Table of Contents

 

 

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

** **

**x  QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For thequarterly period ended March 31, 2010**

** **

**OR**

** **

**o  TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**CommissionFile 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 3, 2010,31,779,718 shares of common stock, $.001 par value per share, were outstanding.

 

 

 

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**CELLDEX THERAPEUTICS, INC.**

 

**FORM 10-Q**

 

**Three Months Ended March 31,2010Table of Contents**

 
| ** **                                                                                               | ** ** | **Page**   |
|----------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                     |       |       |
| **Part I—Financial  Information**                                                              |       |       |
|                                                                                                     |       |       |
| Item 1. Unaudited Financial Statements                                                                   |       |       |
|                                                                                                     |       |       |
| Condensed Consolidated Balance Sheets at  March 31, 2010 and December 31, 2009                 |       | 3          |
|                                                                                                     |       |       |
| Condensed Consolidated Statements of Operations for  the Three Months Ended March 31, 2010 and 2009 |       | 4          |
|                                                                                                     |       |       |
| Condensed Consolidated Statements of Cash Flows for  the Three Months Ended March 31, 2010 and 2009 |       | 5          |
|                                                                                                     |       |       |
| Notes to Unaudited Condensed Consolidated Financial Statements                                           |       | 6          |
|                                                                                                     |       |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations      |       | 17         |
|                                                                                                     |       |       |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                      |       | 31         |
|                                                                                                     |       |       |
| Item 4. Controls and Procedures                                                                          |       | 31         |
| ** **                                                                                               | ** ** | ** ** |
| **Part II  — Other Information**                                                               | ** ** | ** ** |
|                                                                                                     |       |       |
| Item 1. Legal Proceedings                                                                                |       | 31         |
|                                                                                                     |       |       |
| Item 1A. Risk Factors                                                                                    |       | 31         |
|                                                                                                     |       |       |
| Item 6. Exhibits                                                                                         |       | 33         |
|                                                                                                     |       |       |
| Signatures                                                                                               |       | 34         |
|                                                                                                     |       |       |
| Exhibit Index                                                                                       |       | 35         |

 

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**PART I—FINANCIAL INFORMATION**

**Item 1. Unaudited Financial Statements**

 

**CELLDEXTHERAPEUTICS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 

**(In thousands, except share andper share amounts)**

 
| ** **                                                                                                                                                                              | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                              | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current Assets:                                                                                                                                                                         |       |                         |       |                            |       |
| Cash and Cash Equivalents                                                                                                                                                               |       | $                            | 42,666     |                            | $          | 57,002 |   |
| Marketable Securities                                                                                                                                                                   |       | 32,700                       |       | 25,451                          |       |
| Accounts and Other Receivables                                                                                                                                                          |       | 859                          |       | 544                             |       |
| Prepaid and Other Current Assets                                                                                                                                                        |       | 2,058                        |       | 979                             |       |
| Total Current Assets                                                                                                                                                                    |       | 78,283                       |       | 83,976                          |       |
| Property and Equipment, Net                                                                                                                                                             |       | 10,965                       |       | 11,489                          |       |
| Intangible Assets, Net                                                                                                                                                                  |       | 28,459                       |       | 29,979                          |       |
| Other Assets                                                                                                                                                                            |       | 5,773                        |       | 5,955                           |       |
| Goodwill                                                                                                                                                                                |       | 8,965                        |       | 8,965                           |       |
| Total Assets                                                                                                                                                                            |       | $                            | 132,445    |                            | $          | 140,364 |   |
| ** **                                                                                                                                                                              | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                          | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current Liabilities:                                                                                                                                                                    |       |                         |       |                            |       |
| Accounts Payable                                                                                                                                                                        |       | $                            | 1,617      |                            | $          | 1,445 |   |
| Accrued Expenses                                                                                                                                                                        |       | 3,810                        |       | 5,615                           |       |
| Current Portion of Deferred Revenue                                                                                                                                                     |       | 5,144                        |       | 5,191                           |       |
| Current Portion of Long-Term Liabilities                                                                                                                                                |       | 2,387                        |       | 2,156                           |       |
| Convertible Subordinated Debt                                                                                                                                                           |       | 11,866                       |       | —                          |       |
| Total Current Liabilities                                                                                                                                                               |       | 24,824                       |       | 14,407                          |       |
| Deferred Revenue                                                                                                                                                                        |       | 33,138                       |       | 34,191                          |       |
| Convertible Subordinated Debt                                                                                                                                                           |       | —                       |       | 11,684                          |       |
| Other Long-Term Liabilities                                                                                                                                                             |       | 6,024                        |       | 6,315                           |       |
| Total Liabilities                                                                                                                                                                       |       | 63,986                       |       | 66,597                          |       |
|                                                                                                                                                                                    |       |                         |       |                            |       |
| Commitments and Contingent Liabilities                                                                                                                                                  |       |                         |       |                            |       |
|                                                                                                                                                                                    |       |                         |       |                            |       |
| Stockholders’ Equity:                                                                                                                                                              |       |                         |       |                            |       |
| Convertible Preferred Stock, $.01 Par Value;  3,000,000 Shares Authorized; No Shares Issued and Outstanding at  March 31, 2010 and December 31, 2009                          |       | —                       |       | —                          |       |
| Common Stock, $.001 Par Value; 297,000,000 Shares  Authorized; 31,759,718 and 31,685,061 Shares Issued and Outstanding at  March 31, 2010 and December 31, 2009, respectively |       | 32                           |       | 32                              |       |
| Additional Paid-In Capital                                                                                                                                                              |       | 230,020                      |       | 228,863                         |       |
| Accumulated Other Comprehensive Income                                                                                                                                                  |       | 2,663                        |       | 2,546                           |       |
| Accumulated Deficit                                                                                                                                                                     |       | (164,256                     | )          | (157,674                        | )          |
| Total Stockholders’ Equity                                                                                                                                                         |       | 68,459                       |       | 73,767                          |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                         |       | $                            | 132,445    |                            | $          | 140,364 |   |

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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**CELLDEXTHERAPEUTICS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 

**(In thousand, except per shareamounts)**

 
| ** **                                                                | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                | ** ** | **March 31, 2010**     | ** ** | **March 31, 2009** | ** ** |
| **REVENUE:**                                                              | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Product Development and Licensing Agreements                              |       | $                                | 1,347      |   | $ | 1,502 |   |
| Contracts and Grants                                                      |       | 220                              |       | 139 |   |
| Product Royalties                                                         |       | 2,146                            |       | 2,091 |   |
| Total Revenue                                                             |       | 3,713                            |       | 3,732 |   |
| ** **                                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **OPERATING EXPENSE:**                                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Research and Development                                                  |       | 6,438                            |       | 6,456 |   |
| Royalty                                                                   |       | 2,327                            |       | 2,230 |   |
| General and Administrative                                                |       | 2,835                            |       | 3,341 |   |
| Gain on Sale of Assets                                                    |       | —                           |       | (604 | ) |
| Amortization of Acquired Intangible Assets                                |       | 1,520                            |       | 95 |   |
| Total Operating Expense                                                   |       | 13,120                           |       | 11,518 |   |
|                                                                      |       |                             |       |   |   |
| Operating Loss                                                            |       | (9,407                           | )          | (7,786 | ) |
| Investment and Other Income, Net                                          |       | 3,162                            |       | 123 |   |
| Interest Expense                                                          |       | (337                             | )          | (40 | ) |
| Net Loss                                                                  |       | $                                | (6,582     | ) | $ | (7,703 | ) |
|                                                                      |       |                             |       |   |   |
| Basic and Diluted Net Loss Per Common Share (Note  4)                     |       | $                                | (0.21      | ) | $ | (0.49 | ) |
|                                                                      |       |                             |       |   |   |
| Shares Used in Calculating Basic and Diluted Net  Loss per Share (Note 4) |       | 31,695                           |       | 15,819 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements

 

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**CELLDEXTHERAPEUTICS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

**(In thousands)**

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 31, 2010**     | ** ** | **March 31, 2009** | ** ** |
| **Cash Flows from Operating  Activities:**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Loss                                                                     |       | $                                | (6,582     | ) | $ | (7,703 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used  in Operating Activities: |       |                             |       |   |   |
| Depreciation and Amortization                                                |       | 908                              |       | 686 |   |
| Amortization of Intangible Assets                                            |       | 1,520                            |       | 95 |   |
| Loss on Sales and Maturities of Marketable  Securities                       |       | 21                               |       | — |   |
| Gain on Sales or Disposal of Assets                                          |       | —                           |       | (598 | ) |
| Stock-Based Compensation Expense                                             |       | 970                              |       | 1,112 |   |
| Non-Cash Interest Expense                                                    |       | 182                              |       | — |   |
| Changes in Operating Assets and Liabilities:                                 |       |                             |       |   |   |
| Accounts and Other Receivables                                               |       | (315                             | )          | 750 |   |
| Prepaid and Other Current Assets                                             |       | (1,079                           | )          | (405 | ) |
| Other Assets                                                                 |       | 182                              |       | 180 |   |
| Accounts Payable and Accrued Expenses                                        |       | (1,633                           | )          | 112 |   |
| Deferred Revenue                                                             |       | (1,100                           | )          | 191 |   |
| Other Long-Term Liabilities                                                  |       | (14                              | )          | 30 |   |
| Net Cash Used in Operating Activities                                        |       | (6,940                           | )          | (5,550 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash Flows from Investing  Activities:**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Sales and Maturities of Marketable Securities                                |       | 6,816                            |       | — |   |
| Purchases of Marketable Securities                                           |       | (13,968                          | )          | — |   |
| Acquisition of Property and Equipment                                        |       | (384                             | )          | (140 | ) |
| Proceeds from Sales or Disposal of Assets                                    |       | —                           |       | 850 |   |
| Net Cash (Used in) Provided by Investing Activities                          |       | (7,536                           | )          | 710 |   |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash Flows from Financing  Activities:**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Proceeds from Stock Issuances                                            |       | 187                              |       | 10 |   |
| Payments of Other Long-Term Liabilities                                      |       | (46                              | )          | (51 | ) |
| Net Cash Provided by (Used in) Financing Activities                          |       | 141                              |       | (41 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Effect of Exchange Rate Changes on Cash and Cash  Equivalents                |       | (1                               | )          | (12 | ) |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Decrease in Cash and Cash Equivalents                                    |       | (14,336                          | )          | (4,893 | ) |
| Cash and Cash Equivalents at Beginning of Period                             |       | 57,002                           |       | 44,257 |   |
| Cash and Cash Equivalents at End of Period                                   |       | $                                | 42,666     |   | $ | 39,364 |   |
|                                                                         |       |                             |       |   |   |
| **Supplemental Disclosure of  Non-Cash Flow Information**                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Shares Issued to Executive Officers                                          |       | $                                | —     |   | $ | 250 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements

 

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**CELLDEX THERAPEUTICS, INC.**

**Notes to Unaudited Condensed Consolidated FinancialStatements**

**March 31,2010**

 

**(1)  Basis of Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Celldex Therapeutics, Inc. (the “Company” or “Celldex”)in accordance withaccounting principles generally accepted in the United States of America (“U.S.GAAP”) and reflect the operations of the Company and its wholly-ownedsubsidiaries. All intercompany transactions have been eliminatedin consolidation.

 

Theseinterim financial statements do not include all the information and footnotesrequired by U.S. GAAP for annual financial statements and should be read inconjunction with the audited financial statements for the year ended December 31,2009, which are included in the Company’s Annual Report on Form 10-K filedwith the Securities and Exchange Commission (“SEC”) on March 12,2010.  In the opinion of management, theinterim financial statements reflect all normal recurring adjustments necessaryto fairly state the Company’s financial position and results of operations forthe interim periods presented.  Theyear-end consolidated balance sheet data presented for comparative purposes wasderived from audited financial statements, but does not include all disclosuresrequired by U.S. GAAP.

 

Theresults of operations for the interim periods are not necessarily indicative ofthe results of operations to be expected for any future interim period or thefiscal year ending December 31, 2010.

 

*AVANT Merger*

 

On March 7, 2008, the Company (formerly known as AVANTImmunotherapeutics, Inc.) (“AVANT”) merged with Celldex ResearchCorporation (formerly known as Celldex Therapeutics, Inc.) (“CelldexResearch”), a privately-held company, (the “AVANT Merger”). Effective October 1,2008, the Company changed its name from AVANT Immunotherapeutics, Inc. toCelldex Therapeutics, Inc.  TheAVANT Merger was accounted for using the former purchase method of accountingand was treated as an acquisition by Celldex Research of AVANT, with CelldexResearch being considered the accounting acquirer even though AVANT was theissuer of common stock and the surviving legal entity in the transaction.

 

*Acquisition of CuraGen Corporation (“CuraGen”)*

 

As more fully discussed in Note 12, on October 1, 2009,CuraGen, a former publicly-traded company, merged with a wholly-ownedsubsidiary (“Merger Sub”) of the Company (the “CuraGen Merger”). Following theCuraGen Merger, the financial statements reflect the financial position,results of operation and cash flows of the combined companies.  On December 31, 2009, the Companycompleted the merger of the Merger Sub with and into Celldex pursuant to ashort-form merger effected under Delaware law. As a result, the separatecorporate existence of CuraGen has ceased and the Company has succeeded to allrights, privileges, powers and franchises of CuraGen.

 

**(2) Significant Accounting Policies**

 

The significantaccounting policies used in preparation of these condensed consolidatedfinancial statements for the three months ended March 31, 2010 are consistent with those discussed in Note2 to the consolidated financial statements in our Annual Report on Form 10-Kfor the year ended December 31, 2009, except for the adoption of newaccounting standards during the first three months of 2010 as discussed below.

 

*Recent Accounting Pronouncements*

 

From time to time, new accounting pronouncements are issued by theFinancial Accounting Standards Board (“FASB”) or other standard setting bodiesthat are adopted by the Company as of the specified effective date. Unlessotherwise discussed, the Company believes that the impact of recently issuedstandards that are not yet effective will not have a material impact on theCompany’s financial position or results of operations upon adoption.

 

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InJanuary 2010, the Company adopted a new U.S. GAAP accounting standardwhich requires additional disclosure about the amounts of and reasons forsignificant transfers in and out of Level 1 and Level 2 fair valuemeasurements. This standard also clarifies existing disclosure requirementsrelated to the level of disaggregation of fair value measurements for eachclass of assets and liabilities and disclosures about inputs and valuationtechniques used to measure fair value for both recurring and nonrecurringLevel 2 and Level 3 measurements. As this newly issued accountingstandard only requires enhanced disclosure, the adoption of this standard didnot impact the Company’s financial position or results of operations. Inaddition, effective for interim and annual periods beginning January 1,2011, this standard will require additional disclosure and require an entity topresent disaggregated information about activity in Level 3 fair valuemeasurements on a gross basis, rather than as one net amount.

 

In January 2010,the Company adopted a new U.S. GAAP accounting standard whichamends existing revenue recognition accounting guidance to provide accountingprinciples and application guidance on whether multiple deliverables exist, howthe arrangement should be separated, and the consideration allocated. This newguidance eliminates the requirement to establish objective evidence of fairvalue of undelivered products and services and instead provides for separaterevenue recognition based upon management’s estimate of the selling price foran undelivered item when there is no other means to determine the fair value ofthat undelivered item. The old guidance previously required that the fair valueof the undelivered item be the price of the item either sold in a separatetransaction between unrelated third parties or the price charged for each itemwhen the item is sold separately by the vendor. This was difficult to determinewhen the product was not individually sold because of its unique features.Under the old guidance, if the fair value of all of the undelivered elements inthe arrangement was not determinable, then revenue was deferred until all ofthe items were delivered or fair value was determined. The adoption of the newstandard was done on a prospective basis and did not impact the Company’sfinancial position or results of operations.  This standard may impact the Company in the event it completes futuretransactions or modifies existing collaborative relationships.

 

**(3)  Comprehensive Loss**

 

For the three months ended March 31, 2010,comprehensive loss was as follows:

 
| ** **                                              | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| ** **                                              | ** ** | **(In thousands)**                              | ** ** |
| Net loss                                                |       | $                                                    | (6,582     | ) | $ | (7,703 | ) |
| Other comprehensive loss:                               |       |                                                 |       |   |   |
| Net change in unrealized  gain on marketable securities |       | 118                                                  |       | — |   |
| Unrealized foreign  exchange translation loss           |       | (1                                                   | )          | (13 | ) |
| Total other comprehensive  gain (loss)                  |       | 117                                                  |       | (13 | ) |
| Total comprehensive loss                                |       | $                                                    | (6,465     | ) | $ | (7,716 | ) |

 

**(4)  Net Loss Per Share**

 

Basic net loss per common share is based upon the weighted-averagenumber of common shares outstanding during the period, excluding restrictedstock that has been issued but is not yet vested. Diluted net loss per commonshare is based upon the weighted-average number of common shares outstandingduring the period plus additional weighted-average potentially dilutive commonshares outstanding during the period when the effect is dilutive. Thepotentially dilutive common shares that have not been included in the net lossper common share calculations because the effect would have been anti-dilutiveare as follows:

 
| ** **       | ** ** | **Three months ended March 31,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
|             |       |                                                 |       |   |   |
| Stock options    |       | 4,299,850                                            |       | 2,773,318 |   |
| Convertible debt |       | 353,563                                              |       | — |   |
| Restricted stock |       | 12,000                                               |       | — |   |
|             |       | 4,665,413                                            |       | 2,773,318 |   |

 

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**(5)  Fair Value Measurements**

 

The fair value of the Company’s assets and liabilities reflects theCompany’s estimate of the exchange price that would be received for an asset orpaid to transfer a liability (an exit price) in an orderly transaction betweenmarket participants on the measurement date. Market participants are buyers andsellers in the principal market that are (i) independent, (ii) knowledgeable,(iii) able to transact, and (iv) willing to transact.

 

In connection with measuring the fair value of its assets andliabilities, the Company seeks to maximize the use of observable inputs (marketdata obtained from sources independent from the Company) and to minimize theuse of unobservable inputs (the Company’s assumptions about how marketparticipants would price assets and liabilities). The following fair valuehierarchy is used to classify assets and liabilities based on the observableinputs and unobservable inputs used in order to value the assets andliabilities:

 
| Level 1: |   | Observable  inputs such as quoted prices in active markets for identical assets or  liabilities. An active market for an asset or liability is a market in which  transactions for the asset or liability occur with sufficient frequency and  volume to provide pricing information on an ongoing basis. |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Level 2: |   | Observable  inputs other than Level 1 prices, such as quoted prices in active  markets for similar assets or liabilities and quoted prices for identical  assets or liabilities in markets that are not active.                                                                                      |
| Level 3: |   | Unobservable  inputs based on the Company’s assessment of the assumptions that market  participants would use in pricing the asset or liability.                                                                                                                                                     |

 

The following tables set forth the Company’s financial assets subjectto fair value measurements:

 
| ** **            | ** ** | **As of  March 31, 2010** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------------|------------|------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **            | ** ** | **(In thousands)**                       | ** ** |
| Cash equivalents      |       | $                                        | 39,705     |             | $          | 39,705           |       | —           |       | — |   |
| Marketable securities |       | $                                        | 32,700     |             | —     |             | $          | 32,700           |       | — |   |
|                  |       | $                                        | 72,405     |             | $          | 39,705           |       | $                | 32,700     |   | — |   |

 
| ** **            | ** **              | **As of  December 31, 2009** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------------|-------------------------|---------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **            | **(In thousands)** | ** **                                  |
| Cash equivalents      |                    | $                                           | 53,780     |             | $          | 53,780           |       | —           |       | — |   |
| Marketable securities |                    | $                                           | 25,451     |             | —     |             | $          | 25,451           |       | — |   |
|                  |                    | $                                           | 79,231     |             | $          | 53,780           |       | $                | 25,451     |   | — |   |

 

There have been no transfers of assets or liabilitiesbetween the fair value measurement classifications.  The Company’s financialinstruments consist mainly of cash and cash equivalents, marketable securities,short-term accounts receivable, accounts payable and debt obligations.Marketable securities have been valued by a third party pricing service at eachbalance sheet date, using observable market inputs that may include tradeinformation, broker or dealer quotes, bids, offers or a combination of thesedata sources. 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 31,2010.  At March 31, 2010, theestimated fair value of the Company’s outstanding $12.5 million in CuraGenDebt was approximately $12.2 million based on quoted market prices.

 

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**(6) Marketable Securities**

 

A summary of cash, cash equivalents and marketable securities is shownbelow:

 
| **March 31, 2010**                            | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|
| ** **                                              | ** ** | **(In thousands)** | ** ** |
| Cash and cash equivalents                               |       |                    |       |                         |       |                          |       |                |       |
| Cash and money market funds                             |       | $                       | 42,666     |                         | $          | —                        |       | $                   | —     |   | $ | 42,666 |   |
| Total cash and cash equivalents                         |       | $                       | 42,666     |                         | $          | —                        |       | $                   | —     |   | $ | 42,666 |   |
| Marketable securities                                   |       |                    |       |                         |       |                          |       |                |       |
| U.S. government obligations                             |       |                    |       |                         |       |                          |       |                |       |
| Maturing in one year or less                            |       | $                       | 3,271      |                         | $          | 10                            |       | $                   | —     |   | $ | 3,281 |   |
| Maturing after one year through two years               |       | 9,764                   |       | 60                           |       | 2                             |       | 9,822               |       |
| Total U.S. government obligations                       |       | $                       | 13,035     |                         | $          | 70                            |       | $                   | 2          |   | $ | 13,103 |   |
| Corporate debt securities                               |       |                    |       |                         |       |                          |       |                |       |
| Maturing in one year or less                            |       | $                       | 11,880     |                         | $          | 3                             |       | $                   | 15         |   | $ | 11,868 |   |
| Maturing after one year through two years               |       | 7,715                   |       | 18                           |       | 4                             |       | 7,729               |       |
| Total corporate debt securities                         |       | $                       | 19,595     |                         | $          | 21                            |       | $                   | 19         |   | $ | 19,597 |   |
| Total marketable securities                             |       | $                       | 32,630     |                         | $          | 91                            |       | $                   | 21         |   | $ | 32,700 |   |
| Total cash, cash equivalents and marketable  securities |       | $                       | 75,296     |                         | $          | 91                            |       | $                   | 21         |   | $ | 75,366 |   |

 
| **December 31, 2009**                         | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|
| ** **                                              | ** ** | **(In thousands)** | ** ** |
| Cash and cash equivalents                               |       |                    |       |                         |       |                          |       |                |       |
| Cash and money market funds                             |       | $                       | 57,002     |                         | $          | —                        |       | $                   | —     |   | $ | 57,002 |   |
| Total cash and cash equivalents                         |       | $                       | 57,002     |                         | $          | —                        |       | $                   | —     |   | $ | 57,002 |   |
| Marketable securities                                   |       |                    |       |                         |       |                          |       |                |       |
| U.S. government obligations                             |       |                    |       |                         |       |                          |       |                |       |
| Maturing in one year or less                            |       | $                       | 9,698      |                         | $          | 5                             |       | $                   | —     |   | $ | 9,703 |   |
| Maturing after one year through two years               |       | 7,129                   |       | 6                            |       | 22                            |       | 7,113               |       |
| Total U.S. government obligations                       |       | $                       | 16,827     |                         | $          | 11                            |       | $                   | 22         |   | $ | 16,816 |   |
| Corporate debt securities                               |       |                    |       |                         |       |                          |       |                |       |
| Maturing in one year or less                            |       | $                       | —     |                         | $          | —                        |       | $                   | —     |   | $ | — |   |
| Maturing after one year through two years               |       | 8,672                   |       | —                       |       | 37                            |       | 8,635               |       |
| Total corporate debt securities                         |       | $                       | 8,672      |                         | $          | —                        |       | $                   | 37         |   | $ | 8,635 |   |
| Total marketable securities                             |       | $                       | 25,499     |                         | $          | 11                            |       | $                   | 59         |   | $ | 25,451 |   |
| Total cash, cash equivalents and marketable  securities |       | $                       | 82,501     |                         | $          | 11                            |       | $                   | 59         |   | $ | 82,453 |   |

 

As of March 31, 2010, unrealized losses in the portfolio wereprimarily due to increases in interest rates. The marketable securities held bythe Company were high investment grade and the Company did not consider anyinvestments to be other-than-temporarily impaired as of March 31, 2010.

 

**(7) ********Stock-Based Compensation**

 

At March 31, 2010, the Company had two stock-based compensationplans: the 2004 Employee Stock Purchase Plan (the “2004 ESPP Plan”) and the2008 Stock Option and Incentive Plan (the “2008 Plan”).

 

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*Employee Stock Purchase Plan*

 

At March 31, 2010, a total of 62,500 shares of common stock arereserved for issuance under the 2004 ESPP Plan. Under the 2004 ESPP Plan, eachparticipating employee may purchase up to 250 shares of common stock per year,through payroll deductions, at a purchase price equal to 85% of the lower ofthe fair market value of the common stock at either the beginning of theoffering period or the applicable exercise date.  During the three months ended March 31,2010 and 2009, the Company issued 1,063 and 1,497 shares under the 2004 ESPPPlan, respectively. At March 31, 2010, 55,843 shares were available forissuance under the 2004 ESPP Plan.

 

*Employee Stock Option and Incentive Plan*

 

The 2008 Plan permits the granting of incentive stock options (intendedto qualify as such under Section 422A of the Internal Revenue Code of1986, as amended), non-qualified stock options, stock appreciation rights,performance share units, restricted stock and other awards of restricted stockin lieu of cash bonuses to employees, consultants and outside directors.

 

At March 31, 2010, the 2008 Plan allowed for a maximum of3,900,000 shares of common stock to be issued prior to October 19, 2017.The Company’s board of directors determines the term of each option, optionprice, and number of shares for which each option is granted and the rate atwhich each option vests. Options generally vest over a period not to exceedfour years. The term of each option cannot exceed ten years (five years foroptions granted to holders of more than 10% of the voting stock of the Company)and the exercise price of stock options cannot be less than the fair marketvalue of the common stock at the date of grant (110% of fair market value forincentive stock options granted to holders of more than 10% of the voting stockof the Company).  Vesting of all employeeand non-employee director stock option awards is accelerated upon a change incontrol as defined in the 2008 Plan.

 

In connection with the CuraGen Merger, the Company assumed theobligations of CuraGen under CuraGen’s 2007 Stock Plan (the “CuraGen 2007 Plan”)and each outstanding option to purchase CuraGen common stock (a “CuraGen StockOption”) granted under the CuraGen 2007 Plan. Each CuraGen Stock Option assumedby the Company is deemed to constitute an option to acquire, on the same termsand conditions as were applicable under the CuraGen 2007 Plan, shares of theCompany’s common stock that have been adjusted consistent with the ratio atwhich the Company’s common stock was issued in exchange for CuraGen’s commonstock in the CuraGen Merger. As of October 1, 2009, the Company assumed optionsto acquire 931,315 shares of its common stock with a weighted average exerciseprice of $3.17.  As of October 1,2009, all of the CuraGen Stock Options were fully vested except for 8,993shares which generally vest over a two year period. No additional awards willbe issued under the CuraGen 2007 Plan. The fair value of the CuraGen StockOptions that were attributed to precombination service was included in theCuraGen Merger consideration.

 

A summary of stock option activity under the 2008 Plan, CuraGen 2007Plan and Celldex Research 2005 Plan for the three months ended March 31,2010 is as follows:

 
| ** **                                                  | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (In Years)** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Options Outstanding at December 31, 2009               |       | 3,576,159  |       | $                                                      | 7.10       |                                                                     | 6.6        |   |
| Granted                                                     |       | 804,500    |       | 4.53                                                   |       |                                                                     |       |
| Exercised                                                   |       | (73,594    | )          | 2.49                                                   |       |                                                                     |       |
| Canceled/forfeited                                          |       | (1,000     | )          | 6.22                                                   |       |                                                                     |       |
| Expired                                                     |       | (6,215     | )          | 2.57                                                   |       |                                                                     |       |
| Options Outstanding at March 31, 2010                  |       | 4,299,850  |       | $                                                      | 6.71       |                                                                     | 7.1        |   |
| Options Vested and Expected to Vest at March 31,  2010 |       | 3,984,175  |       | $                                                      | 6.76       |                                                                     |       |   |
| Options Exercisable at March 31, 2010                  |       | 2,707,011  |       | $                                                      | 6.93       |                                                                     |       |   |
| Shares Available for Grant under the 2008 Plan              |       | 1,691,147  |       |                                                   |       |                                                                     |       |

 

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The total intrinsic value of stock options exercised during the threemonths ended March 31, 2010 was $0.2 million. No stock options wereexercised during the three months ended March 31, 2009. The weighted averagegrant-date fair value of stock options granted during the three months ended March 31,2010 and 2009 was $2.81 and $5.33, respectively. The total fair value of stockoptions that vested during the three months ended March 31, 2010 and 2009was $1.6 million and $1.4 million, respectively.

 

The aggregate intrinsic value of stock options outstanding at March 31,2010 was $3.7 million. The aggregate intrinsic value of stock optionsvested and expected to vest at March 31, 2010 was $3.4 million. As ofMarch 31, 2010, total compensation cost related to non-vested employee andnon-employee director stock options not yet recognized was approximately$4.8 million, net of estimated forfeitures, which is expected to berecognized as expense over a weighted average period of 3.1 years.

 

*Restricted Stock*

 

A summary of restricted stock activity under the 2008 Plan for thethree months ended March 31, 2010 is as follows:

 
| ** **                                         | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value  (per share)** | ** ** |
|----------------------------------------------------|------------|------------|------------|---------------------------------------------------------------------------|------------|
| Outstanding and unvested at December 31, 2009 |       | 16,000     |       | $                                                                         | 4.48       |   |
| Granted                                            |       | —     |       | —                                                                    |       |
| Vested                                             |       | (4,000     | )          | 4.48                                                                      |       |
| Canceled                                           |       | —     |       | —                                                                    |       |
| Outstanding and unvested at March 31, 2010    |       | 12,000     |       | $                                                                         | 4.48       |   |

 

*Valuation and Expenses Information*

 

Stock-based compensation expense related to employee and non-employee stockoptions, restricted stock and employee stock purchases for the three monthsended March 31, 2010 and 2009 was recorded as follows:

 
| ** **                             | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|
| ** **                             | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                             | ** ** | **(In thousands)**                    | ** ** |
| Research and development               |       | $                                     | 516        |   | $ | 400 |   |
| General and administrative             |       | 454                                   |       | 712 |   |
| Total stock-based compensation expense |       | $                                     | 970        |   | $ | 1,112 |   |

 

The fair values of employee and non-employee director stock options andemployee stock purchases granted during the three months ended March 31,2010 and 2009 were valued using the Black-Scholes option-pricing model with thefollowing assumptions:

 
| ** **                                  | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                  | ** ** | **2010**                                        | ** ** | **2009** | ** ** |
| Expected stock price volatility (options)   |       | 65                                              | %          | 68 | % |
| Expected stock price volatility (2004 ESPP) |       | 51                                              | %          | 98 | % |
| Expected option term (options)              |       | 6.2 Years                                       |       | 6.3 Years |   |
| Expected option term (2004 ESPP)            |       | 0.5 Years                                       |       | 0.5 Years |   |
| Risk-free interest rate (options)           |       | 3.1 – 3.2                                  | %          | 1.9 – 2.7 | % |
| Risk-free interest rate (2004 ESPP)         |       | 0.2                                             | %          | 0.3 | % |
| Expected dividend yield                     |       | None                                            |       | None |   |

 

Prior to January 1,2010, the Company used the simplified method of estimating the expected termfor share-based compensation.  Starting January 1,2010, the Company ceased using the simplified method, and now 

 

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uses the average ofexpected terms for industry peers.  Due to theAVANT Merger and the CuraGen Merger, historical exercise patterns do notprovide a reasonable basis to estimate expected term of current option grants. Industry peers consist of several public companies that are similar insize in the biopharmaceutical industry.  The Companyuses its historical stock price volatility consistent with the expected term ofgrant as the basis for its expected volatility assumption. The risk-freeinterest rate is based upon the yield of U.S. Treasury securities consistentwith the expected term of the option. The dividend yield assumption is based onthe Company’s history of zero dividend payouts and expectation that nodividends will be paid in the foreseeable future.

 

**(8)  Intangible Assets and Goodwill**

 

Intangible assets, net of accumulated amortization, and goodwill are asfollows:

 
| ** **                  | ** ** | ** **                    | ** ** | **March 31, 2010** | ** ** | **December 31, 2009**    | ** ** |
|-----------------------------|------------|-------------------------------|------------|-------------------------|------------|-------------------------------|------------|
| ** **                  | ** ** | **Estimated  Life**           | ** ** | **Cost**                | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| ** **                  | ** ** | ** **                    | ** ** | **(In thousands)**      | ** ** |
| Intangible Assets:          |       |                          |       |                    |       |                          |       |   |   |   |   |   |   |   |   |
| IPR&D                   |       | Indefinite                    |       | $                       | 11,800     |                          | —     |   | $ | 11,800 |   | $ | 11,800 |   | — |   | $ | 11,800 |   |
| Amgen Amendment             |       | 16 years                 |       | 14,500                  |       | $                             | (448       | ) | 14,052 |   | 14,500 |   | $ | (224 | ) | 14,276 |   |
| TopoTarget Agreement        |       | 1.75 years               |       | 2,400                   |       | (1,543                        | )          | 857 |   | 2,400 |   | (343 | ) | 2,057 |   |
| Core Technology             |       | 4.5 - 11 years |       | 2,193                   |       | (908                          | )          | 1,285 |   | 2,193 |   | (832 | ) | 1,361 |   |
| Strategic Partner Agreement |       | 8 years                  |       | 630                     |       | (165                          | )          | 465 |   | 630 |   | (145 | ) | 485 |   |
| Total Intangible Assets     |       |                          |       | $                       | 31,523     |                          | $          | (3,064 | ) | $ | 28,459 |   | $ | 31,523 |   | $ | (1,544 | ) | $ | 29,979 |   |
| Goodwill                    |       | Indefinite                    |       | $                       | 8,965      |                          | —     |   | $ | 8,965 |   | $ | 8,965 |   | — |   | $ | 8,965 |   |

 

In January 2009, the Company entered into a purchase agreement(the “LAHI Agreement”) with Lohmann Animal Health International (“LAHI”) tosell its poultry vaccines assets to LAHI. Under the LAHI Agreement, LAHI paidan upfront fee of $0.8 million and agreed to pay potential milestonepayments. The Company recorded a gain of $0.6 million during the threemonths ended March 31, 2009 related to the LAHI Agreement based on theupfront fee less the net book value of the related asset.

 

The estimated fair value attributed to the April 2008 agreement (“TopoTargetAgreement”) between the Company (as a successor to CuraGen) and TopoTarget A/S(“TopoTarget”) relates to the Company’s rights under the TopoTarget Agreementto receive up to $6 million in either potential commercial milestonepayments related to future net sales of Belinostat or 10% of any sublicenseincome received by TopoTarget (“TopoTarget Payments”).  In February 2010, TopoTarget enteredinto a co-development and commercialization agreement for Belinostat withSpectrum Pharmaceuticals, Inc. which resulted in the Company’s receipt of$3 million of the TopoTarget Payments. The Company recorded this cash receipt as Other Income for the threemonths ended March 31, 2010 and recorded amortization expense related tothe TopoTarget Agreement of $1.2 million for the three months ended March 31,2010.

 

**(9) ****IncomeTaxes**

 

Massachusetts, New Jersey and Connecticut are the three states in whichthe Company primarily operates or has operated and has income tax nexus. TheCompany is currently under examination for sales and use taxes by the State ofConnecticut for CuraGen’s operations for the period from July 1, 2006through June 30, 2009. The Company is not currently under examination byany other jurisdictions for any tax year.

 

The Company has evaluated the positive and negative evidence bearingupon the realizability of its net deferred tax assets, which are comprisedprincipally of net operating loss carryforwards, capitalized R&Dexpenditures and R&D tax credit carryforwards. The Company has determinedthat it is more likely than not that it will not recognize the benefits offederal and state deferred tax assets and, as a result, a full valuationallowance was maintained at March 31, 2010 and December 31, 2009against the Company’s net deferred tax assets.

 

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**(10) ****SignificantRevenue Arrangements**

 

A summary of the Company’s significant revenue contracts andarrangements follows:

 

*GlaxoSmithKline plc (“Glaxo”) and Paul RoyaltyFund 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 in 1995 and owes a licensefee of 30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on netroyalties received from Glaxo. The Company is obligated to maintain a licensewith CCH with respect to the Glaxo agreement. The term of the Glaxo agreementis through the expiration of the last of the relevant patents covered by theagreement, although Glaxo may terminate the agreement upon 90 days priorwritten notice.

 

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®. The Company’s retained interests in Rotarix® net royalties which were not sold to PRF arerecorded as product royalty revenue and a corresponding amount that is payableto CCH is recorded as royalty expense. Product royalty revenue and royaltyexpense related to the Company’s retained interest in Rotarix® was $2.1 million and $2.0 millionfor the three months ended March 31, 2010 and 2009, respectively.

 

Royaltyrates 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® at the lowerof the two royalty rates under their 1997 license agreement. Glaxo’s decisionto pay the lower royalty rate (which is 70% of the full rate) is based uponGlaxo’s assertion that Rotarix® is notcovered by the patents Glaxo licensed from the Company in Australia and certainEuropean countries. If Glaxo’s position stands, the royalties to which PRF isentitled will no longer be limited by a $27.5 million annual threshold,which the Company projected may have been reached in later years as sales ofRotarix® increased. Irrespective of Glaxo’s position, the Company will still retainapproximately 65% of the royalties on worldwide sales of Rotarix® once PRF receives 2.45 times the aggregatecash payments of $60 million it made to the Company, though the potentialamount of such residual royalties will be lower if Glaxo’s position stands. TheCompany has received $60 million in total milestone payments under the PRFagreement. No additional milestone payments are due from PRF under theagreement. In late March 2010, the Company learned that the FDA decided totemporarily suspend the use of Rotarix® in the UnitedStates as a precautionary measure following the discovery of PCV-1 DNA materialin the vaccine.

 

*Pfizer Inc (“Pfizer”)*

 

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 exclusiverights to the use of EGFRvIII vaccines in other potential indications. Underthe Pfizer 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 $10.9 million, or $13.91 per share, on that date. The$0.9 million over the amount received from Pfizer was recorded as areduction to deferred revenue of the $40 million upfront payment receivedfrom Pfizer on June 18, 2008.

 

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The Company has determined that its performance obligations under thiscollaboration should be accounted for as a single unit of accounting. TheCompany’s deliverables under this collaboration primarily include an exclusivelicense to its CDX-110 product candidate and its EGFRvIII technologies,research and development services as required under the collaboration andparticipation in the joint clinical development committee. The Company hasestimated that its performance period under the collaboration will be9.5 years based on an assessment of the period over which the Company willhave met its performance obligations under the collaboration. Revenue,including research and development reimbursements, is being recognized on astraight-line basis over this period using the Contingency Adjusted PerformanceModel (“CAPM”). The $40 million up-front payment, less the$0.9 million in excess fair value for the Company’s common stock discussedabove, was recorded as deferred revenue and is being amortized over the9.5-year performance period at a rate of $1.0 million per quarter.

 

The Pfizer Agreement also provides for reimbursement by Pfizer of allcosts incurred 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 estimated 9.5-year performance periodon a straight-line basis using the CAPM model. The Company incurred andinvoiced Pfizer $0.3 million and $1.6 million in reimbursable costsrelated to the Pfizer collaboration for the three months ended March 31,2010 and 2009, respectively.

 

The Company recorded product development and licensing agreementrevenue under the Pfizer Agreement as follows:

 
| ** **                 | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                 | ** ** | **(In thousands)**                    | ** ** |
| Up-front portion           |       | $                                     | 1,030      |   | $ | 1,030 |   |
| Reimbursable costs portion |       | 266                                   |       | 272 |   |
|                       |       | $                                     | 1,296      |   | $ | 1,302 |   |

 

In connection with the Pfizer Agreement, the Company paid a total of$6.9 million in sublicense fees to Duke University and Thomas JeffersonUniversity. The Company recorded these deferred sublicense fees to other assetsin the consolidated balance sheets and is amortizing them to royalty expenseover the 9.5-year performance period. The Company recorded $0.2 million in royalty expense related tothese deferred sublicense fees during the three months ended March 31,2010 and 2009.  At March 31, 2010and December 31, 2009, the unamortized balance of deferred costs was$5.5 million and $5.7 million, respectively.

 

*Rockefeller University (“Rockefeller”)*

 

The Company is providing research and development support toRockefeller on the development of their vaccine, DCVax-001, which the Companyrefers to as CDX-2401, aimed at providing protection from infection with HIV,the virus known to cause AIDS. This program is in a Bill & MelindaGates Foundation funded partnership called the Grand Challenges initiative.Preclinical studies and manufacturing development are in progress and paymentsto the Company are made on a time and materials basis. The Company recordedgrant revenue from Rockefeller of $0.2 million and $0.1 million forthe three months ended March 31, 2010 and 2009, respectively.

 

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

 

Other long-term liabilities include the following:

 
| ** **               | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **(In thousands)**           | ** ** |
| Deferred Rent            |       | $                            | 390        |                            | $          | 377 |   |
| CuraGen Merger Severance |       | 2,596                        |       | 2,623                           |       |
| Deferred Tax Liabilities |       | 4,661                        |       | 4,661                           |       |
| Loan Payable             |       | 619                          |       | 632                             |       |
| Note Payable             |       | 145                          |       | 178                             |       |
| Total                    |       | 8,411                        |       | 8,471                           |       |
| Less Current Portion     |       | (2,387                       | )          | (2,156                          | )          |
| Long-Term Portion        |       | $                            | 6,024      |                            | $          | 6,315 |   |

 

**(12) CuraGen Acquisition**

 

In connection with the CuraGen Merger, effective October 1, 2009,the Company (i) issued 15,722,713 shares of common stock of the Company,or 0.2739 shares, in exchange for each share of outstanding CuraGen commonstock, plus cash in lieu of fractional shares (the “CuraGen Exchange Ratio”), (ii) assumedall of the CuraGen Stock Options and (iii) assumed the CuraGen Debt. TheCompany acquired CuraGen to gain access to a pipeline of oncology-focusedantibodies, including CDX-011 currently in Phase 2 clinical developmentfor the treatment of breast and melanoma cancer, and cash, cash equivalents andmarketable securities of $70.3 million.

 

The transaction was accounted for under the acquisition method ofaccounting. All of the assets acquired and liabilities assumed in the transactionare recognized at their acquisition-date fair values, while transaction costsassociated with the transaction are expensed as incurred.

 

*Purchase Price*

 

The purchase price for CuraGen was based on the acquisition-date fairvalue of the consideration transferred, which was calculated based on theclosing price of the Company’s common stock of $5.43 per share on October 1,2009. The acquisition-date fair value of the consideration transferredconsisted of the following (in thousands):

 
| Fair value of common stock issued   |   | $     | 85,374 |   |
|-------------------------------------|--------|-------|--------|--------|
| Fair value of CuraGen Stock Options |   | 2,868 |   |
| Total consideration transferred     |   | $     | 88,242 |   |

 

U.S. GAAP requires that the fair value of replacement awardsattributable to precombination service be included in the consideration transferred.Of the CuraGen Stock Options assumed, all but 1%, were immediately vested uponclosing in accordance with the terms of the stock option agreements andemployment agreements. The fair value of the CuraGen Stock Options that hasbeen attributed to precombination service was included in the considerationtransferred.

 

*Allocations of Assets and Liabilities*

 

The Company allocated the consideration transferred for CuraGen to nettangible assets, intangible assets, goodwill and a severance obligation. The differencebetween the aggregate consideration transferred and the fair value of assetsacquired and liabilities assumed was allocated to goodwill. This goodwillrelates to the potential synergies from the CuraGen Merger and a deferred taxliability related to acquired IPR&D intangible assets. None of the goodwillis expected to be deductible for income tax purposes. The following tablesummarizes the fair values of the assets acquired and liabilities assumed atthe acquisition date (in thousands):

 

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| Cash and cash equivalents          |   | $       | 51,654 |   |
|------------------------------------|--------|---------|--------|--------|
| Marketable securities              |   | 18,638  |   |
| Identifiable intangible assets:    |   |    |   |
| IPR&D                          |   | 11,800  |   |
| Amgen Amendment                    |   | 14,500  |   |
| TopoTarget Agreement               |   | 2,400   |   |
| Other current and long-term assets |   | 756     |   |
| Goodwill                           |   | 8,965   |   |
| CuraGen Debt                       |   | (11,503 | )      |
| Deferred tax liabilities, net      |   | (5,190  | )      |
| Other assumed liabilities          |   | (3,778  | )      |
| Total                              |   | $       | 88,242 |   |

 

The purchase price allocation has been prepared on a preliminary basisand is subject to change as additional information becomes available concerningthe fair value and tax basis of the acquired assets and liabilities. Anyadjustments to the purchase price allocation will be made as soon aspracticable but no later than one year from the acquisition date.

 

*Pro Forma Financial Information*

 

If the operations of the Company and CuraGen were combined as of January 1,2009, the unaudited pro forma net loss for the three months ended March 31,2009 would have been $14.4 million. The unaudited pro forma combined resultsare not necessarily indicative of the actual results that would have occurredhad the acquisition been consummated at that date or of the future operationsof the combined entities.

 

**(13) Stockholders’ Equity**

 

In April 2010,the Company filed a shelf registration statement with the Securities andExchange Commission to register for sale any combination of the types ofsecurities described in the filing up to a dollar amount of$150 million.  The shelfregistration went effective on April 22, 2010.  No securities have been sold by the Companyfrom this shelf registration.

 

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**Item 2. ****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

***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 SecuritiesExchange Act of 1934, as amended. Forward-looking statements include statementswith respect to our beliefs, plans, objectives, goals, expectations,anticipations, assumptions, estimates, intentions and future performance, andinvolve known and unknown risks, uncertainties and other factors, which may bebeyond our control, and which may cause our actual results, performance orachievements to be materially different from future results, performance orachievements expressed or implied by such forward-looking statements. All statementsother than statements of historical fact are statements that could beforward-looking statements. You can identify these forward-looking statementsthrough our use of 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”and other 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 successfullycomplete product research and further development, including animal,preclinical and clinical studies, and commercialization of CDX-110, CDX-011,CDX-1307, CDX-1401, CDX-1135, and other products and the growth of the marketsfor those product candidates;

 

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

 

·                  the cost, timing, scope andresults of ongoing safety and efficacy trials of CDX-110, CDX-011, CDX-1307,CDX-1401, CDX-1135, and other preclinical and clinical testing;

 

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

 

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

 

·                  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’ plansconcerning the CholeraGarde® (Peru-15) and ETEC E. colivaccines, which are not within our control, and our ability to maintain strong,mutually beneficial relationships with those partners;

 

·                  our ability to successfullyintegrate our and CuraGen’s business without causing delays in the research anddevelopment necessary to select drug development candidates and/or delays inclinical trials, and to operate the combined business efficiently;

 

·                  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 by 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;

 

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·                  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, 2009 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.

 

**OVERVIEW**

 

We are an integrated biopharmaceutical company that applies ourcomprehensive Precision Targeted Immunotherapy Platform to generate a pipelineof candidates to treat cancer and other difficult-to-treat diseases. Ourimmunotherapy platform includes a complementary portfolio of monoclonalantibodies, antibody-targeted vaccines, antibody-drug conjugates andimmunomodulators to create novel disease-specific drug candidates.

 

Our strategy is to develop and demonstrate proof-of-concept for ourproduct candidates before leveraging their value through partnerships or, inappropriate situations, continuing late stage development throughcommercialization ourselves. Demonstrating proof-of-concept for a productcandidate generally involves bringing it through Phase 1 clinical trialsand one or more Phase 2 clinical trials so that we are able todemonstrate, based on human trials, good safety data for the product candidateand some data indicating its effectiveness. We thus leverage the value of ourtechnology portfolio through corporate, governmental and non-governmentalpartnerships. This approach allows us to maximize the overall value of ourtechnology and product portfolio while best ensuring the expeditiousdevelopment of each individual product.

 

Our current collaborations include the commercialization of an oralhuman rotavirus vaccine and the development of oncology and infectious diseasevaccines. Our product candidates address large market opportunities for whichwe believe current therapies are inadequate or non-existent.

 

**Acquisition of CuraGen**

 

In connection with the CuraGen Merger, effective October 1, 2009,we (i) issued 15,722,713 shares of our common stock, or 0.2739 shares, inexchange for each share of outstanding CuraGen common stock, plus cash in lieuof fractional shares (the “CuraGen Exchange Ratio”), (ii) assumed all ofthe CuraGen Stock Options and (iii) assumed the CuraGen Debt. We acquiredCuraGen to gain access to a pipeline of oncology-focused antibodies, includingCDX-011 (formerly CR011) currently in Phase 2 clinical development for thetreatment of breast and melanoma cancer, and cash, cash equivalents andmarketable securities of $70.3 million.

 

The transaction was accounted for under the acquisition method ofaccounting. All of the assets acquired and liabilities assumed in thetransaction are recognized at their acquisition-date fair values, whiletransaction costs associated with the transaction are expensed as incurred.

 

*Purchase Price*

 

The purchase price for CuraGen was based on the acquisition-date fairvalue of the consideration transferred, which was calculated based on theclosing price of our common stock of $5.43 per share on October 1, 2009.The acquisition-date fair value of the consideration transferred consisted ofthe following (in thousands):

 

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| Fair value of common stock issued   |   | $     | 85,374 |   |
|-------------------------------------|--------|-------|--------|--------|
| Fair value of CuraGen Stock Options |   | 2,868 |   |
| Total consideration transferred     |   | $     | 88,242 |   |

 

U.S. GAAP requires that the fair value of replacement awardsattributable to precombination service be included in the considerationtransferred. Of the CuraGen Stock Options assumed, all but 1%, were immediatelyvested upon closing in accordance with the terms of the stock option agreementsand employment agreements. The fair value of the CuraGen Stock Options that hasbeen attributed to precombination service is included in the considerationtransferred.

 

*Allocations of Assets and Liabilities*

 

We have allocated the consideration transferred for CuraGen to nettangible assets, intangible assets, goodwill and a severance obligation. Thedifference between the aggregate consideration transferred and the fair valueof assets acquired and liabilities assumed was allocated to goodwill. Thisgoodwill relates to the potential synergies from the CuraGen Merger and a deferredtax liability related to acquired IPR&D intangible assets. None of thegoodwill is expected to be deductible for income tax purposes. The followingtable summarizes the fair values of the assets acquired and liabilities assumedat the acquisition date (in thousands):

 
| Cash and cash equivalents          |   | $       | 51,654 |   |
|------------------------------------|--------|---------|--------|--------|
| Marketable securities              |   | 18,638  |   |
| Identifiable intangible assets:    |   |    |   |
| IPR&D                          |   | 11,800  |   |
| Amgen Amendment                    |   | 14,500  |   |
| TopoTarget Agreement               |   | 2,400   |   |
| Other current and long-term assets |   | 756     |   |
| Goodwill                           |   | 8,965   |   |
| CuraGen Debt                       |   | (11,503 | )      |
| Deferred tax liabilities, net      |   | (5,190  | )      |
| Other assumed liabilities          |   | (3,778  | )      |
| Total                              |   | $       | 88,242 |   |

 

The purchase price allocation has been prepared on a preliminary basisand is subject to change as additional information becomes available concerningthe fair value and tax basis of the acquired assets and liabilities. Anyadjustments to the purchase price allocation will be made as soon aspracticable but no later than one year from the acquisition date.

 

**CURRENT PROGRAMS AND PARTNERSHIPS**

 

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.

 

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The following table includes the programs that we currently believe arematerial to our business:

 
| **Product (generic)**            | ** ** | **Indication/Field**                                      | ** ** | **Partner**          | ** ** | **Status**     |
|----------------------------------|------------|-----------------------------------------------------------|------------|----------------------|------------|----------------|
| **CLINICAL**                     |       |                                                      |       |                 |       |           |
| CDX-110  (rindopepimut)          |       | Glioblastoma  multiforme                                  |       | Pfizer  (PF-4948568) |       | Phase 2b  |
| CDX-011  (glembatumumab vedotin) |       | Metastatic  melanoma and breast cancer                    |       | —               |       | Phase 2   |
| CDX-1307                         |       | Colorectal,  bladder, pancreas, ovarian and breast tumors |       | —               |       | Phase 1   |
| CDX-1401                         |       | Multiple  solid tumors                                    |       | —               |       | Phase 1/2 |
| CDX-1135                         |       | Renal  disease                                            |       | —               |       | Phase 1/2 |
| **PRECLINICAL**                  |       |                                                      |       |                 |       |           |
| CDX-301                          |       | Cancer,  autoimmune disease and transplant                |       | —               |       | Preclinical    |
| CDX-1127                         |       | Immuno-modulation,  multiple tumors                       |       | —               |       | Preclinical    |
| CDX-014                          |       | Renal  and ovarian cancer                                 |       | —               |       | Preclinical    |
| CDX-1189                         |       | Renal  disease                                            |       | —               |       | Preclinical    |
| **MARKETED PRODUCTS**            |       |                                                      |       |                 |       |           |
| Rotarix®                    |       | Rotavirus  infection                                      |       | GlaxoSmithKline      |       | Marketed*      |

 

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*In late March 2010, we learned that the FDA decided to temporarily suspendthe use of Rotarix® in the United States as a precautionarymeasure following the discovery of PCV-1 DNA material in the vaccine.

 

The expenditures that will be necessary to execute our business planare subject to numerous uncertainties. Completion of clinical trials may takeseveral years or more, and the length of time generally varies substantiallyaccording to the type, complexity, novelty and intended use of a productcandidate. It is not unusual for the clinical development of these types ofproduct candidates to each take five years or more, and for total developmentcosts to exceed $100 million for each product candidate. Our estimatesthat clinical trials of the type we generally conduct are typically completedover the following timelines:

 
| **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.

 

We test potential product candidates in numerous preclinical studiesfor safety, toxicology and immunogenicity. We may then conduct multiple clinicaltrials for each product candidate. As we obtain results from 

 

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trials,we may elect to discontinue or delay clinical trials for certain productcandidates in order to focus our resources on more promising productcandidates.

 

An element of our business strategy is to pursue the research anddevelopment of a broad portfolio of product candidates. This is intended toallow us to diversify the risks associated with our research and developmentexpenditures. As a result, we believe our future capital requirements and ourfuture financial success are not substantially dependent on any one productcandidate. To the extent we are unable to maintain a broad range of productcandidates, our dependence on the success of one or a few product candidatesincreases.

 

Regulatory approval is required before we can market our productcandidates as therapeutic or vaccine products. In order to proceed tosubsequent clinical trial stages and to ultimately achieve regulatory approval,the regulatory agency must conclude that our clinical data is safe andeffective. Historically, the results from preclinical testing and earlyclinical trials (through Phase 2) have often not been predictive ofresults obtained in later clinical trials. A number of new drugs, biologics andvaccines have shown promising results in early clinical trials, butsubsequently failed to establish sufficient safety and efficacy data to obtainnecessary regulatory approvals.

 

Furthermore, our business strategy includes the option of entering intocollaborative arrangements with third parties to complete the development andcommercialization of our product candidates. In the event that third partiestake over the clinical trial process for one of our product candidates, theestimated completion date would largely be under control of that third partyrather than us. We cannot forecast with any degree of certainty whichproprietary products, if any, will be subject to future collaborativearrangements, in whole or in part, and how such arrangements would affect ourdevelopment plan or capital requirements. Our programs may also benefit fromsubsidies, grants, contracts or government or agency-sponsored studies thatcould reduce our development costs.

 

As a result of the uncertainties discussed above, among others, we areunable to estimate the duration and completion costs of our research anddevelopment projects or when, if ever, and to what extent it will receive cashinflows from the commercialization and sale of a product. Our inability tocomplete our research and development projects in a timely manner or ourfailure to enter into collaborative agreements, when appropriate, couldsignificantly increase our capital requirements and could adversely impact ourliquidity. These uncertainties could force us to seek additional, externalsources of financing from time to time in order to continue with our businessstrategy. Our inability to raise additional capital, or to do so on termsreasonably acceptable to us, would jeopardize the future success of our business.

 

During the past five years through December 31, 2009, we incurredan aggregate of $73.5 million in research and development expenses. Thefollowing table indicates the amount incurred for each of our significantresearch programs and for other identified research and development activitiesduring the three months ended March 31, 2010 and 2009. The amountsdisclosed in the following table reflect direct research and development costs,license fees associated with the underlying technology and an allocation ofindirect research and development costs to each program. Prior to 2008, theprivately-held Celldex Research did not maintain records that allowed forquantification of research and development expenses by project.

 

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| ** **            | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|
| ** **            | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| ** **            | ** ** | **(In thousands)**                              | ** ** |
| **CLINICAL**          |       |                                                 |       |   |   |
| CDX-110               |       | $                                                    | 304        |   | 1,311 |   |
| CDX-011               |       | 932                                                  |       | — |   |
| CDX-1307              |       | 850                                                  |       | 1,724 |   |
| CDX-1401              |       | 765                                                  |       | 1,833 |   |
| CDX-1135              |       | 118                                                  |       | 65 |   |
| **PRECLINICAL**       |       |                                                 |       |   |   |
| CDX-301               |       | 1,894                                                |       | 250 |   |
| CDX-1127              |       | 558                                                  |       | 216 |   |
| CDX-014               |       | 6                                                    |       | — |   |
| CDX-1189              |       | 20                                                   |       | 109 |   |
| **OTHER**             |       |                                                 |       |   |   |
| CDX-2401              |       | 272                                                  |       | 206 |   |
| Other Programs        |       | 719                                                  |       | 742 |   |
| Total R&D Expense |       | $                                                    | 6,438      |   | $ | 6,456 |   |
|                       |            |                                                      |            |  |  |  |  |

 

**ClinicalDevelopment Programs**

 

*CDX-110*

 

Our lead clinical development program, CDX-110, is a peptide-basedimmunotherapy that targets the tumor specific molecule called EGFRvIII, afunctional variant of the naturally expressed epidermal growth factor receptor(“EGFR”), a protein which has been well validated as a target for cancertherapy. Unlike EGFR, EGFRvIII is not present in normal tissues, and has beenshown to be a transforming oncogene that can directly contribute to the cancercell growth. EGFRvIII is commonly present in glioblastoma multiforme, or GBM,the most common and aggressive form of brain cancer, and has also been observedin various other cancers such as breast, ovarian, prostate, colorectal, andhead & neck cancer.

 

In April 2008, we and Pfizer Inc. (“Pfizer”) entered into aLicense and Development Agreement (the “Pfizer Agreement”) under which Pfizerwas granted an exclusive worldwide license to CDX-110. The Pfizer Agreementalso gives Pfizer exclusive rights to the use of EGFRvIII vaccines in otherpotential indications. Pfizer funds all development costs for these programs.We and Pfizer are currently pursuing the development of CDX-110 for GBM therapyand plan to expand the clinical development into other cancers throughadditional clinical studies. The FDA has granted orphan drug designation forCDX-110 for the treatment of EGFRvIII expressing GBM as well as fast trackdesignation.

 

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 in Houston,Texas. The results from the Phase 1 (VICTORI) and Phase 2a (ACTIVATE)studies, which enrolled 16 and 21 patients, respectively, have demonstrated asignificant increase in the time to disease progression (greater than 113%) inthe patients who were vaccinated, and also in overall survival rates (greaterthan 100%), both relative to appropriately matched historical controls. Anextension of the Phase 2a program (ACT II) at the same twoinstitutions has enrolled 23 additional GBM patients treated in combinationwith temozolomide (the current standard of care). Preliminary results from thisstudy (ACT II) currently estimates median overall survival to be23.6 months, although the median has not yet been reached, while thesurvival of a matched historical control group was 15.0 months with a pvalue = 0.0237. Overall time to progression in the ACT II study was15.2 months compared with 6.3 months for the historical controlgroup.

 

We initiated a Phase 2b/3 randomized study (ACT III) ofCDX-110 combined with standard of care, temozolomide, versus standard of carealone in patients with GBM in over 30 sites throughout the United States. In December 2008,we announced an amendment to convert the ACT III study to a single-armPhase 2 clinical trial in 

 

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whichall patients will receive CDX-110 in combination with temozolomide. Thedecision, which followed the recommendation of the Independent Data MonitoringCommittee, was based on the observation that the majority of patientsrandomized to the control (standard of care) arm withdrew from this open-labelstudy after being randomized to the control arm. Patients participating on thecontrol arm of the study were offered the option to receive treatment withCDX-110. Under this amendment, the ACT III study provided for a multi-center,non-randomized dataset for CDX-110 in patients with newly diagnosed GBM. Thesedata will provide important additional information that can be used to betterdesign the future development of CDX-110. Enrollment in ACT III is completewith a total of over 60 patients enrolled and we expect to present updatedresults during 2010.

 

*CDX-011*

 

CDX-011 (formerly CR011-vcMMAE) is an antibody-drug conjugate (ADC)that consists of a fully-human monoclonal antibody, CR011, linked to a potentcell-killing drug, monomethyl-auristatin E (MMAE). The CR011 antibodyspecifically targets glycoprotein NMB or (GPNMB) that is expressed in a varietyof human cancers including breast cancer and melanoma. The ADC technology,comprised of MMAE and a stable linker system for attaching it to CR011, waslicensed from Seattle Genetics, Inc. The ADC is designed to be stable inthe bloodstream. Following intravenous administration, CDX-011 targets andbinds to GPNMB and upon internalization into the targeted cell, CDX-011 isdesigned to release MMAE from CR011 to produce a cell-killing effect. Weacquired the rights to CDX-011 in connection with the CuraGen Merger.

 

**Treatment of Breast Cancer:**  In June 2008, an open-label,multi-center Phase 1/2 study was initiated of CDX-011 administeredintravenously once every three weeks to patients with locally advanced ormetastatic breast cancer who have received prior therapy (median of seven priorregimens). The study began with a bridging phase to confirm the maximumtolerated dose (“MTD”) and has expanded into a Phase 2 open-label,multi-center study.

 

The study confirmed the safety of CDX-011 at the pre-defined maximumdose level (1.88 mg/kg) in 6 patients. An additional 28 patients were enrolledas an expanded Phase 2 cohort (for a total of 34 treated patients at 1.88mg/kg, the Phase 2 dose) to evaluate the progression-free survival (“PFS”)rate at 12 weeks. As previously seen in melanoma patients, the 1.88 mg/kgdose was well tolerated in this patient population with the most common adverseevents of rash, alopecia, and fatigue. The primary activity endpoint, whichcalled for at least 5 of 25 (20%) patients in the Phase 2 study portion tobe progression-free at twelve weeks, has been met. To date, 9 of 26 (35%)evaluable patients are without progression of disease at twelve weeks.

 

In addition, at the Phase 2 dose level, 4 of 32 (13%) evaluablepatients achieved confirmed or unconfirmed Partial Responses (“PR”) while 15 of25 (60%) evaluable patients with measurable disease experienced some reductionin tumor size. GPNMB expression was identified in 10 of 14 (71%) ofanalyzed tumor samples and treatment with CDX-011 was associated with improvedoutcomes in all activity parameters in patients whose tumorsexpressed GPNMB. Notably, in patients who received the Phase 2 doseand whose tumors expressed GPNMB, 2 of 7 (29%) had confirmed PR, 5 of 7(71%) had decreases in tumor size, and all 7 achieved at least stable diseasewith duration from 17.3 to 26.9 weeks. The median PFS in all patients was9.1 weeks, but in patients whose tumors expressed GPNMB, median PFSwas 18.3 weeks, compared to median PFS of 5.9 weeks for patientswhose tumors did not express GPNMB. In patients with triple negativedisease, 5 of 7 (71%) analyzed samples expressed GPNMB, 7 of 9 (78%) evaluablepatients had tumor shrinkage, and the median PFS for these patients was17.9 weeks.

 

We expect to initiate a randomized Phase 2b controlled study inpatients with advanced breast cancer that express GPNMB in the second halfof 2010.

 

**Treatment of Metastatic Melanoma Cancer:**  In June 2006, a Phase 1/2 open-label,multi-center, dose escalation study was initiated to evaluate the safety,tolerability and pharmacokinetics of CDX-011 for patients with un-resectableStage III or Stage IV melanoma who have failed no more thanone prior line of cytotoxic therapy. During the Phase 1 portion ofthe study, doses of CDX-011 between 0.03 mg/kg to 2.63 mg/kg were evaluated andgenerally well tolerated, with rash and neutropenia emerging at higher doses. TheMTD was determined to be 1.88 mg/kg administered intravenously (IV) onceevery three weeks.

 

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In June 2009, results were announced for the 36 patients who weretreated in the Phase 2 portion of the study. Of the patients enrolled, 94%had Stage IV disease of which two-thirds were classified as M1c, thepoorest risk group. The study successfully met its primary activity endpoint,with 5 objective responses (1 unconfirmed) observed in 34 evaluable patients,and median duration of response of 5.3 months. The median overall PFS was4.4 months. Tumor shrinkage was observed in 58% of patients, and 20patients had best response of stable disease. Dermatologic adverse eventsconsisting of rash, alopecia, and pruritus were the most common toxicities inthis study. Other adverse events included fatigue, diarrhea, musculoskeletalpain, anorexia and nausea. Grade 3 or 4 neutropenia was observed in 5 patients.The absence of rash in the first cycle of treatment predicted a worse PFS.Additionally, in a subset of patients with tumor biopsies, high levels of tumorexpression of GPNMB appeared to correlate with favorable outcome.

 

Enrollment has been completed in the Phase 1 portion of themelanoma trial to evaluate more frequent dosing schedules of CDX-011, includinga weekly and a two out of every three-week regimen, to explore if more frequentadministration can provide additional activity in patients with metastaticmelanoma. A dose of 1.0 mg/kg given once every week has been identified as theMTD in a weekly schedule, and a dose of 1.5mg/kg was being explored in the twoout of three week schedule. Although median duration of follow-up was only6 weeks, objective responses have thus far been observed in 3 of 11evaluable patients treated with weekly CDX011 (1 confirmed) and 1 confirmedresponse in 8 evaluable patients treated with CDX-011 two out of every threeweeks. We expect to present updated results during the first half of 2010.

 

*CDX-1307*

 

Our lead APC Targeting TechnologyTM product candidate, CDX-1307, is indevelopment for the treatment of epithelial tumors such as colorectal,pancreatic, bladder, ovarian and breast cancers. CDX-1307 targets the betachain of human chorionic gonadotropin, known as hCG-Beta, which is an antigenoften found in epithelial tumors. The presence of hCG-Beta in these cancerscorrelates with a poor clinical outcome, suggesting that this molecule maycontribute to tumor growth. Normal adult tissues have minimal expression ofhCG-Beta; therefore, targeted immune responses are not expected to generatesignificant side effects.

 

Enrollment is complete in our two Phase 1 studies at multiplecenters designed to explore safety and dose/effect relationships via twoadministration routes—intradermal (ID), a traditional vaccine route that allowsefficient access to local dermal dendritic cells and intravenous (IV), a novelsystemic approach to vaccination that might target a much larger population ofdendritic cells. The Phase 1 studies investigated the safety andimmunogenicity of CDX-1307 alone and in combination with adjuvants, includingGM-CSF (known to increase mannose receptor expression on dendritic cells) andToll-Like Receptor (“TLR”) agonists (poly-ICLC or HiltonolTM and R848 orresiquimod). Patients with an assortment of different tumor types that areknown to express hCG-Beta were enrolled with retrospective analysis forhCG-Beta expression. An escalating four dose regimen was utilized with thepossibility of retreatment if patients demonstrate tumor regression or stabledisease.

 

The Phase 1 studies enrolled over 80 patients with heavilypretreated, advanced-stage breast, colon, bladder and pancreatic cancer, withan average of 4.6 prior therapies across the treatment population. All patientcohorts demonstrated a favorable safety profile with no dose limiting toxicityto date. The combination of CDX-1307 with TLR agonists significantly enhancedimmune responses against hCG-Beta, providing strong humoral responses in 88% ofpatients and cellular immune responses in 57% of patients analyzed to date.Immune responses occurred even in the presence of high circulating levels ofhCG-Beta, suggesting that the CDX-1307 can overcome antigen tolerance inadvanced and heavily pretreated cancers. Nine patients in the studiesexperienced disease stabilization from 2.3 months to 11.4 monthsfollowing the initiation of CDX-1307 vaccination. Two of these patients have receivedmultiple courses of CDX-1307 and continue treatment with stable disease at 6.4and 11.4 months. These data provide the basis for advancing CDX-1307 intoa front-line patient population selected for hCG-Beta expressing cancers.

 

We expect to initiate a randomized Phase 2b controlled study inpatients with newly diagnosed invasive bladder cancer in the second quarter of2010. Patient’s whose bladder cancer expresses hCG-Beta are predicted to havemore aggressive disease and shorter survival. In this study we plan to selectonly patients with confirmed hCG-Beta expression using a specific diagnosticassay.

 

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*CDX-1401*

 

CDX-1401 is a fusion protein consisting of a fully human monoclonalantibody with specificity for the dendritic cell receptor, DEC-205, linked tothe NY-ESO-1 tumor antigen. In humans, NY-ESO-1 is one of the most immunogenictumor antigens and has been detected in 20 - 30% of cancers, thusrepresenting a broad opportunity. This product is intended to selectivelydeliver the NY-ESO-1 antigen to APCs for generating robust immune responsesagainst cancer cells expressing NY-ESO-1. Unlike CDX-1307, which targets themannose receptor expressing dendritic cells, CDX-1401 is the first APC producttargeting DEC-205 expressing dendritic cells. We are developing CDX-1401 forthe treatment of malignant melanoma and a variety of solid tumors which expressthe proprietary cancer antigen NY-ESO-1, which we licensed from the LudwigInstitute for Cancer Research in 2006. We believe that preclinical studies haveshown that CDX-1401 is effective for activation of human T-cell responsesagainst NY-ESO-1.

 

In September 2009, we initiated enrollment in a dose-escalatingPhase 1/2 clinical trial aimed at determining the optimal dose for furtherdevelopment based on the safety, tolerability, and immunogenicity of theCDX-1401 vaccine. The trial will evaluate three different doses of the vaccinein combination with resiquimod, an activator of TLR 7 and 8. We expect toenroll approximately 36 patients with solid tumor cancers at multiple clinicalsites in the United States.

 

*CDX-1135*

 

CDX-1135 is a molecule that inhibits a part of the immune system calledthe complement system. The complement system is a series of proteins that areimportant initiators of the body’s acute inflammatory response against disease,infection and injury. Excessive complement activation also plays a role in somepersistent inflammatory conditions. CDX-1135 is a soluble form of naturallyoccurring Complement Receptor 1 that inhibits the activation of the complementcascade in animal models and in human clinical trials. We believe thatregulating the complement system could have therapeutic and prophylacticapplications in several acute and chronic conditions, including organtransplantation, multiple sclerosis, rheumatoid arthritis, age-related maculardegeneration (“AMD”), atypical Hemolytic Uremic Syndrome (“aHUS”), ParoxysmalNocturnal Hemaglobinuria (“PNH”), Dense Deposit Disease (“DDD”) in kidneys, andmyasthenia 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.

 

**PreclinicalDevelopment Programs**

 

*CDX-301*

 

CDX-301 is a FMS-like tyrosine kinase 3 ligand (Flt3L) that we licensedfrom Amgen in March 2009. CDX-301 is a growth factor for stem cells andimmune cells called dendritic cells. Based on previous experience with thismolecule, we believe that CDX-301 has considerable opportunity in varioustransplant settings as a stem cell mobilizing agent. In addition, CDX-301 is animmune modulating molecule that increases the numbers and activity of specifictypes of immune cells. We believe CDX-301 has significant opportunity forsynergistic development in combination with proprietary molecules in ourportfolio. We expect to file an IND application for CDX-301 before the end of2010.

 

*CDX-1127*

 

We have entered into a License Agreement with the University ofSouthampton, UK, to develop human antibodies to CD27, a potentially importanttarget for immunotherapy of various cancers. In preclinical models, antibodiesto CD27 alone have been shown to mediate anti-tumor effects, and may beparticularly effective in combination with other immunotherapies. CD27 is acritical molecule in the activation pathway of lymphocytes. It is downstreamfrom CD40, and may provide a novel way to regulate the immune responses.Engaging CD27 with the appropriate monoclonal antibody has proven highlyeffective at promoting anti-cancer immunity in mouse models. We are evaluatingnew human monoclonal antibodies in preclinical models.

 

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*CDX-014*

 

CDX-014 (formerly CR014-vcMMAE) is a fully-human monoclonal ADC thattargets TIM-1, an immunomudulatory protein that appears to down regulate immuneresponse to tumors. The antibody, CDX-014, is linked to a potentchemotherapeutic, monomethyl auristatin E (MMAE), using Seattle Genetics’proprietary technology. The ADC is designed to be stable in the bloodstream,but to release MMAE upon internalization into TIM-1-expressing tumor cells,resulting in a targeted cell-killing effect. CDX-014 has shown potent activityin preclinical models of ovarian and renal cancer. We acquired the rights toCDX-014 in connection with the CuraGen Merger.

 

*CDX-1189*

 

We are developing therapeutic human antibodies to a signaling moleculeknown as CD89 or Fcα receptor type I (FcαRI). CD89 is expressedby some white blood cells and leukemic cell lines, and has been shown to beimportant in controlling inflammation and tumor growth in animal models. Wehave proprietary, fully human antibodies to CD89 in preclinical development.Depending upon the specific antibody used, anti-CD89 antibodies can either beactivating and thus stimulate immune responses, or down-regulating and act asan anti-inflammatory agent.

 

**MarketedProducts**

 

*RotavirusVaccine*

 

Rotavirus is a major cause of diarrhea and vomiting in infants andchildren. In 1997, we licensed our oral rotavirus strain to Glaxo and Glaxoassumed responsibility for all subsequent clinical trials and all otherdevelopment activities. Glaxo gained approval for its rotavirus vaccine,Rotarix®, in Mexico in July 2004,which represented the first in a series of worldwide approvals and commerciallaunches for the product leading up to the approval in Europe in 2006 and inthe U.S. in 2008. We licensed-in our rotavirus strain in 1995 and owe a licensefee of 30% to Cincinnati Children’s Hospital Medical Center (“CCH”) on netroyalties received from Glaxo. We are obligated to maintain a license with CCHwith respect to the Glaxo agreement. The term of the Glaxo agreement is throughthe expiration of the last of the relevant patents covered by the agreement,although Glaxo may terminate the agreement upon 90 days prior writtennotice.

 

In May 2005, we entered into an agreement whereby an affiliate ofPRF purchased an interest in the milestone payments and net royalties that wewill receive on the development and worldwide sales of Rotarix®. We have received a totalof $60 million in milestone payments under the PRF agreement. Noadditional milestone payments are due from PRF under the agreement.

 

Royalty rates on Rotarix® escalate from7% to 10% based on net product sales in countries that have valid patent protection.These royalty rates are discounted by 30% for “non-patent” countries (primarilyinternational markets). In September 2006, we received notice from Glaxothat Glaxo would begin paying royalties on sales of Rotarix® vaccine at the lower of the two royalty ratesunder their 1997 license agreement. Glaxo’s decision to pay the lower royaltyrate (which is 70% of the full rate) is based upon Glaxo’s assertion thatRotarix® is not covered by the patents Glaxo licensedfrom us in Australia and certain European countries. We are currentlyevaluating the basis for Glaxo’s action and our potential remedies. If Glaxo’sposition stands, the royalties to which PRF is entitled will no longer belimited by a $27.5 million annual threshold, which we projected may havebeen reached in later years as sales of Rotarix® increased.Irrespective of Glaxo’s position, we will still retain approximately 65% of theroyalties on worldwide sales of Rotarix® once PRFreceives 2.45 times the aggregate cash payments of $60 million it made tous, though the potential amount of such residual royalties will be lower ifGlaxo’s position stands.

 

Inlate March 2010, we learned that the FDA decided to temporarily suspendthe use of Rotarix® in the United States as a precautionarymeasure following the discovery of PCV-1 DNA material in the vaccine.  Glaxo has reported that the FDA’s decisiondid not significantly impact sales of Rotarix® for thequarter ended March 31, 2010.  Wecan provide no assurances that sales of Rotarix®, and therefore our royalties from sales of Rotarix®, will not be negativelyimpacted by the FDA’s decision to suspend use of Rotarix® in future 

 

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quarters.  However, if our royalty revenue from Rotarix® is negatively impacted by the FDA’s decision,our royalty expense for Rotarix® would besimilarly impacted and therefore our net loss or cash position will not beimpacted as a result of the FDA’s decision.

 

## **CRITICAL ACCOUNTING POLICIES**

 

Our criticalaccounting policies are more fully described in Note 2 to our consolidatedfinancial statements included in our Annual Report on Form 10-K for theyear ended December 31, 2009 and there have been no material changes tosuch critical accounting policies.  Webelieve our most critical accounting policies include accounting for businesscombinations, revenue recognition, property and equipment, impairment oflong-lived assets, marketable securities, research and development expenses andstock-based compensation expense.

 

**RESULTS OFOPERATIONS**

 

Our financial statements prior to the CuraGen Merger reflect thefinancial position, results of operations and cash flows of Celldex.  Following the CuraGen Merger, our financialstatements reflect the financial position, results of operation and cash flowsof Celldex and CuraGen.

 

***Three Months Ended March 31, 2010 compared with Three Months EndedMarch 31, 2009***

 
| ** **                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/  (Decrease)** | ** ** | **Increase/  (Decrease)** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                   | ** ** | **2010**                                         | ** ** | **2009**                  | ** ** | **$**                     | ** ** | **%** | ** ** |
| ** **                                   | ** ** | **(In thousands)**                          | ** ** |
| Revenue:                                     |       |                                             |       |                      |       |                      |       |   |   |
| Product Development and Licensing Agreements |       | $                                                | 1,347      |                      | $          | 1,502                     |       | $ | (155 | ) | (10 | )% |
| Contracts and Grants                         |       | 220                                              |       | 139                       |       | 81                        |       | 58 | % |
| Product Royalties                            |       | 2,146                                            |       | 2,091                     |       | 55                        |       | 3 | % |
| Total Revenue                                |       | $                                                | 3,713      |                      | $          | 3,732                     |       | $ | (19 | ) | (1 | )% |
| Operating Expense:                           |       |                                             |       |                      |       |                      |       |   |   |
| Research and Development                     |       | 6,438                                            |       | 6,456                     |       | (18                       | )          | 0 | % |
| Royalty                                      |       | 2,327                                            |       | 2,230                     |       | 97                        |       | 4 | % |
| General and Administrative                   |       | 2,835                                            |       | 3,341                     |       | (506                      | )          | (15 | )% |
| Gain on Sale of Assets                       |       | —                                           |       | (604                      | )          | 604                       |       | 100 | % |
| Amortization of Acquired Intangible Assets   |       | 1,520                                            |       | 95                        |       | 1,425                     |       | 1,500 | % |
| Total Operating Expense                      |       | 13,120                                           |       | 11,518                    |       | 1,602                     |       | 14 | % |
| Operating Loss                               |       | (9,407                                           | )          | (7,786                    | )          | 1,621                     |       | 21 | % |
| Investment and Other Income, Net             |       | 3,162                                            |       | 123                       |       | 3,039                     |       | 2,471 | % |
| Interest Expense                             |       | (337                                             | )          | (40                       | )          | 297                       |       | 743 | % |
| Net Loss                                     |       | $                                                | (6,582     | )                         | $          | (7,703                    | )          | $ | (1,121 | ) | (15 | )% |

 

*Net Loss*

 

The $1.1 million decrease in net loss for the three months ended March 31,2010 compared to the three months ended March 31, 2009 was primarily theresult of an increase in other income, partially offset by increasedamortization expense on acquired intangible assets.

 

*Revenue*

 

The $0.2 million decrease in product development and licensingagreement revenue for the three months ended March 31, 2010 was primarilydue to $0.1 million in revenue recorded for the three months ended March 31,2009 related to the Corixa termination agreement.  The $0.1 million increase in contractand grant revenue for the three months ended March 31, 2010 was due to anincrease in revenue related to our vaccine development work on 

 

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Rockefeller’sCDX-2401 program. The $0.1 million increase in product royalty revenue forthe three months ended March 31, 2010 was primarily related to ourretained interests in Rotarix® net royalties which were notsold to PRF and which is equal to the amount payable to CCH and recognized inroyalty expense by us.

 

*Researchand Development Expense*

 

Research and development expenses consist primarily of (i) personnelexpenses, (ii) laboratory supply expenses relating to the development ofour technology, (iii) facility expenses, and (iv) product developmentexpenses associated with our product candidates as follows:

 
| ** **          | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/  (Decrease)** | ** ** | **Increase/  (Decrease)** | ** ** |
|---------------------|------------|--------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **          | ** ** | **2010**                                         | ** ** | **2009**                  | ** ** | **$**                     | ** ** | **%** | ** ** |
| ** **          | ** ** | **(In thousands)**                          | ** ** |
| Personnel           |       | $                                                | 3,160      |                      | $          | 2,542                     |       | $ | 618 |   | 24 | % |
| Laboratory Supplies |       | 536                                              |       | 596                       |       | (60                       | )          | (10 | )% |
| Facility            |       | 1,491                                            |       | 1,248                     |       | 243                       |       | 19 | % |
| Product Development |       | 791                                              |       | 1,477                     |       | (686                      | )          | (46 | )% |
|                     |            |                                                  |            |                           |            |                           |            |  |  |  |  |  |

 

Personnel expenses primarily include salary, benefits, stock-basedcompensation, payroll taxes and recruiting costs. The $0.6 millionincrease in personnel expenses for the three months ended March 31, 2010was primarily due to higher headcount. We expect personnel expenses to increase over the next twelve months aswe plan to continue to increase our headcount.

 

Laboratory supply expenses include laboratory materials and supplies,services, and other related expenses incurred in the development of ourtechnology.  Laboratory supply expensefor the three months ended March 31, 2010 was relatively consistent as comparedto the three months ended March 31, 2009.  We expect supply expenses to increase over thenext twelve months as a result of increased research and developmentactivities, although there may be fluctuations on a quarterly basis.

 

Facility expenses include depreciation, amortization, utilities, rent,maintenance, and other related expenses incurred at our facilities. The$0.2 million increase in facility expenses for the three months ended March 31,2010 was primarily due to higher depreciation and amortization expenses.  We expect facility expenses to increase overthe next twelve months as a result of continued capital expansion, althoughthere may be fluctuations on a quarterly basis.

 

Product development expenses include clinical investigator site fees,external trial monitoring costs, data accumulation costs, contracted researchand outside clinical drug product manufacturing. The $0.7 million decreasein product development expenses for the three months ended March 31, 2010was primarily due to a decrease in clinical expenses of $0.6 million largelydue to the transfer of clinical management of our CDX-110 program to Pfizer in2009.  We expect product developmentexpenses to increase over the next twelve months due to the increase inclinical trial expenses related to our CDX-011, CDX-1307, and CDX-1401 programs,although there may be fluctuations on a quarterly basis.

 

*RoyaltyExpense*

 

Royalty expenses include product royalty and sublicense royalty fees onour out-licensed programs. The $0.1 million increase in royalty expensesfor the three months ended March 31, 2010 was due to an increase inRotarix® related royalty fees. Our retained interestsin Rotarix® net royalties which were not sold to PRF arerecorded as product royalty revenue and a corresponding amount that is payableto CCH is recorded as royalty expense.

 

*Generaland Administrative Expense*

 

The $0.5 million decrease in general and administrative expensesfor the three months ended March 31, 2010 was primarily due to$0.7 million in severance expense, including related non-cash stock-basedcompensation 

 

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expense,incurred during the three months ended March 31, 2009 related to thedeparture of our former SVP, Business Development. The effect of thesedecreases was partially offset by $0.2 million in higher personnel expenseduring the three months ended March 31, 2010, primarily related to higherheadcount.  We expect general andadministrative expense to remain relatively consistent over the next twelvemonths, although there may be fluctuations on a quarterly basis.

 

*AmortizationExpense*

 

The $1.4 million increase in amortization expenses for the threemonths ended March 31, 2010 was due to intangible assets acquired inconnection with the CuraGen Merger including the TopoTarget Agreement.  In February 2010, TopoTarget enteredinto a co-development and commercialization agreement for Belinostat withSpectrum Pharmaceuticals, Inc. which resulted in our receipt of$3.0 million which we recorded as Other Income for the three months ended March 31,2010 and we recorded amortization expense related to the TopoTarget Agreementof $1.2 million for the three months ended March 31, 2010.  We expect amortization expense of acquiredintangible assets to decrease over the next twelve months as the remainingvalue of the TopoTarget Agreement is being amortized over its estimated usefullife.

 

*Investmentand Other Income, Net*

 

The $3.0 million increase in investment and other income, net forthe three months ended March 31, 2010 was primarily due to $3.0 millionreceived in connection with the TopoTarget Agreement.  We anticipate investment income to decreaseover the next twelve months due to lower cash and investment balances caused bythe utilization of cash and investment balances in the normal course ofoperations.

 

*InterestExpense*

 

The $0.3 million increase in interest expense for the three monthsended March 31, 2010 was primarily due to the CuraGen Debt we assumed inconnection with the CuraGen Merger. We anticipate interest expense to remainrelatively consistent over the next twelve months until the CuraGen Debtmatures in February 2011.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

At March 31, 2010, our principal sources of liquidity consisted ofcash, cash equivalents and marketable securities of $75.4 million. Ourworking capital at March 31, 2010 was $53.5 million. At March 31,2010, we had 4% convertible subordinated debt due in February 2011 of$12.5 million. We incurred a loss of $6.6 million for the threemonths ended March 31, 2010.  Netcash used in operations for the three months ended March 31, 2010 was$6.9 million. We believe that the cash inflows from existingcollaborations, interest income on invested funds and our current cash, cashequivalents and marketable securities at March 31, 2010 are sufficient tomeet estimated working capital requirements and fund planned operations for atleast the next twelve months.

 

Our cash equivalents are highly liquid investments with a maturity ofthree months or less at the date of purchase and consist primarily ofinvestments in money market mutual funds with commercial banks and financialinstitutions. We maintain cash balances with financial institutions in excessof insured limits. We do not anticipate any losses with respect to such cashbalances. We invest our excess cash balances in marketable securities includingmunicipal bond securities, U.S. government agency securities, and high-gradecorporate bonds that meet high credit quality standards, as specified in ourinvestment policy. Our investment policy seeks to manage these assets toachieve our goals of preserving principal and maintaining adequate liquidity.

 

The use of our cash flows for operations has primarily consisted ofsalaries and wages for our employees, facility and facility-related costs forour offices, laboratories and manufacturing facility, fees paid in connectionwith preclinical studies, clinical studies, contract manufacturing, laboratorysupplies and services, consulting, legal and other professional fees. To date,and for the foreseeable future, the primary sources of cash flows fromoperations have been payments received from our collaborative partners and fromgovernment entities. The timing of any new collaboration agreements, governmentcontracts or grants and any payments under these agreements, contracts orgrants cannot be easily predicted and may vary significantly from quarter toquarter.

 

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During the next twelve to twenty-four months, we may take further stepsto raise additional capital to meet our long-term liquidity needs including,but not limited to, the licensing of technology programs with existing or newcollaborative partners, possible business combinations, or the issuance ofcommon stock or other securities via private placements or public offerings.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 our negotiating position in capital-raising efforts may worsen asexisting resources are used. There is also no assurance that we will be able toenter into further collaborative relationships. Additional equity financing maybe dilutive to our stockholders; debt financing, if available, may involve significantcash payment obligations and covenants that restrict our ability to operate asa business; and licensing or strategic collaborations may result in royaltiesor other terms which reduce our economic potential from products underdevelopment. If we are unable to raise the funds necessary to meet ourlong-term liquidity needs, we may have to delay or discontinue the developmentof one or more programs, license out programs earlier than expected, raisefunds at significant discount or on other unfavorable terms, or sell all orpart of us.

 

*Operating Activities*

 

Net cash used in operating activities was $6.9 million for thethree months ended March 31, 2010 compared to $5.6 million for thethree months ended March 31, 2009. The increase in net cash used in operatingactivities was primarily due to a decrease of $1.6 million in accounts payableand accrued expenses the three months ended March 31, 2010 as compared toincrease of $0.1 million for the three months ended March 31, 2009. Weexpect that cash used in operations will continue to increase in over the nexttwelve months primarily related to the continued development of our therapeuticproduct pipeline, including bringing forward new product candidates intoclinical development.

 

We have incurred and will continue to incur significant costs in thearea of research and development, including preclinical and clinical trials, asour product candidates are developed. We plan to spend significant amounts toprogress our current product candidates through the clinical trial andcommercialization process as well as to develop additional product candidates.As our product candidates progress through the clinical trial process, we maybe obligated to make significant milestone payments.

 

*Investing Activities*

 

Net cash used in investing activities was $7.5 million for thethree months ended March 31, 2010 compared to net cash provided byinvesting activities of $0.7 million for the three months ended March 31,2009. The increase in net cash used in investing activities was primarily dueto net purchases of marketable securities for the three months ended March 31,2010 of $7.2 million. We expect to incur future facility cost as a result ofcontinued capital expansion, renovation and replacements. Our investment in capitalequipment is discretionary and there may be significant fluctuations on aquarterly basis.

 

*Financing Activities*

 

Net cash provided by financing activities was $0.1 million for thethree months ended March 31, 2010, primarily due to proceeds from stock optionexercises of former CuraGen employees, was relatively consistent with the threemonths ended March 31, 2009.

 

*Other Liquidity Matters*

 

Under the Pfizer Agreement, Pfizer made an upfront payment$40 million, an equity investment of $10.0 million and will fund alldevelopment costs for the licensed programs. We are also eligible to receivepotential milestone payments exceeding $390.0 million for the successfuldevelopment and commercialization of CDX-110 and additional EGFRvIII vaccineproducts, as well as royalties on any product sales.

 

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**AGGREGATE CONTRACTUAL OBLIGATIONS**

 

The disclosures relatingto our contractual obligations reported in our Annual Report on Form 10-Kfor the year ended December 31, 2009 which was filed with the SEC on March 12,2010 have not materially changed since we filed that report.

 

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

 

We own financial instruments that are sensitive to market risk as partof our investment portfolio. Our investment portfolio is used to preserve ourcapital until it is used to fund operations, including our research anddevelopment activities. None of these market-risk sensitive instruments areheld for trading purposes. We invest our cash primarily in money market mutualfunds. These investments are evaluated quarterly to determine the fair value ofthe portfolio. From time to time, we invest our excess cash balances inmarketable securities including municipal bond securities, U.S. governmentagency securities, and high-grade corporate bonds that meet high credit qualitystandards, as specified in our investment policy. Our investment policy seeksto manage these assets to achieve our goals of preserving principal andmaintaining adequate liquidity. Because of the short-term nature of theseinvestments, we do not believe we have material exposure due to market risk.The impact to our financial position and results of operations from likelychanges in interest rates is not material.

 

We do not utilize derivative financial instruments. The carryingamounts reflected in the consolidated balance sheet of cash and cashequivalents, accounts receivables and accounts payable approximates fair valueat March 31, 2010 due to the short-term maturities of these instruments.

 

**Item 4.****        ****Controlsand Procedures**

 

*Evaluation of Disclosure Controls and Procedures.*

 

As of March 31, 2010, we evaluated, with the participation of ourChief Executive Officer and Chief Financial Officer, the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)). Based on that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective at the reasonable assurance level as of March 31, 2010. Ourdisclosure controls and procedures are designed to provide reasonable assurancethat information required to be disclosed in the reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withintime periods specified by the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosure.

 

*Changes in Internal Control Over Financial Reporting.*

 

There were no changes in our internal control over financial reportingduring the three months ended March 31, 2010 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**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, 2009, which could materially affect ourbusiness, financial condition or future results. The risks described in our 

 

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Annual Report on Form 10-Kmay not be the only risks facing the Company. Additional risks anduncertainties not currently known to the Company or that the Company currentlydeems to be immaterial also may materially adversely affect the Company’sbusiness, 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 12, 2010.

 

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## **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                                                                                                                                                                                                                                                                                                                                                                      |

 

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

 

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**SIGNATURES**

 

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

 
| ** **               | ** ** | **CELLDEX  THERAPEUTICS, INC.**                               |
|--------------------------|------------|---------------------------------------------------------------|
|                     |       |                                                          |
|                     |       | BY:                                                           |
|                     |       |                                                          |
|                     |       | /s/  ANTHONY S. MARUCCI                                       |
| Dated:  May 6, 2010 |       | Anthony  S. Marucci                                           |
|                     |       | President  and Chief Executive Officer                        |
|                     |       | (Principal  Executive Officer)                                |
|                     |       |                                                          |
|                     |       | /s/  AVERY W. CATLIN                                          |
| Dated:  May 6, 2010 |       | Avery  W. Catlin                                              |
|                     |       | Senior  Vice President, Treasurer and Chief Financial Officer |
|                     |       | (Principal  Financial and Accounting Officer)                 |

 

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**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                                                                                                                                                                                                                                                                                                                                                                           |

 

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

 

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