balance payable to PRFand CCH, respectively. The Company’s retained interests in Rotarix® netroyalties which were not sold to PRF are recorded as product royalty revenueand a corresponding amount that is payable to CCH is recorded as royaltyexpense, which is included in research and development expense. For the threemonths ended March 31, 2009, the Company recognized product royaltyrevenue of $2,049,021 related to its retained interests in Rotarix® which ispayable to CCH. For the three months ended March 31, 2008, the Company didnot recognize any product royalty revenue from Glaxo.

 

On April 3, 2008, Rotarix® received FDA market approval for theprevention of rotavirus gastroenteritis in infants, which triggered a$1.5 million milestone payment to the Company from Glaxo, $750,000 ofwhich the Company has retained under its agreement with PRF. In connection withthe Company’s purchase accounting for the Merger, the present value of theCompany’s retained amount, or $742,300, had been recorded as a current asset asof March 31, 2008. During the three months ended June 30, 2008, theCompany also recorded $225,000 in revenue and an offsetting amount in royaltyexpense for the payable due to CCH for its portion of the Glaxo milestone. Themarket launch of Rotarix® by Glaxo in the U.S. market during the three monthsended September 30, 2008 resulted in a $10 million milestone paymentto the Company from PRF, which the Company received on October 1, 2008. Asof March 31, 2008, the Company recorded the expected present value of the$10 million milestone payment due from PRF of $9,053,200, the purchaseaccounting value assigned to the PRF milestone payment at the time of theMerger. During the three months ended September 30, 2008, the Companyrecognized the balance of $946,800 as other income in the consolidatedstatement of operations. The Company has received $60 million in totalmilestone payments under the PRF agreement. No additional milestone paymentsare due from PRF under the agreement.

 

Royalty rates on Rotarix® escalate from 7% to 10% based on net productsales in countries that have valid patent protection. These royalty rates arediscounted by 30% for “non-patent” countries (primarily international markets).In September 2006, the Company received notice from Glaxo that Glaxo wouldbegin paying royalties on sales of Rotarix® vaccine at the lower of the tworoyalty rates under their 1997 license agreement. Glaxo’s decision to pay the lowerroyalty rate (which is 70% of the full rate) is based upon Glaxo’s assertionthat Rotarix® is not covered by the patents Glaxo licensed from the Company inAustralia and certain European countries. The Company is currently evaluatingthe basis for Glaxo’s action and the Company’s potential remedies.  If Glaxo’s position stands, the royalties towhich PRF is entitled will no longer be limited by a $27.5 million annualthreshold, which the Company projected may have been reached in later years assales of Rotarix® increased. Irrespective of Glaxo’s position, the Company willstill retain approximately 65% of the royalties on worldwide sales of Rotarix®once PRF receives 2.45 times the aggregate cash payments of $60 million itmade to Celldex, though the potential amount of such residual royalties will belower if Glaxo’s position stands.

 

*(B) Pfizer Inc (“Pfizer”)*

 

*(1) Pfizer License and Development Agreement*

 

On April 16, 2008, the Company and Pfizer entered into a Licenseand Development Agreement (the “Pfizer Agreement”) under which Pfizer wasgranted an exclusive worldwide license to a therapeutic cancer vaccinecandidate, CDX-110, in Phase 2 development for the treatment ofglioblastoma multiforme. The Pfizer Agreement also gives Pfizer exclusive rightsto the use of EGFRvIII vaccines in other potential indications. Under thePfizer Agreement, Pfizer made an upfront payment to the Company of$40 million and made a $10 million equity investment in the Company.Pfizer will fund all development costs for these programs. The Company is alsoeligible to receive potential milestone payments exceeding $390 millionfor the successful development and commercialization of CDX-110 and additionalEGFRvIII vaccine products, as well as royalties on any product sales. ThePfizer Agreement became effective after clearance under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (as amended) on May 19, 2008.

 

On May 27, 2008, the Company received $10 million from Pfizerin exchange for 781,250 shares of the Company’s common stock having a fairvalue of $10,867,188, or $13.91 per share, on that date. The $867,188 over theamount received from Pfizer was recorded as a reduction to deferred revenue ofthe $40 million upfront payment received from Pfizer on June 18, 2008.

 

22

----

Table ofContents

 

The Company has applied the provisions of EITF 00-21 anddetermined that its performance obligations under this collaboration should beaccounted for as a single unit of accounting. The Company’s deliverables underthis collaboration primarily include an exclusive license to its CDX-110product candidate and its EGFRvIII technologies, research and development servicesas required under the collaboration and participation in the joint clinicaldevelopment committee. The Company has estimated that its performance periodunder the collaboration will be 9.5 years based on an assessment of theperiod over which the Company will have met its performance obligations underthe collaboration. Revenue, including research and development reimbursements,is being recognized on a straight-line basis over this period using theContingency Adjusted Performance Model (“CAPM”). The $40,000,000 upfrontpayment was recorded as deferred revenue and this amount, less the $867,188 inexcess fair value for the Company’s common stock discussed above, is beingamortized over the 9.5-year performance period at a rate of $1,029,810 per quarter.

 

The agreement also provides for reimbursement by Pfizer of all costsincurred by the Company in connection with the collaboration since theeffective date. The Company invoices Pfizer monthly for its reimbursable costsand records the invoiced amount as deferred revenue. These deferred revenueamounts are amortized to revenue over the expected 9.5-year performance periodon a straight-line basis using the CAPM model. For the three months ended March 31,2009, the Company incurred and invoiced Pfizer $1,563,932 in reimbursable costsrelated to the Pfizer collaboration.

 

For the three months ended March 31, 2009, the Company recordedproduct development and licensing agreements revenue under this collaborationof $1,301,659. Of this amount, $1,029,810 was attributed to the amortization ofthe $40 million upfront payment and $271,849 was attributed to the$6,420,667 of cumulative reimbursable costs incurred by the Company through March 31,2009 for which Pfizer is obligated to reimburse the Company.

 

In connection with the initial deliverables under the Pfizer Agreementas discussed further in Note 11, the Company has paid a sublicense fee of$2,365,174 to each of two research universities, Duke University (“Duke”) andThomas Jefferson University (“TJU”), and paid TJU an additional license fee of$500,000. The Company paid an additional sublicense fee to TJU of $1,634,826 inOctober 2008. The Company has recorded a total of $6,865,173 of deferredsublicense income royalty fees to other assets in the consolidated balancesheets. These deferred costs are being amortized over the 9.5-year performanceperiod at a rate of $180,663 per quarter. The Company has recognized $180,663of these costs as royalty expense during the three months ended March 31,2009. The unamortized balance of deferred costs at March 31, 2009 was$6,232,853.

 

*(2) Pfizer Animal Health Agreement*

 

The Company entered into a licensing agreement in December 2000with Pfizer’s Animal Health Division whereby Pfizer has licensed Megan’stechnology for the development of animal health and food safety vaccines. Underthe agreement, the Company may receive additional milestone payments of up to$3 million based upon attainment of specified milestones. The Company mayreceive royalty payments on eventual product sales. The term of this agreementis through the expiration of the last of the patents covered by the agreement.The Company has no obligation to incur any research and development costs inconnection with this agreement.

 

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

 

The Company is developing a vaccine, CDX-2401, aimed at providingprotection from infection with HIV, the virus known to cause AIDS. This programis in a Bill & Melinda Gates Foundation funded partnership withcollaborators at Rockefeller and the Aaron Diamond AIDS Research Center, whohave shown in model systems that protective immunity can be induced with such avaccine. Preclinical studies and manufacturing development are in progress andpayments to the Company are made on a time and materials basis. During thethree months ended March 31, 2009, the Company recognized grant revenuefrom Rockefeller of $125,585. For the three months ended March 31, 2008,the Company did not recognize any grant revenue from Rockefeller.

 

*(D) Vaccine Technologies, Inc. (“VTI”)*

 

On January 12, 2009, the Company entered into an Exclusive Licenseand Development Agreement with VTI. Under the license agreement, Celldex hasgranted a worldwide fee- and royalty-bearing exclusive license to VTI todevelopment and commercialize Celldex’s CholeraGarde® and ETEC vaccineprograms. Financial terms of the agreement with VTI include an upfront licensefee, milestone payments and royalties on net sales of licensed products duringthe term of the agreement.

 

23

----

Table ofContents

 

**(11)         CollaborationAgreements**

** **

Celldex has entered into licensing agreements with several universitiesand research organizations. Under the terms of these agreements, the Companyhas received licenses or options to license technology, specified patents orpatent applications. During the three months ended March 31, 2009 and2008, the Company expensed nonrefundable license fees of $308,250 and $6,667,respectively.

 

*(A) Medarex, Inc.*

 

The Company and Medarex, a related party to the Company, have enteredinto an Assignment and License Agreement, as amended, (“Assignment and LicenseAgreement”) that provides for the assignment of certain patent and otherintellectual property rights and a license to certain Medarex technology and aResearch and Commercialization Agreement, as amended, (“Research andCommercialization Agreement”) which provides the Company with certain rights toobtain exclusive commercial licenses to proprietary monoclonal antibodiesraised against certain antigens. Under these agreements with Medarex, Celldexmay be obligated to pay license fees, milestone payments and royalties relatingto the development and regulatory approval of certain of its technologies.

 

Under the terms of the Research and Commercialization Agreement withMedarex, Celldex will be required to pay Medarex license fees to obtaincommercial licenses for antibodies arising from research licenses granted byMedarex. Celldex will also be required to pay Medarex milestone payments withrespect to the development of any products containing such licensed antibodies.These fees and milestones may total up to $7 to $10 million per licensedantibody if a product containing such licensed antibody receives approval fromthe FDA and/or equivalent foreign agencies. None of Celldex’s productcandidates currently under development trigger such milestone payments. Ingeneral, potential milestone payments for Celldex’s antibody product candidatesmay or may not be triggered and may vary in size depending on a number ofvariables, almost all of which are currently uncertain. Typically, the eventsthat trigger these payments per product candidate include:

 

·                  submission ofinvestigational new drug application(s) or foreign equivalents;

 

·                  commencement ofPhase 1, Phase 2 and/or Phase 3 clinical trials or foreignequivalents;

 

·                  submission of biologiclicense application(s) or foreign equivalents; and

 

·                  receipt of marketingapproval(s) to sell products in a particular country or region.

 

In addition, Celldex will be required to pay royalties on any sales ofproducts containing licensed antibodies. The royalties will be payable on acountry-by-country and product-by-product basis until the date which is thelater of: (i) the expiration of the last-to-expire of the Medarex patentscovering the product in such country or (ii) the tenth anniversary of thefirst commercial sale of a product in such country. Celldex will also beresponsible for the payment of any royalties, license fees and milestone andother payments due to third parties if Celldex licenses any additionaltechnology in order to commercialize such products.

 

To date, Celldex has not made any royalty payments on sales of anyproducts and believes it is at least a number of years away from selling anyproducts that would require Celldex to make any such royalty payments. WhetherCelldex will be obligated to make milestone or royalty payments in the futureis subject to the success of Celldex’s product development efforts and,accordingly, is inherently uncertain.

 

24

----

Table of Contents

 

*(B) Rockefeller University*

 

On November 1, 2005, the Company and Rockefeller University (“Rockefeller”)entered into a license agreement for the exclusive worldwide rights to humanDEC-205 receptor, with the right to sublicense the technology. The licensegrant is exclusive except that Rockefeller may use and permit other nonprofitorganizations to use the human DEC-205 receptor patent rights for educationaland research purposes. In addition, the Company acknowledges that Rockefellerhas granted Howard Hughes Medical Institute (“HHMI”) a paid-up, nonexclusive,irrevocable license to use the patent rights, biological materials, andtechnical information for HHMI’s research purposes, but with no right tosublicense. The Company may also be required to pay royalties on any productsales. The royalties will be payable on a country-by-country and licensedproduct-by-licensed product basis until the date which is the later of (i) theexpiration of the last to expire of the patents covering the licensed productin such country or (ii) ten years following the first commercial sale of alicensed product in such country.

 

The Company may be required to pay license fees and milestone paymentsto Rockefeller with respect to development of the human DEC-205 receptor. Thesefees and milestones may total up to $2 million to $4 million perproduct candidate that receives approval from the FDA and equivalent foreignagencies.

 

*(C) Duke University Brain Tumor Cancer Center*

 

On September 1, 2006, the Company and Duke University Brain TumorCancer Center of Duke University (“Duke”) entered into a license agreement thatgave the Company access and reference to the clinical data generated by Dukeand its collaborators in order for the Company to generate its own filing withthe FDA relating to its CDX-110 product.

 

The Company may be required to pay license fees and milestone paymentsto Duke with respect to development of the CDX-110 product. These fees andmilestones may total up to $1.2 million if CDX-110 receives approval fromthe FDA and equivalent foreign agencies. The Company may also be required topay royalties upon approval of CDX-110. 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.

 

In connection with the Pfizer Agreement discussed in Note 10, theCompany determined that $2,365,174 was payable to Duke as a sublicense fee. Asagreed by Duke, at the Company’s option, 50% of this amount was paid to Duke inthe form of 81,512 shares of the Company’s common stock in October 2008.

 

*(D) Ludwig Institute for Cancer Research*

 

On October 20, 2006, the Company and Ludwig Institute for CancerResearch (“Ludwig”) entered into an agreement for the nonexclusive rights tosix cancer tumor targets for use in combination with the Company’s APCTargeting Technology. The term of the agreement is for ten years. Asconsideration for the nonexclusive license, the Company agreed to pay an annuallicense fee of $7,500 and $2,500 for each full-length antigen andpartial-length antigen, respectively, until such antigens enter a randomized Phase 1clinical trial.

 

As additional consideration for the nonexclusive license, the Companymay be required to pay license fees and milestone payments to Ludwig for theuse of the cancer targets in combination with the Company’s technology. Thefees and milestones may total up to $1.5 million to $2.5 million on aproduct candidate that receives approval from the FDA and equivalent foreignagencies. The Company may also be required to pay royalties upon approval ofany 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.

 

*(E) **Alteris Therapeutics, Inc.*

 

In October 2005, Celldex Research completed the acquisition ofAlteris Therapeutics, Inc. (“Alteris”). Celldex may be required to payAlteris up to $5.0 million upon obtaining the first approval forcommercial sale of an EGFRvIII product.

 

25

----

Table of Contents

 

*(F) Thomas Jefferson University*

 

In February 2003, the Company entered into three exclusive licenseagreements with Thomas Jefferson University (“TJU”). Under the licenseagreements, TJU has granted a worldwide fee-and royalty-bearing exclusivelicense. Under these licenses, the Company will be obligated to pay TJUmilestone payments which may total up to $3 million for the first licensedproduct developed during the term of the license agreements, an annual licensefee of $45,000, patent and other expenses associated with licenses, as well asroyalties on net sales of licensed products during the term of the licenseagreements. In the event that TJU provides notice of default and the default isnot cured within 60 days of such notice, TJU may terminate the licenseagreements. In connection with the Pfizer Agreement, the Company amended itslicenses with TJU to add additional sublicensing rights and made a $500,000one-time license payment to TJU in June 2008.

 

As discussed in Note 10, the Company paid a sublicense fee of$2,365,174 to TJU during the three months ended September 30, 2008 andpaid an additional sublicense fee of $1,634,826 to TJU in October 2008.

 

*(G) 3M Company (“3M Company”)*

 

On June 11, 2008, the Company and 3M Company entered into alicense agreement for the exclusive worldwide rights to access 3M Company’sproprietary Immune Response Modifier, ResiquimodTM, (and additional Toll-LikeReceptor 7/8 agonists (“TLR”)) for clinical study with Celldex’s proprietaryAPC Targeting Technology, for use as vaccine adjuvants, with the right tosublicense the technology.

 

The Company paid 3M Company a one-time upfront license fee which wascharged to research and development expense in the three months ended June 30,2008. The Company may be required to pay annual license fees and milestonepayments to 3M Company with respect to development of ResiquimodTM. The Companymay also be required to pay royalties upon approval of any product candidate.The royalties will be payable on a country-by-country and licensedproduct-by-licensed product basis until the date of the expiration of the lastto expire of the patents covering the licensed product in such country.

 

*(H) University of Southampton (“Southampton”)*

 

In November 2008, the Company entered into an Exclusive Patent andKnow-How License Agreement with the University of Southampton, UK, to develophuman antibodies towards CD27, a potentially important target for immunotherapyof various cancers. CD27 is a critical molecule in the activation pathway oflymphocytes, is downstream from CD40, and may provide a novel way to regulatethe immune responses. In pre-clinical models, antibodies to CD27 have beenshown to mediate anti-tumor effects alone, and may be particularly effective incombination with the Company’s other immunotherapies.

 

The Company paid Southampton a one-time upfront license fee which wascharged to research and development expense during the three months ended December 31,2008. The Company may be required to pay annual license fees and milestonepayments to Southampton with respect to development of CD27. The Company mayalso be required to pay royalties upon approval of any product candidate. Theroyalties will be payable on a country-by-country and licensedproduct-by-licensed product basis until the date of the expiration of the lastto expire of the patents covering the licensed product in such country.

 

*(I)   Amgen*

 

In March 2009,the Company entered into a license agreement with Amgen to expandits Precision Targeted Immunotherapy Platform by acquiring exclusive rights toFMS-like tyrosine kinase 3 ligand (Flt3L) and CD40 ligand (CD40L).  Flt3L and CD40L areimmune modulating molecules that increase the numbers and activity of immunecells that control immune responses.  The Companypaid Amgen a one-time upfront license fee which was charged to research anddevelopment expense in the three months ended March 31, 2009. The Companymay be required to pay milestone and royalty payments to Amgen with respect todevelopment and commercialization of Flt3L and CD40L.

 

26

----

Table ofContents

 

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

 

Medarex is a major shareholder of Celldex, owning approximately 31.4%of the Company’s outstanding common stock at March 31, 2009. The Companyand Medarex have entered into the following agreements, each of which wasapproved by a majority of its independent directors who did not have aninterest in the transaction. These agreements include:

 

·                  An Assignment and LicenseAgreement that provides for the assignment of certain patent and otherintellectual property rights and a license to certain Medarex technology;

 

·                  A Research andCommercialization Agreement that provides the Company with certain rights toobtain exclusive commercial licenses to proprietary monoclonal antibodiesraised against certain antigens;

 

·                  An Affiliation Agreement,which, among other things, detailed Medarex’s obligation to elect independentdirectors to the Company’s board of directors and contains certain restrictionson Medarex’s ability to acquire additional shares of the Company’s common stockand to sell shares of the Company’s common stock.  This agreement expired in April 2007;

 

·                  A Master Services Agreement,that sets forth Medarex’s agreement to provide the Company with certainservices to be mutually agreed upon, which may include, among others, clinicaland regulatory assistance.

 

The Company may be required to pay license fees and milestone paymentsto Medarex with respect to any antibodies developed using its HuMab-Mousetechnology. These fees and milestones may total up to $7 million to$10 million per antibody that receives approval from the FDA andequivalent foreign agencies.

 

The Company may also be required to pay royalties on any product sales.The royalties will be payable on a country-by-country and licensedproduct-by-licensed product basis until the date which is the later of (i) theexpiration of the last to expire of the patents covering the licensed productin such country or (ii) ten years following the first commercial sale of alicensed product in such country.

 

The Company and Medarex entered into a settlement and mutual releaseagreement on October 19, 2007, whereby the parties agreed to a settlementwith respect to a disputed return of capital related to certain unsuccessfulinitial public offering costs that were funded by Medarex on behalf of theCompany in prior years. The Company issued to Medarex 351,692 of the Company’sshares equal in value to $3,038,617, based on the per share price of $8.64 seton the second trading day prior to the closing date of the Merger. Both partieshave agreed to mutual releases under the settlement and mutual release agreement.

 

The Company has a payable due Medarex related to the Master ServicesAgreement of $2,957,248 at March 31, 2009 and December 31, 2008.

 

**(13)****                         ****Deferred Revenue**

 

At March 31, 2009, deferred revenue associated with the PfizerAgreement represented $41,381,463 of the total current and long-term deferredrevenue of $41,611,099 at that date. As more fully discussed in Note 10,Pfizer made a $40 million upfront license payment, made a $10 millionequity investment and agreed to reimburse the Company monthly for all costsincurred in connection with the collaborative effort on CDX-110. Through March 31,2009, the Company has incurred and invoiced Pfizer for reimbursable costs inthe amount of $6,420,667. In accordance with EITF 00-21, the Company determinedthat its performance obligations under the Pfizer Agreement should be accountedfor as a single unit of accounting over the estimated 9.5-year period ofexpected performance by the Company under the Pfizer Agreement. Accordingly,the $40 million upfront license payment, less $867,188 allocated to thefair value of Pfizer equity investment, and the $6,420,667 for reimbursablecosts have been deferred and are being recognized as revenue over the 9.5-yearperiod on a straight-line basis utilizing the Contingency Adjusted PerformanceModel.

 

Expected future recognition of the deferred revenue balance at March 31,2009 for each of the next five years and thereafter is as follows; remainder of2009—$3,824,289, year 2010—$4,796,759, years 2011 through 2013 per year—$4,795,092, and 2014 andthereafter—$18,604,775.

 

27

----

Table ofContents

 

**(14)****                         ****Other Long-Term Liabilities**

 

Other long-termliabilities include the following:

 
| ** **           | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------|------------|--------------------------|------------|-----------------------------|------------|
| Deferred Rent        |       | $                        | 331,766    |                        | $          | 301,171 |   |
| Loan Payable         |       | 669,709                  |       | 686,254                     |       |
| Note Payable         |       | 266,312                  |       | 300,291                     |       |
| Total                |       | 1,267,787                |       | 1,287,716                   |       |
| Less Current Portion |       |                     |       |                        |       |
| Deferred Rent        |       | 57,451                   |       | 57,451                      |       |
| Loan Payable         |       | 46,239                   |       | 49,954                      |       |
| Note Payable         |       | 109,774                  |       | 111,054                     |       |
| Current Portion      |       | 213,464                  |       | 218,459                     |       |
| Long-Term Portion    |       | $                        | 1,054,323  |                        | $          | 1,069,257 |   |

 

In December 2003, the Company entered into a Lease Agreement (the “LeaseAgreement”), a Secured Promissory Note: Equipment Loan (the “Secured PromissoryNote”) and a Security Agreement with the Massachusetts Development FinanceAgency (“MassDevelopment”), an economic development entity for the Commonwealthof Massachusetts, for the Company to occupy and build-out a manufacturingfacility in Fall River, Massachusetts.

 

*(A) Loan Payable*

 

Under the Lease Agreement, the Company received a Specialized TenantImprovement Loan that accrues interest at a rate of 5.5% per annum to financethe build-out of its Fall River facility which was recorded as leaseholdimprovements. The Company is amortizing the leasehold improvements over theremaining expected lease term. Principal and interest payments on the loan aredue monthly using an amortization period of 15 years.  At March 31, 2009, the Company hasrecorded a loan payable of $669,709 to MassDevelopment, of which $46,239 wasclassified as current and $623,470 as long-term.

 

*(B) Note Payable*

 

Under the Secured Promissory Note, the Company issued a note payable toMassDevelopment that accrues interest at a rate of 5.5% per annum 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 iscollateralized by equipment with a net book value at March 31, 2009 of$331,790.  At March 31, 2009, theCompany has recorded a note payable of $266,312 to MassDevelopment, of which$109,774 was classified as current and $156,538 as long-term.

 

The following table summarizes the Company’s approximate contractualobligations to MassDevelopment with respect to the loan and note payable at March 31,2009:

 
| ** **                   | ** ** | **Loan Payable** | ** ** | **Note Payable** | ** ** |
|------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **Principal**         | ** ** | **Interest**          | ** ** | **Total** | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| 2009 (remaining nine months) |       | $                     | 33,400     |                  | $          | 53,100 |   | $ | 86,500 |   | $ | 77,100 |   | $ | 41,000 |   | $ | 118,100 |   |
| 2010                         |       | 51,500                |       | 74,300                |       | 125,800 |   | 144,000 |   | 33,200 |   | 177,200 |   |
| 2011                         |       | 53,300                |       | 67,900                |       | 121,200 |   | 45,200 |   | 2,100 |   | 47,300 |   |
| 2012                         |       | 55,200                |       | 61,500                |       | 116,700 |   | — |   | — |   | — |   |
| 2013                         |       | 57,600                |       | 54,500                |       | 112,100 |   | — |   | — |   | — |   |
| 2014 and Thereafter          |       | 418,700               |       | 164,900               |       | 583,600 |   | — |   | — |   | — |   |
| Total Obligation             |       | $                     | 669,700    |                  | $          | 476,200 |   | $ | 1,145,900 |   | $ | 266,300 |   | $ | 76,300 |   | $ | 342,600 |   |

 

28

----

**Tableof Contents**

** **

**(15)****                         ****Commitments and Contingencies**

 

*(A) Commitments for the Needham, Massachusetts Facility*

 

In November 2005, the Company entered into a lease amendment thatextended its lease of laboratory and office space in Needham, Massachusettsthrough April 2017 and reduced the Company’s leased space to approximately35,200 square feet. Under this lease amendment, the Company is obligated to payan escalating base annual rent ranging from $879,700 to $1,161,200 plus certaincommon area maintenance (“CAM”) costs during the remaining lease term.

 

*(B) Commitments for the Fall River, Massachusetts Facility*

 

In December 2003, the Company entered into a lease withMassDevelopment to occupy and build-out an 11,800 square foot manufacturingfacility in Fall River, Massachusetts. The lease has an initial seven-year termthat expires in December 2010 and two renewal options of five years each.Management has determined that it is reasonably assured that the Company willexercise one five-year renewal option. Therefore, the Company is amortizingleasehold improvements made to the Fall River facility over the remainingoriginal lease term plus one five-year renewal term. In November 2005, December 2006and October 2008, the Company amended the MassDevelopment lease to increasethe rentable space to approximately 14,300, 16,200 and 21,000 square feet,respectively, at the Fall River facility.

 

*(C) Commitments for the Philipsburg, New Jersey Facility*

 

The Company leases approximately 20,000 square feet of office andlaboratory space in Phillipsburg, New Jersey. The lease has an initialfive-year term which expires in August 2011. Under the lease agreement,the Company is obligated to pay an annual rent of approximately $347,700 pluscertain CAM costs.

 

As an incentive to enter into a lease agreement with the Phillipsburglandlord, the Company received four months of rent-free occupancy of thefacility, and the Company is amortizing this over the original five-year termof the lease. In addition, the landlord provided the Company with an allowanceon future rent payments towards tenant improvements that the Company made tothe facility and that credit is included in deferred rent and is beingamortized over the lease term. Construction of the tenant improvements wascompleted in August 2006.

 

The Company entered into a letter of credit facility with a nationalU.S. financial institution which is collateralized by a security deposit forthe leased facility in Phillipsburg, New Jersey.  The Company has recorded restricted cash relatedto this security deposit of $182,266 and $182,130 at March 31, 2009 and December 31,2008, respectively, to other assets in the consolidated balance sheets.

 

*(D) Commitments for Operating Leases*

 

Obligations for base rent and CAM costs under facility and othernon-cancelable operating leases as of March 31, 2009 are approximately asfollows:

 
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2009 (remaining nine months)                |       | $          | 1,752,000  |   |
| 2010                                        |       | 2,598,000  |       |
| 2011                                        |       | 2,557,500  |       |
| 2012                                        |       | 2,352,000  |       |
| 2013                                        |       | 2,432,000  |       |
| 2014 and thereafter                         |       | 7,815,700  |       |
| Total minimum lease payments                |       | $          | 19,507,200 |   |

 

The Company’s total rentand CAM expense for all facility leases was $574,952 and $245,304 for the threemonths ended March 31, 2009 and 2008, respectively.

 

29

----

Table ofContents

 

**(16)****                         ****Severance Arrangements**

 

*Dr. RonaldNewbold:*  Ronald C. Newbold, former Senior VicePresident, Business Development, resigned from his position effective March 1,2009 pursuant to the provision of his employment agreement with CelldexResearch that deems a resignation within the year following a change of control(in this case, the Merger) as a termination resulting from a change of control.  In accordance with Dr. Newbold’semployment agreement, the Company recorded severance expense during the threemonths ended March 31, 2009 of $356,104 related to (i) a lump-sumpayment equal to one-year’s salary, (ii) a lump-sum payment equal to theaverage of his last two annual bonus amounts, and (iii) continuation ofbenefits through March 1, 2011.   Inaddition, the Company recorded stock-based compensation expense during thethree months ended March 31, 2009 of $350,575 related to the accelerationof vesting of options to purchase 107,485 shares of Company common stock.

 

*Dr. Una S. Ryan:*  The Company and Dr. Una S. Ryan, formerPresident and Chief Executive Officer of the Company, executed a separationagreement effective July 16, 2008 (the “Separation Agreement”) settingforth such terms regarding Dr. Ryan’s separation from the Company. TheSeparation Agreement provided, among other things, for: (i) a lump sumcash payment of $1,323,203, plus interest in the amount of $10,784; (ii) amutual general release; (iii) payment of insurance premiums under COBRAfor 18 months; (iv) reimbursement of attorneys’ fees up to $30,000and (v) vesting of options to purchase 153,125 shares of Company commonstock (of the options to purchase 612,500 shares of Company common stock whichhad been granted to Dr. Ryan on March 7, 2008). The remainder of Dr. Ryan’soptions terminated as of July 16, 2008. The Separation Agreement alsoprovided for Dr. Ryan’s resignation, effective July 16, 2008, fromher position as a director of the Company and each of its subsidiaries.  In addition, the Company recorded stock-basedcompensation expense of $1.3 million to general and administrative expensefor the fully vested options granted to Dr. Ryan in connection with theSeparation Agreement in July 2008, when the criteria for establishing agrant date under SFAS 123(R) were met.

 

*Dr. Robert F. Burns:*  The Company and Dr. Robert F. Burns,former President and Chief Executive Officer of Celldex Research, entered intoa separation and mutual release agreement dated as of October 19, 2007,under which (i) Dr. Burns’ employment was terminated effective February 15,2008, (ii) the Company agreed to nine months of severance payments andcontinuation of benefits through February 15, 2010, (iii) all of Dr. Burns’stock options became fully vested and exercisable through February 15,2011, and (iv) Dr. Burns and the Company provided one another withmutual releases.  The Company recorded$1,014,017 in severance expense related to the separation and mutual releaseagreement during the three months ended December 31, 2007. In addition,stock-based compensation was adjusted for the modification of Dr. Burns’stock option awards in accordance with SFAS 123(R).

 

At March 31, 2009, the Company has an accrual of $75,676 relatedto the remaining obligations for continuation of benefits under these severancearrangements.

 

**(17)****                         ****Merger of Celldex and Celldex Research**

 

On March 7, 2008, Celldex (formerly AVANT Immunotherapeutics, Inc.)completed the Merger with Celldex Research (formerly CelldexTherapeutics Inc.) with Celldex Research being considered the accountingacquirer, even though Celldex (then AVANT) issued common stock and was thesurviving legal entity in the transaction. The Company issued 8,309,420 sharesof its common stock in exchange for all of the outstanding capital stock ofCelldex Research, on the basis of 4.65 shares of Celldex (then AVANT) commonstock for each share of Celldex Research common stock such that CelldexResearch shareholders owned 58% of the Company’s common stock on a fullydiluted basis and Celldex shareholders retained 42%. The Company also issued351,692 shares having a value of $3,038,617 in settlement of a payable dueMedarex. The purchase price of $47,570,867 represents the shares attributableto former AVANT shareholders and consisted of (i) the 6,265,889 sharesoutstanding of Celldex (then AVANT) common stock on the effective date of theMerger valued at $46,875,372 and (ii) estimated transaction costs totaling$695,495.

 

30

----

Table ofContents

 

The acquisition has been accounted for as a purchase with CelldexResearch the accounting acquirer. Consequently, the operating results ofCelldex (then AVANT) since March 8, 2008 have been included in theconsolidated results of operations. The purchase price was allocated to theacquired tangible and identifiable intangible assets and assumed liabilities,based upon their fair value at the date of acquisition, as follows:

 
| 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 |   |
|                                                             |        |            |            |        |  |

 

The values assigned to the intangible assets acquired, including theIPR&D, were determined based on fair market value using a risk adjusteddiscounted cash flow approach. Fair values for long-term tangible andintangible assets and for IPR&D were then reduced by $6,041,597 of negativegoodwill. The Company is a biotechnology enterprise and its resources are substantiallydevoted to research and development at the date of the Merger. Management isresponsible for determining the fair value of the acquired IPR&D.

 

The values assigned to IPR&D relate to the development of atyphoid-ETEC-cholera combination travelers vaccine, a cholesterol managementvaccine, and the CDX-1135 (formerly TP10) complement inhibitor in the amountsof $7.8 million, $0.9 million and $6 million, respectively. Eachof these three significant research and development projects in-process werevalued through detailed analysis of product development data concerning thestage of development, time and resources needed to complete the project,expected income-generating ability and associated risks. The value of IPR&Dwas determined 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 Company expectsto incur approximately $16.2 million to move these projects to the pointof out-licensing them to third parties. The estimated revenues from thetyphoid-ETEC-cholera vaccine, the cholesterol management vaccine, and CDX-1135are expected to be generated beginning in 2014, 2015 and 2014, respectively. Adiscount rate of 29% was used to value these projects, which the Companybelieves to be commensurate with the stage of development and the uncertaintiesin the economic estimates described above. The resulting net cash flows forthese projects were based on management’s best estimates of revenue, cost ofsales, research and development costs, selling, general and administrativecosts, and income taxes for each project and the net cash flows reflectassumptions that would be used by market participants.

 

The significant assumptions underlying the valuations includedpotential revenues, costs of completion, the timing of product approvals andthe selection of appropriate probability of success and discount rates. None ofthe Company’s IPR&D projects have reached technological feasibility nor dothey have any alternative future use. Consequently, in accordance with currentU.S. GAAP, the fair value allocated to IPR&D was charged as an expensein the Company’s consolidated financial statements as of the date ofacquisition. The remaining acquired intangible assets arising from theacquisition are being amortized on a straight line basis over their estimatedlives, which range from 4.5 to 8 years.

 

As of March 31, 2009, the technological feasibility of theprojects had not yet been reached and no significant departures from theassumptions included in the valuation analysis had occurred. Substantialadditional research and development will be required prior to reachingtechnological feasibility. In addition, each product needs to successfullycomplete a series of clinical trials and to receive FDA or other regulatoryapproval prior to commercialization. The Company is also dependent upon theactivities of its collaborators in developing, manufacturing and marketing itsproducts. There can be no assurance that these projects will ever reachfeasibility or develop into products that can be marketed profitably, nor canthere be assurance that the Company and its collaborators will be able todevelop, manufacture and commercialize these products before the Company’scompetitors. If these products are not successfully developed and do not becomecommercially viable, the Company’s financial condition and results ofoperations could be materially affected.

 

31

----

Table ofContents

 

The following unaudited pro forma financial summary is presented as ifthe operations of Celldex and Celldex Research were combined as of January 1,2008. The unaudited pro forma combined results are not necessarily indicativeof the actual results that would have occurred had the acquisition beenconsummated at that date or of the future operations of the combined entities.The following pro forma financial summary includes charges for in-processresearch and development of $14,755,908 for the three months ended March 31,2008, which are material non-recurring charges.

 
| **Three Months Ended March 31,** | ** ** | **2008**    | ** ** |
|------------------------------------------------------|------------|-------------|------------|
| Revenue                                              |       | $           | 1,642,765  |   |
| Net loss                                             |       | (23,971,415 | )          |
| Basic and diluted net loss per share                 |       | (1.61       | )          |
|                                                      |            |             |            |  |

 

32

----

Table ofContents

 

***Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995:***  This report on Form 10-Q containsforward-looking statements made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995 under Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. Forward-looking statements include statements withrespect to our beliefs, plans, objectives, goals, expectations, anticipations,assumptions, estimates, intentions and future performance, and involve knownand unknown risks, uncertainties and other factors, which may be beyond ourcontrol, and which may cause our actual results, performance or achievements tobe materially different from future results, performance or achievementsexpressed or implied by such forward-looking statements. All statements otherthan statements of historical fact are statements that could be forward-lookingstatements. You can identify these forward-looking statements through our useof words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,”“would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,”“point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” andother similar words and expressions of the future.

 

There are a number of important factors that could cause the actualresults to differ materially from those expressed in any forward-lookingstatement made by us. These factors include, but are not limited to:

 

·                  our ability to raisesufficient capital on terms acceptable to us, or at all;

 

·                  our ability to adapt our APCTargeting TechnologyTM to develop new, safe and effective vaccines againstoncology and infectious disease indications;

 

·                  our ability to adapt ourvectoring systems to develop new, safe and effective orally administeredvaccines against disease causing agents;

 

·                  our ability to successfullycomplete product research and further development, including animal,preclinical and clinical studies, and commercialization of CDX-110, CDX-1307,Ty800, CDX-1135 (formerly TP10), and other products and the growth of themarkets for those product candidates;

 

·                  the cost, timing, scope andresults of ongoing safety and efficacy trials of CDX-110, CDX-1307, Ty800,CDX-1135 (formerly TP10), and other preclinical and clinical testing;

 

·                  the ability to negotiatestrategic partnerships or other disposition transactions for our non-coreprograms, including CETi;

 

·                  our ability to managemultiple clinical trials for a variety of product candidates at differentstages of development;

 

·                  the strategies and businessplans of our partners, such as Pfizer’s plans for CDX-110, GlaxoSmithKline’splans with respect to Rotarix® and Vaccine Technologies’ plans concerning theCholeraGarde® (Peru-15) and ETEC E. coli vaccines, which are not within ourcontrol, and our ability to maintain strong, mutually beneficial relationshipswith those partners;

 

·                  our ability to developtechnological capabilities and expand our focus to broader markets forvaccines;

 

·                  the availability, cost,delivery and quality of clinical and commercial grade materials produced ourown manufacturing facility or supplied by contract manufacturers and partners;

 

·                  the timing, cost anduncertainty of obtaining regulatory approvals for product candidates;

 

·                  our ability to develop andcommercialize products before competitors that are superior to the alternativesdeveloped by such competitors;

 

·                  the validity of our patentsand our ability to avoid intellectual property litigation, which can be costlyand divert management time and attention; and

 

·*                 *the factorslisted under *the headings “Business,” “RiskFactors” and Management’s Discussion and Analysis of Financial Condition andResults of Operations” in the Company’s annual report on Form 10-K for theyear ended December 31, 2008 and other reports that Celldex files with theSecurities and Exchange Commission**.*

 

All forward-looking statements are expressly qualified in theirentirety by this cautionary notice. You are cautioned not to place unduereliance on any forward-looking statements, which speak only as of the date ofthis report or the date of the document incorporated by reference into thisreport. We have no obligation, and expressly disclaim any obligation, toupdate, revise or correct any of the forward-looking statements, whether as aresult of new information, future events or otherwise. We have expressed ourexpectations, beliefs and projections in good faith and we believe they have areasonable basis. However, we cannot assure you that our expectations, beliefsor projections will result or be achieved or accomplished.

 

33

----

Table of Contents

 

**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 in1983 (formerly known as AVANT Immunotherapeutics, Inc.) and itssubsidiaries: Celldex Research Corporation (“Celldex Research”), CelldexTherapeutics, Ltd. (“Celldex Ltd”) and Megan Health, Inc. (“Megan”).The Company’s principal activity since our inception has been research andproduct development conducted on our own behalf, as well as through jointdevelopment programs with several pharmaceutical companies and othercollaborators. The Company changed its name from AVANT Immunotherapeutics, Inc.to Celldex Therapeutics, Inc. on October 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 a biopharmaceutical company that uses novel applications ofimmunology to develop products for the prevention and treatment of diseases.Using our Precision Targeted Immunotherapy Platform, we are developing a broadportfolio of vaccines, therapeutic antibodies and other targetedimmunotherapeutics addressing a wide range of applications including oncology,inflammatory and infectious diseases. These include therapeutic cancervaccines, monoclonal antibodies, single-dose, oral vaccines that protectagainst important disease-causing infectious agents and a treatment to reducecomplement-mediated tissue damage. We are advancing a robust pipeline ofclinical and preclinical product candidates, the most advanced of which are fortreatment of various cancers. Our lead programs are therapeutic cancer vaccinesdesigned to instruct the patient’s immune system to recognize and destroycancer cells.

 

Our strategy is to demonstrate proof-of-concept for our productcandidates before leveraging their value through partnerships or, inappropriate situations, continuing late stage development ourselves.Demonstrating proof-of-concept for a product candidate generally involvesbringing it through Phase 1 clinical trials and one or more Phase 2clinical trials so that we are able to demonstrate, based on human trials, goodsafety data for the product candidate and some data indicating itseffectiveness. Our current collaborations encompass the commercialization of anoral human rotavirus vaccine, the development of oral cholera, typhoid fever,ETEC and HIV vaccines, and a therapeutic brain cancer vaccine. Our productcandidates address large market opportunities for which we believe currenttherapies are inadequate or non-existent.

 

We are targeting our efforts where we can add the greatest value to thedevelopment of our products and technologies. Our goal is to demonstrateclinical proof-of-concept for each product, and then seek excellent partners tohelp see those products through to commercialization. We thus leverage thevalue of its technology portfolio through corporate, governmental andnon-governmental partnerships. This approach allows us to maximize the overallvalue of our technology and product portfolio while best ensuring theexpeditious development of each individual product.

 

**Merger between AVANT and Celldex**

 

On March 7, 2008, we closed the merger (the “Merger”) contemplatedby the Agreement and Plan of Merger dated October 19, 2007 by and amongCelldex (formerly AVANT Immunotherapeutics, Inc.), Callisto MergerCorporation (“Merger Sub”), a wholly owned subsidiary of Celldex, and CelldexResearch (formerly Celldex Therapeutics, Inc.) (the “Merger Agreement”).Pursuant to the terms of the Merger Agreement, Merger Sub merged with and intoCelldex Research, with Celldex Research as the surviving company and awholly-owned subsidiary of the Company. The total value of the transaction wasapproximately $75 million. Approximately 8.7 million shares wereissued to the former Celldex Research shareholders in connection with theMerger. The Merger created a NASDAQ-listed, fully-integrated and diversifiedbiopharmaceutical company with a deep pipeline of product candidates addressinghigh-value indications including oncology, infectious and inflammatory diseases.Former Celldex Research and former AVANT shareholders owned 58% and 42% of the combined company ona fully diluted basis, respectively.

 

34

----

Table of Contents

 

The Company implemented a 1-for-12 reverse stock split of the Company’scommon stock 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.

 

The acquisition has been accounted for as a purchase with CelldexResearch the accounting acquirer. Consequently, the operating results ofCelldex (then AVANT) since March 8, 2008 have been included in theconsolidated results of operations. The purchase price was allocated to theacquired tangible and identifiable intangible assets and assumed liabilities,based upon their fair value at the date of acquisition, as follows:

 
| 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 |   |

 

The values assigned to the intangible assets acquired, including theIPR&D, were determined based on fair market value using a risk adjusteddiscounted cash flow approach. Fair values for long-term tangible and intangibleassets and for IPR&D were then reduced by $6,041,597 of negative goodwill.The Company is a biotechnology enterprise and its resources are substantiallydevoted to research and development at the date of the Merger. Management isresponsible for determining the fair value of the acquired IPR&D.

 

The values assigned to IPR&D relate to the development of atyphoid-ETEC-cholera combination travelers vaccine, a cholesterol managementvaccine, and the CDX-1135 (formerly TP10) complement inhibitor in the amountsof $7.8 million, $0.9 million and $6 million, respectively. Eachof these three significant research and development projects in-process werevalued through detailed analysis of product development data concerning thestage of development, time and resources needed to complete the project,expected income-generating ability and associated risks. The value of IPR&Dwas determined 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. We expect to incurapproximately $16.2 million to move these projects to the point ofout-licensing them to third parties. The estimated revenues from thetyphoid-ETEC-cholera vaccine, the cholesterol management vaccine, and CDX-1135are expected to be generated beginning in 2014, 2015 and 2014, respectively. Adiscount rate of 29% was used to value these projects, which we believe to becommensurate with the stage of development and the uncertainties in the economicestimates described above. The resulting net cash flows for these projects werebased on management’s best estimates of revenue, cost of sales, research anddevelopment costs, selling, general and administrative costs, and income taxesfor each project and the net cash flows reflect assumptions that would be usedby market participants.

 

The significant assumptions underlying the valuations includedpotential revenues, costs of completion, the timing of product approvals andthe selection of appropriate probability of success and discount rates. None ofthe Company’s IPR&D projects have reached technological feasibility nor dothey have any alternative future use. Consequently, in accordance with currentU.S. GAAP, the fair value allocated to IPR&D was charged as an expensein the Company’s consolidated financial statements as of the date ofacquisition. The remaining acquired intangible assets arising from theacquisition are being amortized on a straight line basis over their estimatedlives, which range from 4.5 to 8 years.

 

35

----

Table ofContents

 

As of March 31, 2009, the technological feasibility of theprojects had not yet been reached and no significant departures from theassumptions included in the valuation analysis had occurred. Substantialadditional research and development will be required prior to reachingtechnological feasibility. In addition, each product needs to successfullycomplete a series of clinical trials and to receive FDA or other regulatoryapproval prior to commercialization. The Company is also dependent upon theactivities of its collaborators in developing, manufacturing and marketing itsproducts. There can be no assurance that these projects will ever reachfeasibility or develop into products that can be marketed profitably, nor canthere be assurance that the Company and its collaborators will be able todevelop, manufacture and commercialize these products before the Company’scompetitors. If these products are not successfully developed and do not becomecommercially viable, the Company’s financial condition and results ofoperations could be materially affected. See Note 17 to the Company’sunaudited consolidated financial statements for additional information.

 

Because Celldex Research was determined to be the acquirer foraccounting purposes, the historical financial statements of Celldex Researchbecame the historical financial statements of the Company. Accordingly, thefinancial statements of the Company prior to the Merger reflect the financialposition, results of operations and cash flows of Celldex Research, which,during the historical periods presented in the accompanying consolidated financialstatements, was majority-owned by Medarex, Inc. (“Medarex”). Following theMerger, the financial statements reflect the financial position, results ofoperation and cash flows of the combined companies. The results of operationsof AVANT are included in the results of operations of the Company beginning March 8,2008. Accordingly, except as otherwise discussed below, this report reflectsthe financial condition, results of operations and liquidity of the combinedcompanies at March 31, 2009 and for the period from the Merger through March 31,2009. The financial condition, results of operations and liquidity of theCompany as of the three months ended March 31, 2009 and 2008 may not beindicative of the Company’s future performance or reflect what the Company’sfinancial conditions, results of operations and liquidity would have been hadthe Merger been consummated as of January 1, 2008, or had the Companyoperated as a separate, stand-alone entity during the periods presented.

 

**RESEARCH AND DEVELOPMENT ACTIVITIES**

** **

Our products are derived from a broad set of complementary technologieswhich have the ability to utilize the human immune system and enable thecreation of preventative and therapeutic agents. We are using thesetechnologies to develop vaccines and targeted immunotherapeutics that preventor treat cancer and disease caused by infectious organisms, and treatmentvaccines that modify undesirable activity by the body’s own proteins or cells.A number of our immunotherapeutic and vaccine product candidates are in variousstages of clinical trials. We expect that a large percentage of our researchand development expenses will be incurred in support of our current and futureclinical trial programs.

 

The expenditures that will be necessary to execute Celldex’s businessplan are subject to numerous uncertainties. Completion of clinical trials maytake several years or more, and the length of time generally variessubstantially according to the type, complexity, novelty and intended use of aproduct candidate. It is not unusual for the clinical development of thesetypes of product candidates to each take five years or more, and for totaldevelopment costs to exceed $100 million for each product candidate.Celldex estimates that clinical trials of the type we generally conduct aretypically completed over the following timelines:

 

36

----

Table of Contents

 
| **Clinical Phase** | ** ** | **Estimated  Completion  Period** | ** ** |
|--------------------|------------|-----------------------------------|------------|
| Phase 1       |       | 1  - 2 Years                      |       |
| Phase 2       |       | 1  - 5 Years                      |       |
| Phase 3       |       | 1  - 5 Years                      |       |

 

The duration and the cost of clinical trials may vary significantlyover the life of a project as a result of differences arising during theclinical trial protocol, including, among others, the following:

 

·                  the number of patients thatultimately participate in the trial;

 

·                  the duration of patientfollow-up that seems appropriate in view of results;

 

·                  the number of clinical sitesincluded in the trials;

 

·                  the length of time requiredto enroll suitable patient subjects; and

 

·                  the efficacy and safetyprofile of the product candidate.

 

Celldex tests potential product candidates in numerous preclinicalstudies for safety, toxicology and immunogenicity. Celldex then may conductmultiple clinical trials for each product candidate. As we obtain results fromtrials, we may elect to discontinue or delay clinical trials for certainproduct candidates in order to focus our resources on more promising productcandidates.

 

An element of Celldex’s business strategy is to pursue the research anddevelopment of a broad portfolio of product candidates. This is intended toallow Celldex to diversify the risks associated with its research anddevelopment expenditures. As a result, Celldex believes its future capitalrequirements and its future financial success are not substantially dependenton any one product candidate. To the extent Celldex is unable to maintain abroad range of product candidates, Celldex’s dependence on the success of oneor a few product candidates increases.

 

Celldex’s product candidates also have not yet received FDA regulatoryapproval, which is required before Celldex can market them as therapeutic orvaccine products. In order to proceed to subsequent clinical trial stages andto ultimately achieve regulatory approval, the FDA must conclude that Celldex’sclinical data establish safety and efficacy. Historically, the results frompreclinical testing and early clinical trials (through Phase 2) have oftennot been predictive of results obtained in later clinical trials. A number ofnew drugs, biologics and vaccines have shown promising results in earlyclinical trials, but subsequently failed to establish sufficient safety andefficacy data to obtain necessary regulatory approvals.

 

Furthermore, Celldex’s business strategy includes the option ofentering into collaborative arrangements with third parties to complete thedevelopment and commercialization of Celldex’s product candidates. In the eventthat third parties take over the clinical trial process for one of Celldex’sproduct candidates, the estimated completion date would largely be undercontrol of that third party rather than Celldex. Celldex cannot forecast withany degree of certainty which proprietary products, if any, will be subject tofuture collaborative arrangements, in whole or in part, and how sucharrangements would affect Celldex’s development plan or capital requirements.Celldex’s programs may also benefit from subsidies, grants, contracts orgovernment or agency-sponsored studies that could reduce Celldex’s developmentcosts.

 

As a result of the uncertainties discussed above, among others, Celldexis unable to estimate the duration and completion costs of its research anddevelopment projects or when, if ever, and to what extent it will receive cashinflows from the commercialization and sale of a product. Celldex’s inabilityto complete its research and development projects in a timely manner or itsfailure to enter into collaborative agreements, when appropriate, couldsignificantly increase its capital requirements and could adversely impact itsliquidity. These uncertainties could force Celldex to seek additional, externalsources of financing from time to time in order to continue with its businessstrategy. Celldex’s inability to raise additional capital, or to do so on termsreasonably acceptable to it, would jeopardize the future success of itsbusiness. During the past five years through the end of 2008, Celldex incurredan aggregate of $55.7 million in research and development costs. Duringthe three months ended March 31, 2009, Celldex incurred an aggregate of$8.7 million in research and development costs.

 

37

----

Table ofContents

 

**CURRENT PROGRAMS AND PARTNERSHIPS**

 
| **Technology**              | ** ** | **Product**             | ** ** | **Indication/Field**                                     | ** ** | **Partner**              | ** ** | **Status**                   |
|-----------------------------|------------|-------------------------|------------|----------------------------------------------------------|------------|--------------------------|------------|------------------------------|
|                        |       |                    |       |                                                     |       |                     |       |                         |
| **ONCOLOGY**                |       | CDX-110                 |       | Glioblastoma multiforme                                  |       | Pfizer                   |       | Phase 2b                     |
|                        |       | CDX-1307                |       | Colorectal, bladder, pancreas, ovarian and breast tumors |       | —                   |       | Phase 1                      |
|                        |       | CDX-1401                |       | Multiple solid tumors                                    |       | —                   |       | Pre-clinical                 |
|                        |       | CDX-1127                |       | Immuno-modulation, multiple tumors                       |       | —                   |       | Pre-clinical                 |
| ** **                  | ** ** | ** **              | ** ** | ** **                                               | ** ** | ** **               | ** ** | ** **                   |
| **INFLAMMATORY****DISEASE** |       | CDX-1135(formerly TP10) |       | Transplantation  Renal disease                           |       | —  —           |       | Phase 1/2  Pre-clinical |
|                        |       | CDX-1189                |       | Renal disease                                            |       | —                   |       | Pre-clinical                 |
| ** **                  | ** ** | ** **              | ** ** | ** **                                               | ** ** | ** **               | ** ** | ** **                   |
| **INFECTIOUS  DISEASE**     |       | CholeraGarde®      |       | Cholera                                                  |       | Vaccine Technologies/IVI |       | Phase 2b                |
|                        |       | Ty800                   |       | Typhoid fever                                            |       | NIH                      |       | Phase 2                 |
|                        |       | ETEC                    |       | Enterotoxigenic *E coli*  infection                      |       | Vaccine Technologies/NIH |       | Phase 1                      |
|                        |       | CDX-2401                |       | HIV                                                      |       | Rockefeller University   |       | Pre-clinical                 |
|                        |       |                    |       |                                                     |       |                     |       |                         |
| **MARKETED PRODUCTS**       |       | Rotarix®           |       | Rotavirus  infection                                     |       | GlaxoSmithKline          |       | Marketed                     |

** **

**PROGRAM DEVELOPMENTS**

** **

**A.****                                   ****Cancer Vaccine 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 commonly present in glioblastoma multiforme, or GBM, themost common and aggressive form of brain cancer, and has also been observed invarious other cancers such as breast, ovarian, prostate, colorectal, and head &neck cancer. With our partner, Pfizer Inc. (“Pfizer”), we are currentlypursuing the development of CDX-110 for GBM therapy and plan to expand theclinical development into other cancers through additional clinical studies.

 

Initial clinical development of EGFRvIII immunotherapy was led bycollaborating investigators at the Brain Center at Duke Comprehensive CancerCenter in Durham, North Carolina and at M.D. Anderson Cancer Center inHouston, Texas. The results from the Phase 1 (VICTORI) and Phase 2a(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 sametwo institutions 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 be33.1 months, although the median has not yet been reached. The survival ofa matched historical control group was 14.3 months and a subgroup treatedwith temozolomide (TMZ) of 15.2 months, with a p value = 0.0078.Overall time to progression for CDX-110 was 16.6 months compared with6.4 months for the historical control group.

 

38

----

Table of Contents

 

In May 2007, we initiated a Phase 2b/3 randomized study (ACTIII) of CDX-110 combined with standard of care, temozolomide, versusstandard of care alone in patients with GBM. We intend to open a total of over30 sites in the United States for the study. The FDA has granted orphan drugdesignation for CDX-110 for the treatment of EGFRvIII expressing GBM as well asfast track designation.

 

In December 2008, we announced an amendment to convert the ACT IIIstudy to a single-arm Phase 2 clinical trial in which all patients willreceive CDX-110 in combination with temozolomide and we will continue to enrollto approximately 60 patients. The decision, which follows the recommendation ofthe Independent Data Monitoring Committee, was based on the observation thatthe majority of patients randomized to the control (standard of care) armwithdrew from this open-label study after being randomized to the control arm.Patients currently participating on the control arm of the study will beoffered the option to receive treatment with CDX-110. Under this amendment, theACT III study will provide a multi-center, non-randomized dataset for CDX-110in patients with newly diagnosed GBM. These data will provide importantadditional information that can be used to better design the future developmentof CDX-110.

 

On April 16, 2008, the Company and Pfizer entered into a Licenseand Development Agreement (the “Pfizer Agreement”) under which Pfizer wasgranted an exclusive worldwide license to CDX-110. The Pfizer Agreement alsogives Pfizer exclusive rights to the use of EGFRvIII vaccines in otherpotential indications. Under the Pfizer Agreement, Pfizer made an upfrontpayment 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 potential milestone paymentsexceeding $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 became effective afterclearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (asamended) on May 19, 2008.

 

*CDX-1307:*  The Company’s lead APC Targeting TechnologyTMproduct candidate, CDX-1307, is in development for the treatment of epithelialtumors such as colorectal, pancreatic, bladder, ovarian and breast cancers.CDX-1307 targets the beta chain of human chorionic gonadotropin, known ashCG-Beta, which is an antigen often found in epithelial tumors. The presence ofhCG-Beta in these cancers correlates with a poor clinical outcome, suggestingthat this molecule may contribute to tumor growth. Normal adult tissues haveminimal expression of hCG-Beta; therefore, targeted immune responses are notexpected to generate significant side effects.

 

Celldex is completing two Phase 1 studies at multiple centers thatare designed to explore safety and dose/effect relationships via two administrationroutes—intradermal (ID), a traditional vaccine route that allows efficientaccess to local dermal dendritic cells and intravenous (IV), a novel systemicapproach to vaccination that might target a much larger population of dendriticcells. In both studies, there are dose escalations of CDX-1307 alone andCDX-1307 with the adjuvant GM-CSF (known to increase mannose receptorexpression on dendritic cells). At the highest dose levels planned, additionalimmune system modulators (Toll-Like Receptor Agonists, or TLR agonists) havebeen added to determine what effect they have in augmenting an immune response.Patients with an assortment of different tumor types that are known to expresshCG-Beta are being accrued with retrospective analysis for hCG-Beta expression.A four dose regimen is utilized with the possibility of retreatment if patientsdemonstrate tumor regression or stable disease.

 

Over fifty (50) patients with epithelial cancers have been treatedin the Phase 1 clinical trials and more than half have evidence ofhCG-Beta expression by their tumor. The immunotherapy has been well toleratedwith only minor adverse events observed (reddening at the injection site).Analysis of the initial cohorts with GM-CSF have revealed that several patientsdeveloped good humoral responses to hCG-Beta, and some have demonstratedenhancement of circulating hCG-Beta-specific CD8 T cells. Thus, we areencouraged that CDX-1307 is providing similar results as predicted in thepre-clinical studies. In addition, one patient with pancreatic cancer had a 26%overall reduction in tumor burden and two breast cancer patients were stablefor six months during treatment. The safety of CDX-1307 in combination withdefined immune system modulators is now being evaluated with intent to enterPhase 2 clinical research in the second half of 2009.

 

39

----

Table of Contents

 

*CDX-1401:*  CDX-1401 is a fusion protein consisting of afully human monoclonal antibody with specificity for the dendritic cellreceptor, DEC-205, linked to the NY-ESO-1 tumor antigen. In humans, NY-ESO-1 isone of the most immunogenic tumor antigens and has been detected in 20-30% ofcancers, thus representing a broad opportunity. This product is intended toselectively deliver the NY-ESO-1 antigen to APCs for generating robust immuneresponses against cancer cells expressing NY-ESO-1. Unlike CDX-1307, whichtargets the mannose receptor expressing dendritic cells, CDX-1401 is the firstAPC product targeting DEC-205 expressing dendritic cells. We are developingCDX-1401 for the treatment of malignant melanoma and a variety of solid tumorswhich express the proprietary cancer antigen NY-ESO-1, which the Companylicensed from the Ludwig Institute for Cancer Research in 2006. The Companybelieves that preclinical studies have shown that CDX-1401 is effective foractivation of human T-cell responses against NY-ESO-1. The IND filing isplanned for the first half of 2009. We expect to be able to enter aPhase 1 study with a combination regimen, including TLRs, and will accruemultiple tumors that express NY-ESO-1.

 

*CDX-1127:*  Celldex has entered into a License Agreementwith the University of Southampton, UK, to develop human antibodies to CD27, apotentially important target for immunotherapy of various cancers. Inpre-clinical models, antibodies to CD27 alone have been shown to mediateanti-tumor effects, and may be particularly effective in combination with otherimmunotherapies. CD27 is a critical molecule in the activation pathway oflymphocytes. It is downstream from CD40, and may provide a novel way toregulate the immune responses. Engaging CD27 with the appropriate monoclonalantibody has proven highly effective at promoting anti-cancer immunity in mousemodels. We are currently evaluating new human monoclonal antibodies inpre-clinical models.

 

**B.****                                   ****Inflammatory Disease Development Programs**

** **

*CDX-1135 (formerly 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, CDX-1135, a soluble form ofnaturally occurring 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 organ transplantation, multiple sclerosis, rheumatoid arthritis,age-related macular degeneration (“AMD”), atypical Hemolytic Uremic Syndrome (“aHUS”)and myasthenia gravis. We are currently defining the most appropriate clinicaldevelopment path for CDX-1135 and are focusing on rare disease conditions ofunregulated complement activation as the fastest route to FDA approval.

 

*CDX-1189:*  Celldex is developing therapeutic humanantibodies to a signaling molecule known as CD89 or Fca receptortype I (FcaRI). CD89 isexpressed by some white blood cells and leukemic cell lines, and has been shownto be important in controlling inflammation and tumor growth in animal models.Celldex has proprietary, fully human antibodies to CD89 in preclinicaldevelopment. Depending upon the specific antibody used, anti-CD89 antibodiescan either be activating and thus stimulate immune responses, ordown-regulating and act as an anti-inflammatory agent.

 

**C.****                                   ****Infectious Disease Development Programs**

** **

*CholeraGarde® Vaccine:*  CholeraGarde® is designed to be a safe,effective single-dose, oral cholera vaccine. Our partner, the InternationalVaccine Institute (“IVI”) is presently conducting a Phase 2 clinical trialof CholeraGarde in Bangladesh, with plans to sponsor additional Phase 2studies in India and Thailand beginning in the first half of 2009, followed byPhase 3 field studies.

 

*ETEC Vaccine:*  In November 2007, we entered into anagreement with the Division of Microbiology and Infectious Diseases of theNIAID, whereby NIAID is sponsoring 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 thePhase 1 trial of the ETEC vaccine candidate at Cincinnati Children’sHospital Medical Center.

 

In January 2009, we entered into an Exclusive License andDevelopment Agreement with Vaccine Technologies, Inc. (“VTI”). Under thelicense agreement, Celldex has granted a worldwide fee- and royalty-bearingexclusive license to VTI to development and commercialize Celldex’s CholeraGarde®and ETEC vaccine programs. Financial terms of the agreement with VTI include anupfront license fee, milestone payments and royalties on net sales of licensedproducts during the term of the agreement.

 

40

----

Table of Contents

 

*Ty800 Typhoid Fever Vaccine:*  The Company has developed an oral vaccine tooffer rapid, single-dose protection against *Salmonellatyphi*, the cause of typhoid fever. Ty800 is targeted for both thetravelers’ market and global health needs. In 2006, the National Institute ofAllergy and Infectious Disease (“NIAID”) of the National Institutes of Health (“NIH”)initiated a Phase 1/2 in-patient dose-ranging clinical trial aimed atdemonstrating the safety and immunogenicity of the Ty800 typhoid fever vaccine.NIAID funded the production of Ty800 vaccine for clinical testing and completedthe Phase 1/2 trial at a NIH-funded clinical site in 2007. Results showed thesingle-dose, oral vaccine to be well tolerated and immunogenic, with over 90%of vaccinated subjects generating immune responses. We initiated our ownsponsored Phase 2 trial of Ty800 in July 2007. Preliminary resultsreported in April 2008 from the study showed that the single-dose, oralvaccine was well tolerated and immunogenic, demonstrating that the desiredimmune response was achieved. Incidence of reactogenicity symptoms and adverseevents post-vaccination were similar to placebo. Importantly, immunogenicresponse was dose-dependent. Positive immune response or seroconversion(prospectively defined as a 4-fold increase in anti-LPS titers over pre-doselevel) rates were 65.5% (36/55) and 80% (44/55) in the low and high dosegroups, respectively, and was significantly (p<0.001) higher than placebo.

 

*CDX-2401:*  The Company is also using its APC TargetingTechnologyTM to develop vaccines against infectious disease. The lead program isCDX-2401, an APC Targeting prophylactic vaccine, aimed at providing protectionfrom infection with HIV, the virus known to cause AIDS. This program is in aBill & Melinda Gates Foundation funded partnership with collaboratorsat Rockefeller University in New York City, who have shown in model systemsthat protective immunity can be induced with such a vaccine. Preclinicalstudies and manufacturing development are in progress and the Company, with itscollaborators, plans to file an IND for Phase 1 clinical studies in thesecond half of 2009.

 

**D.****                                   ****Marketed Products**

** **

*Rotavirus Vaccine:*  Rotavirus is a major cause of diarrhea andvomiting in infants and children. In 1997, we licensed our oral rotavirusstrain to GlaxoSmithKline (“Glaxo”). All of the ongoing development for thisprogram is being conducted and funded by Glaxo. Glaxo gained approval for itsrotavirus vaccine, Rotarix®, in Mexico in July 2004, which represented thefirst 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 filedfor market approval with the European regulatory authorities in late 2004,which triggered 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 netroyalties the Company will receive on worldwide sales of Rotarix® (seeNote 10 of our consolidated financial statements). The market launch ofRotarix® by Glaxo in the U.S. market during the three months ended September 30,2008 resulted in a $10 million milestone payment to the Company from PRF,which the Company received on October 1, 2008. We have received a total of$60 million in milestone payments under the PRF agreement. No additionalmilestone payments are due from PRF under the agreement.

 

In September 2006, we received notice from Glaxo that Glaxo wouldbegin paying royalties on sales of Rotarix® vaccine at the lower of two royaltyrates under their 1997 license agreement. Glaxo’s decision to pay the lowerroyalty rate (which is 70% of the full rate) is based upon Glaxo’s assertionthat Rotarix® is not covered by the patents Glaxo licensed from the Company inAustralia and certain European countries. If Glaxo’s position stands, theroyalties 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, we will still retain approximately 65% of the royalties on worldwidesales of Rotarix® once PRF receives 2.45 times the aggregate cash payments of$60 million it made to the Company, though the potential amount of suchresidual royalties will be lower if Glaxo’s position stands.

 

*Megan®Vac 1 and Megan®Egg Vaccines:*  On December 1, 2000, the Companyacquired all of the outstanding capital stock of Megan. Megan hascommercialized three veterinary vaccines; ArgusTM SC, licensed by the UnitedStates Department of Agriculture (“USDA”) in March 1998 and marketed byIntervet, Inc., and Megan®Vac 1 and Megan®Egg, licensed by the USDA in November 1998and 2003, respectively, and marketed by Lohmann Animal Health International (“LAHI”).In January 2009, we sold the poultry vaccines business, consisting ofMegan®Vac 1 and Megan®Egg, to LAHI for an upfront fee and potential milestonepayments.

 

41

----

Table of Contents

 

**TECHNOLOGY LICENSING**

** **

We have adopted a business strategy of out-licensing technology andprograms that do not match our development focus or where we lack sufficientresources for the technology’s or program’s efficient development or wherecertain uses of the technology are outside of our focus. For example, when theCompany acquired Megan, it entered into a licensing agreement in December 2000with Pfizer’s Animal Health Division to leverage the value of Megan’s oralvaccine technology in a significant market opportunity (animal health and humanfood safety) outside of the Company’s own focus on human health care. Underthis Pfizer agreement, we may receive additional milestone payments of up to$3 million based upon attainment of specified milestones. We may receiveroyalty payments on eventual product sales. The term of this agreement isthrough the expiration of the last of the patents covered by the agreement.

 

Similarly, in January 2009, we sold our poultry vaccines assets,consisting of Megan®Vac 1 and Megan®Egg, to LAHI and out-licensed ourCholeraGarde® and ETEC vaccine programs to VTI.

 

**RESULTS OF OPERATIONS**

** **

The financial statements of the Company prior to the Merger reflect thefinancial position, results of operations and cash flows of Celldex Research(then Celldex). Following the Merger, the financial statements reflect thefinancial position, results of operation and cash flows of the combinedcompanies. The results of operations of Celldex (then AVANT) are included inthe results of operations of the Company beginning March 8, 2008. Thediscussions of results of operations, liquidity and capital resources below areof the combined companies for the period March 8, 2008 to March 31,2008 and for the three-month period ended March 31, 2009 and historicallyof Celldex Research on a stand-alone basis for all periods prior to March 8,2008.

 

**Three-MonthPeriod Ended****March 31****, 2009 as Compared****with the Three-Month Period EndedMarch 31****, 2008**

 

The Company reported aconsolidated net loss of $7,703,877, or $0.49 per share, for the first threemonths ended March 31, 2009, compared with a net loss of $22,130,682, or$2.19 per share, for the first three months ended March 31, 2008. The netloss for the three months ended March 31, 2008 includes a one-timenon-cash charge of $14,755,908 for purchased in-process research anddevelopment related to the Merger. Theweighted average common shares outstanding used to calculate net loss percommon share was 15,818,946 for the three months ended March 31,2009 compared to 10,127,435 forthe three months ended March 31, 2008.

 

*Revenue:* Total revenue for the three months ended March 31, 2009 increased$3,584,249 to $3,731,647 from $147,398 for the three months ended March 31,2008.

 

Product development andlicensing agreement revenue for the three months ended March 31, 2009increased $1,381,983 to $1,501,847 from $119,864 for the three months ended March 31,2008 primarily due to the recognition of $1,301,659 of Pfizer deferred revenue.For the three months ended March 31, 2009 and 2008, the Company recognized$116,538 of revenue under the Corixa termination agreement.

 

Contract and grantrevenue for the three months ended March 31, 2009 increased $111,809 to$139,343 from $27,534 for the three months ended March 31, 2008 primarilydue to $125,525 in vaccine development work billable to Rockefeller in 2009.Primarily under an SBIR grant, the Company recognized $27,534 in contract andgrant revenue during the first quarter of 2008 for work performed.

 

Product royalty revenuefor the three months ended March 31, 2009 of $2,090,457 was related to theCompany’s retained interests in Rotarix® net royalties which were not sold toPRF and which is equal to the amount payable to CCH and recognized in researchand development expense by the Company. There was no product royalty revenuefor the three months ended March 31, 2008.

 

*OperatingExpense:*  Total operating expense for the three monthsended March 31, 2009 decreased $10,806,323 to $11,518,011 from $22,324,334for the three months ended March 31, 2008. Operating expense for the threemonths ended March 31, 2009 and 2008 includes a one-time gain of $604,492from the sale of assets and a non-cash charge of $14,755,908 for purchasedin-process research and development related to the Merger, respectively.

 

42

----

Table of Contents

 

Research and developmentexpenses consist primarily of (i) personnel expenses, (ii) supplyexpenses relating to the development of Celldex’s technology, (iii) facilityexpenses related to Celldex’s three facilities, (iv) product developmentexpenses associated with Celldex’s product candidates, and (v) licensefees on in-licensed technologies and royalty fees on out-licensed programs.Research and development expense for the three months ended March 31, 2009increased $4,199,167 to $8,685,941 from $4,486,774 for the three months ended March 31,2008. The changes relate primarily to the Merger of the two companies and tocosts associated with the following:

 

·                  Personnel expenses for thethree months ended March 31, 2009 increased $471,973 to $2,542,236 from$2,070,263 for the three months ended March 31, 2008. The increase wasprimarily due to significantly higher headcount as a result of the Mergeroffset by a decrease of $580,492 in stock-based compensation expense. Personnelcosts primarily include salary, benefits, stock-based compensation, payrolltaxes and recruiting costs. Celldex expects personnel costs to increase as itcontinues to increase its product development pipeline, add new productcandidates to its preclinical programs and increase its research anddevelopment activities.

 

·                  Supply expenses for thethree months ended March 31, 2009 increased $257,279 to $596,001 from$338,722 for the three months ended March 31, 2008. The increase primarilyrelates to increased research and development activities as a result of theMerger. Supply expenses include laboratory materials and supplies, services,and other related expenses. Celldex expects to incur increased supply expensesas a result of increased research and development activities.

 

·                  Facility expenses for thethree months ended March 31, 2009 increased $622,565 to $1,248,177 from$625,612 for the three months ended March 31, 2008. The increase primarilyrelates to the combination of expenses for three facilities (Phillipsburg, NJand Needham and Fall River, MA) as a result of the Merger. Facility costsinclude depreciation and amortization, utilities, rent, maintenance, and otherrelated expenses. Celldex expects to incur increased facility costs as a resultof continued capital expansion.

 

·                  Product development expensesfor the three months ended March 31, 2009 increased $407,165 to $1,476,988from $1,069,823 for the three months ended March 31, 2008. The increaseprimarily relates to expansion of Celldex’s clinical trials for CDX-110 and CDX-1307.Product development costs include clinical investigator site fees, externaltrial monitoring costs, data accumulation costs, contracted research andoutside clinical drug product manufacturing. Celldex expects expenses relatedto clinical trials to increase in the future as it continues to develop itstherapeutic product pipeline and bring forward new product candidates intoclinical development.

 

·                  License and royalty feeexpenses for the three months ended March 31, 2009 increased $2,531,267 to$2,537,934 from $6,667 for the three months ended March 31, 2008. Theincrease primarily relates to sublicense income royalty fees expense onout-licensed programs paid and recognized to CCH, Duke and TJU during the threemonths ended March 31, 2009. Celldex expects expenses related to licenseand royalty fees to increase in the future.

 

General and administrative expense for the three months ended March 31,2009 increased $308,495 to $3,341,253 from $3,032,758 for the three monthsended March 31, 2008. The increase was primarily attributed to cashseverance costs of $356,104 and severance-related stock-based compensationexpense of $350,575 incurred during the three months ended March 31,2009.  The effect of this increase waspartially offset by a decrease in consultant expense of $541,561 during thethree months ended March 31, 2009. The Company expects general and administrative expense to continue toincrease in 2009 as the Company adds infrastructure to support its therapeuticproduct pipeline and new product candidates.

 

Amortization expense of acquired intangible assets for the three monthsended March 31, 2009 increased $46,415 to $95,309 from $48,894 for thethree months ended March 31, 2008. The increase was a result of theintangible assets acquired in connection with the Merger. The Company expectsamortization expense of acquired intangible assets to remain relativelyconsistent in 2009 due to the estimated lives of the Company’s acquiredintangible assets.

 

*Investment and Other Income, Net:* Interest and other income for the three months ended March 31, 2009increased $36,233 to $82,487 from $46,254 for the three months ended March 31,2008. The increase was due to higher average cash balances in 2009, offset inpart by lower average interest rates in 2009. The Company anticipates interestincome to decrease during the remainder of 2009 compared to 2008, due to

 

43

----

Table of Contents

 

lower cash andinvestment balances caused by the utilization of cash and investment balancesin the normal course of operations. The Company also expects the yields in ourinvestment portfolio to decrease during 2009 as a result of lower short termmarket interest rates in 2009.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

At March 31, 2009,the Company’s principal sources of liquidity consisted of cash and cashequivalents of $39,364,362. 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. The Company maintainscash balances with financial institutions in excess of insured limits. TheCompany does not anticipate any losses with respect to such cash balances.

 

The use of the Company’s cash flows for operations has primarilyconsisted of salaries and wages for its employees, facility andfacility-related costs for its offices, laboratories and manufacturingfacility, fees paid in connection with preclinical studies, clinical studies,contract manufacturing, laboratory supplies and services, consulting, legal andother professional fees. To date, the primary sources of cash flows fromoperations 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.

 

In 2009, the Company may take steps to raise additional capital to meetits long-term liquidity needs including, but not limited to, the licensing oftechnology programs with existing or new collaborative partners, possiblebusiness combinations, or the issuance of common stock via private placementsor public offerings. We believe that our current cash and cash equivalents aresufficient to fund planned operations for at least the next twelve months.While we may continue to seek capital through a number of means, there can beno assurance that additional financing will be available on acceptable terms,if at all, particularly in light of the recent disruptions in the financialmarkets and the Company’s negotiating position in capital-raising efforts mayworsen as existing resources are used. There is also no assurance that theCompany will be able to enter into further collaborative relationships.Additional equity financing may be dilutive to the Company’s stockholders; debtfinancing, if available, may involve significant cash payment obligations andcovenants that restrict the Company’s ability to operate as a business; andlicensing or strategic collaborations may result in royalties or other termswhich reduce the Company’s economic potential from products under development.If the Company is unable to raise the funds necessary to meet its long-termliquidity needs, it may have to delay or discontinue the development ofprograms, license out programs earlier than expected, raise funds atsignificant discount or on other unfavorable terms, if at all, or evaluate asale of all or part of the Company.

 

*Cash Flows from Operating Activities*

* *

Net cash used in operating activities was $5,549,972 for the threemonths ended March 31, 2009 compared to $4,306,738 for the three monthsended March 31, 2008. The increase in net cash used in operatingactivities was primarily attributed to an increase in net loss, net ofstock-based compensation expense and IPR&D, and a decrease in accountspayable and accrued expenses.  The resultof these fluctuations was partially offset by a decrease in accounts and otherreceivables and the gain on sale of assets. The Company expects that cash usedin operations will continue to increase in 2009 as the Company continues todevelop its therapeutic product pipeline and bring forward new productcandidates into clinical development.

 

Celldex has incurred and will continue to incur significant costs inthe area of research and development, including preclinical and clinicaltrials, as its product candidates are developed. Celldex plans to spendsignificant amounts to progress its current product candidates through theclinical trial and commercialization process as well as to develop additionalproduct candidates. As its product candidates progress through the clinicaltrial process, Celldex may be obligated to make significant milestone payments.Celldex also expects to incur future facility costs as a result of continuedcapital expansion, renovations and replacements. Celldex expects its general andadministrative costs to increase as it expands its administrative and businessdevelopment activities. Furthermore, Celldex expects investment income todecrease as its funds future operations and capital expenditures from its cashreserves.

 

44

----

Table ofContents

 

*Cash Flows from Investing Activities*

* *

Net cash provided by investing activities was $709,643 for the threemonths ended March 31, 2009 compared to $10,737,322 for the three monthsended March 31, 2008. The change in amounts between periods primarilyreflects the impact of the Merger and increased expenditures on capitalequipment in 2009.  The result of thesefluctuations was partially offset by the proceeds from the sale of assets heldfor sale. Celldex expects to incur future facility cost as a result ofcontinued capital expansion, renovation and replacements.  The Company’s investment in capital equipmentis discretionary and there may be significant fluctuations on a quarterlybasis.

 

*Cash Flows from Financing Activities*

* *

Net cash used in financing activities was $40,446 for the three monthsended March 31, 2009 compared to net cash provided by financing activitiesof $128,856 for the three months ended March 31, 2008. The increase in netcash used in financing activities was primarily due to a decrease in therelated party loan due to Medarex and payments of long-term liabilities.

 

*Other Liquidity Matters*

* *

On April 16, 2008, the Company and Pfizer entered into anagreement under which Pfizer was granted an exclusive worldwide license to atherapeutic cancer vaccine candidate, CDX-110, in Phase 2 development forthe treatment of glioblastoma multiforme. The agreement also gives Pfizerexclusive rights to the use of EGFRvIII vaccines in other potentialindications. Under the licensing and development agreement, Pfizer made anupfront 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 potential 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 became effective afterclearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (asamended) in May 2008.

 

**AGGREGATE CONTRACTUAL OBLIGATIONS**

 

The following tablesummarizes the Company’s contractual obligations at March 31, 2009 and theeffect such obligations and commercial commitments are expected to have on itsliquidity and cash flow in future years. These obligations, commitments andsupporting arrangements represent payments based on current operating forecasts,which are subject to change:

 
| ** **                    | ** ** | **Total** | ** ** | **2009** | ** ** | **2010-2012** | ** ** | **2013-2014** | ** ** | **Thereafter** | ** ** |
|-------------------------------|------------|-----------|------------|----------|------------|---------------|------------|---------------|------------|----------------|------------|
| Contractual obligations:      |       |      |       |     |       |          |       |          |       |           |       |
| Operating lease obligations   |       | $         | 19,507,200 |     | $          | 1,752,000     |       | $             | 7,507,500  |           | $          | 4,922,500 |   | $ | 5,325,200 |   |
| Loan Payable*                 |       | 1,145,900 |       | 86,500   |       | 363,700       |       | 695,700       |       | 3⁄4         |       |
| Note Payable*                 |       | 342,600   |       | 118,100  |       | 224,500       |       | —        |       | 3⁄4         |       |
| Licensing obligations         |       | 3,730,000 |       | 565,000  |       | 1,800,000     |       | 830,000       |       | 535,000        |       |
| Severance obligations         |       | 75,700    |       | 38,200   |       | 37,500        |       | —        |       | 3⁄4         |       |
| Total contractual obligations |       | $         | 24,801,400 |     | $          | 2,559,800     |       | $             | 9,933,200  |           | $          | 6,448,200 |   | $ | 5,860,200 |   |
|                          |       |      |       |     |       |          |       |          |       |           |       |
| Commercial commitments:       |       |      |       |     |       |          |       |          |       |           |       |
| Clinical development          |       | $         | 4,958,100  |     | $          | 4,927,600     |       | $             | 30,500     |           | $          | — |   | $ | — |   |
| Manufacturing development     |       | 33,150    |       | 33,150   |       |          |       |          |       |           |       |
| Total commercial commitments  |       | $         | 4,991,250  |     | $          | 4,960,750     |       | $             | 30,500     |           | $          | — |   | $ | — |   |

 

----

*                                         includesinterest obligations

 

45

----

Table of Contents

 

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 futureobligations are not included in the above table.

 

**Item3.        ****Quantitative and Qualitative Disclosures aboutMarket Risk**

 

We own financial instruments that are sensitive tomarket risk as part of our investment portfolio. Our investment portfolio isused to preserve our capital until it is used to fund operations, including ourresearch and development activities. None of these market-risk sensitiveinstruments are held for trading purposes. We invest our cash primarily inmoney market mutual funds. These investments are evaluated quarterly todetermine the fair value of the portfolio. From time to time, we invest in marketable securities.These marketable securities only include securities with active secondaryor resale markets to help insure liquidity. We have implemented investmentpolicies regarding the amount and credit ratings of investments. Because of theshort-term nature of these investments, we do not believe we have materialexposure due to market risk. The impact to our financial position and resultsof operations from likely changes in interest rates is not material.

 

We do not utilize derivative financial instruments.The carrying amounts reflected in the consolidated balance sheet of cash andcash equivalents, accounts receivables and accounts payable approximates fairvalue at March 31, 2009 due to the short-term maturities of these instruments.

 

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

** **

*Evaluation of Disclosure Controls and Procedures.*

* *

We maintain disclosure controls and procedures that are designed toprovide reasonable assurance that information required to be disclosed by us inour reports that we file and submit under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized, andreported within time periods specified by the SEC’s rules and forms, andthat such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

 

As required by Rule 13a 15 under the Exchange Act, as of March 31,2009, we carried out an evaluation under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures as of the three months ended March 31,2009.

 

Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that due to the material weakness discussedbelow our disclosure controls and procedures were not effective as of March 31,2009.

 

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. Thefollowing material weakness existed in the Company’s internal control overfinancial reporting as of December 31, 2008 and was not fully remediated as ofMarch 31, 2009.

 

We did not maintain a sufficient complement of personnel with theappropriate skills, training and experience. Specifically, the quantity and level of experience of the Company’saccounting staff did not adequately evolve with the increased roles,responsibilities and complexity of our operations as a result of the Merger. Additionally,this material weakness could result in misstatements of financial statementaccounts and disclosures that would results in a material misstatement of theconsolidated financial statements that would not be prevented or detected.

 

*Changes in Internal Control Over Financial Reporting.*

* *

The following changes in our internal control over financial reporting occurredduring the three months ended March 31, 2009 that materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

During the three month period ended March 31, 2009, we addedpersonnel to our accounting staff with appropriate levels of experience toremediate the aforementioned material weakness. Althoughimprovement was made to the operating effectiveness of our internal controlover financial reporting as of March 31, 2009, the material weakness willnot be considered remediated until the improvements to the operating of ourinternal control over financial reporting are in place for a sufficient periodof time and are tested.

 

46

----

**Tableof Contents**

** **

**PART II — OTHERINFORMATION**

 

## **Item 1.         Legal Proceedings**

##  

None.

 

## **Item 1A.      Risk Factors**

##  

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, 2008, 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 2, 2009.

 

47

----

Table ofContents

 

## **Item 6.         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, incorporated by reference to Exhibit 3.7 of the Company’s  Quarterly Report on Form 10-Q, filed November 10, 2008 with the  Securities and Exchange Commission.                                                                                                                    |
| 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. |
| *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                                                                                                                                                                                                                                                                                                                                                                      |

 

----

| *  |   | Filed  herewith.     |
|----|--------|----------------------|
| ** |   | Furnished  herewith. |

 

48

----

Table ofContents

 

**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:  May 8, 2009 |       | Anthony  S. Marucci                                           |
|                     |       | President  and Chief Executive Officer                        |
|                     |       | (Principal  Executive Officer)                                |
|                     |       |                                                          |
|                     |       | /s/  AVERY W. CATLIN                                          |
| Dated:  May 8, 2009 |       | Avery  W. Catlin                                              |
|                     |       | Senior  Vice President, Treasurer and Chief Financial Officer |
|                     |       | (Principal  Financial and Accounting Officer)                 |

 

49

----

Table ofContents

 

**EXHIBIT INDEX**

 
| **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, incorporated by reference to Exhibit 3.7 of the Company’s  Quarterly Report on Form 10-Q, filed November 10, 2008 with the  Securities and Exchange Commission.                                                                                                                         |
| 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. |
| *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                                                                                                                                                                                                                                                                                                                                                                           |

 

----

| *  |   | Filed  herewith.     |
|----|--------|----------------------|
| ** |   | Furnished  herewith. |

 

50

----