Friday, January 12, 2024

Cellectar Biosciences: Positive Data, Warrant Overhang, Biotech Speculation

Cellectar Biosciences (CLRB) is a late-stage clinical biotech company (not a "broken biotech") that recently reported positive data for their lead therapeutic, Iopofosine I 131, for the treatment of Waldenstrom's macroglobulinemia ("WM"), which is an uncommon slow growing type of non-Hodgkin lymphoma.  WM typically inflicts those over the age of 60 and those with WM succumb to the cancer within 5-10 years.  While I try to avoid science plays around here, the results were quite remarkable and provide hope for those with WM who have unsuccessfully tried two prior lines of therapy.  The FDA has granted Iopofosine both orphan drug and fast track designations, Cellectar plans to file a new drug application (NDA) in the second half of this year with an accelerated 6 month approval timeline.

One of the benefits of treatments for rare diseases is the patient population tends to be tightly concentrated within specialized health care communities and due to the R&D development costs, extremely high pricing is norm in orphan drugs to recoup that investment over a small patient population.  Cellectar is in the process of transitioning from a clinical stage biotech to a commercial one (assuming FDA approval), they're outsourcing much of the manufacturing and only spending $25MM to stand up a sales and commercial support team.  The absolute number of patients is relatively small, but again, this will be a high priced therapy (a quick google search, the median orphan drug costs $200k+ annually).

Doing a little back of the envelope math (full warning, this could be wildly off), if 1500 new patients are diagnosed with WM annually and 80% eventually receive a 3rd line treatment, then CLBR's annual patient market segment is about 1200 people.  If 2/3rds of those end up taking Iopofosine at $250k (made up number, slightly above the median orphan drug, I haven't seen management indicate pricing anywhere, please correct me if they have) a piece, that's $200MM in annual revenue.  Additionally, Cellectar is running a Phase 2 study for Iopofosine in patients with multiple myeloma ("MM") and central nervous system lymphoma, plus a Phase 1b study is just kicking off for pediatric patients with brain tumors.  If they're able to repeat the success in WM, this could become a much larger revenue opportunity.

Cellectar has a messy and confusing capital structure.  In September, they raised capital via a private placement for $24.5MM by selling Series E-1 convertible preferred stock that converts to stock at a strike price of $1.82/share (CLRB currently trades for ~$3.40/share), stapled to the Series E-1 prefs were two tranches of warrants, designed to act as milestone payments to provide funding for Cellectar post positive WM study results and the second tranche post FDA approval.  The tranche A (exercise deadline 10 days post positive data, or 1/19) has a strike price of $3.185/share and if fully exercised, will bring in $44.1MM to Cellectar.  The second tranche, tranche B, has an exercise price of $4.7775/share and would bring in $34.3MM if CLRB receives FDA approval and the warrants are completely exercised.  This private placement was designed to be big enough to get the company to its commercial phase where it could potentially be self funding.  CLRB does have additional warrants, one tranche, the "2022 common" is in the money with a $1.96 strike and expires in 2027, the others are all well out of the money and can generally be ignored.

Above is my attempt at the share count math and proforma cash assuming the tranche A & B warrants are fully exercised (to be more conservative, you could take more burn into account since the FDA approval trigging the tranche B warrants won't come until sometime in the first half of 2025).  But I get a current proforma enterprise value in the mid-$80MMs for a therapy that could do $200+MM in annual sales, that seems cheap to me.

Hopefully someone who actually knows the situation reads this post and comments, all feedback welcome.  This is obviously risky, this is a speculative position, outside my typical circle of competence (but always trying to expand) and sized it as such.  One thing that does bother me a bit, management owns very little stock here, but their options could be a significant payday in a sale scenario. 

Disclosure: I own shares CLRB


  1. Seems a bit arbitrary and optimistic to forecast a 250k price when your research indicated a 200k median price (although I guess you said 200k+, maybe the plus is doing more heavy lifting than I gave it credit for) for other orphan drugs.

    1. After I posted this, I received an analyst report on CLRB estimating a $375k/annual price, so who knows?

  2. Latest call they are making a comparison with $1m drugs: “ I think as we're continuing to evaluate the market opportunities, certainly, looking at the capabilities that iopofosine provides and understanding the dynamics of the market from a value perspective, especially related to other products and continuous therapies total cost of therapies with some of these continuous products could be as high as $1 million.”.

    But frankly, at this point it’s anybodies guess .. $50k - $500k. Either way, with a couple of hundred patients a year and limited infrastructure needed, it looks like you are not paying much for the optionality of a) ridiculous pricing or b) success with other indications.

    The one thing I really don’t like here is that if this is really such a great opportunity, why aren’t insiders buying / owning more stock? Makes you wonder …

  3. From the call: "Relative to pricing, we clearly have an opportunity to premium price in this space based on our market research, initial pricing work as well as in discussions with advisory boards built around pharmacy benefit managers from large third-party payers. I think it's also fair to say approximately 70% to 75% of these patients will be reimbursed via Medicare."

    Question: "did you or did you not list any specific drugs that you are comparing yourself to when you use the word premium pricing?"

    "As stated -- mentioned the various CAR T therapies. There's a range of different analogs that we're looking at for these treatments. [indiscernible] is another one for pheochromocytoma is one which we're looking at. And as mentioned before, with earnings calls previous, we're looking also at BTKi therapy [..]. So BTKi is typically, let's just say, approximately $1 million. I think [indiscernible] was $600,000, and then your CAR Ts are pretty much between that range."