An article authored by Adam Feuerstein was published late last week that created a considerable stir around Celsion's (NASDAQ:CLSN) phase III HEAT study results to be reported sometime in January 2013. That article represented a 'sell before the news' and 'short' perspective that was negative on the trial's outcome. Whether there is a correlation to his article or not, the share price has been falling creating a great strong buy on the dip.
In contrast, I also wrote an article for SA: "A Reasoned Case For Celsion's Thermodox" that asserts a high probability of clinical success. However, I was very curious to read Mr. Feuerstein's bearish case. After all, we are all human in these things. Not maintaining an open mind to an opposite viewpoint can cost you a bundle. Therefore, from two perspectives (trading strategy and the science), I'd like to offer a reasoned rationale as to why Celsion is a strong buy on the current dip. Maybe this can serve as a respectful counter-viewpoint to Mr. Feuerstein's position as investors weigh in with their own opinions.
If your trading strategy is to sell into a run-up before the news, then the results of the phase III HEAT study are somewhat irrelevant to your trading strategy. You are more focused on technical trading indicators, entry and exit points, than the fundamental question of whether positive results could take the share price even higher. This strategy goes for smaller wins (relative to the investor), ringing the register early, than risking losing it all or even more. On the one hand, those who were fortunate to enter Celsion months ago and use this strategy should no doubt be ringing the register; a caveat is that these fortunate individuals can also leave a percentage of 'house money on the table' going into the results without the risk of suffering an overall loss. But to do this, this implies you entered Celsion when the share price was much lower and I certainly believe in ringing the register.
But the flip-side is also considering whether buying into Celsion right now (on the dip) also affords another sell into a run-up before the news for investors who've recently discovered Celsion for the first time. Is today's below $8/share a good entry point? Well, it ultimately depends on whether you think the share price is going to go up or down going into January. I would point out that some run-up investors also see another entry point right now offering 10-50% potential gains if you buy into the current dip in the share price. It's a matter of timing.
There is also the 'short' case that predicts the share price is going to go down. For example, it may be because the short has: (1) a negative outlook on the phase III HEAT study results, and/or (2) technical reasons such as how the market may react to either positive or negative news.
Shorts are betting on a negative trial outcome while run-up traders are focused on what is the correct exit point. For the run-up trader investing is relative to the time you enter and exit and it may or may not require you to sell before the news depending upon your appetite for risk.
Which brings us to the 'long' case. The long case pays attention to the technicals, but more specifically to the fundamental question of the HEAT phase III study trial results that are predicted to be positive. Longs see the share price going up over time (a relative time horizon) on the thesis that the results are going to be positive and that in turn will make the company profitable and an attractive buy to Wall Street.
It's the tug and pull of the market that makes biotech investing so invigorating because the swings in the share price often offer juicy entry and exit points. Thus, in Celsion's case as it has recently dipped, run-up investors will be practicing their strategy, shorts will be screaming that the share price is falling, and longs will be rising up in arms that Celsion is going to the moon!
Well, seeing how Celsion has dipped from $8.75/share to $7.64/share (at the time of writing), plus seeing how this isn't January yet, and because I think a negative perspective on the HEAT phase III study is the incorrect view, I would argue that Celsion is a strong buy on the dip.
First, the trial design focuses on targeted tumors of a particular size. The only tumors with the potential of growing back are the targeted tumors receiving treatment in contrast to new tumors that may appear at a distance from the original treatment site. One of the questions behind the present trial is whether Thermodox can aid in stopping the spread of new tumors. What the science to date has supported is that the Thermodox method not only more effectively kills the cancer at its base site (tumor) of treatment, but like a nuclear bomb its toxic spread expands its cancer-killing doxorubicin agent to wider margins.
Second, the primary end-point that measures the time from treatment includes four potential triggering events per the clinical trial:
- Death from any cause.
- Local recurrence which is the reemergence of tumor growth in the immediate area targeted by radiofrequency ablation (NYSEMKT:RFA) plus Thermodox.
- Any new distant intrahepatic (i.e., in the liver) hepatocellular carcinoma tumor.
- Any new extrahepatic (i.e., outside the liver) hepatocellular carcinoma tumor.
The above triggering points applies to both arms of the clinical study. I just want to point out that distant tumors are referred to as "new" versus reappearing/growing back; these are tumors that were not identified at the start point of treatment. This is a subtle, but important point because if Thermodox destroys the original tumor site(s), it may more effectively prolong survival and recurrence. And yes, that is one reason why the FDA has fast-tracked Thermodox immediately into a phase III clinical study.
Third, the optimal dose of doxorubicin is 50 mg/m2 that is an amount only afforded by the Thermodox nanoparticle technology plus RFA. Lower doses have been found to be significantly less effective which is actually at the heart of the Thermodox technology. It encapsulates a higher dose that otherwise could kill the patient. It's equivalent to delivering a nuclear warhead to the site of a tumor and it also widens the spread of its toxic kill of cancer cells.
Fourth, a good question to ask is, Is the HEAT phase III trial destined to fail because of the high percentage possibility of an intrahepatic and/or extrahepatic hepatocellular carcinoma tumor(s)? Well, the current challenge is: (1) RFA alone has its own relative effect and ineffectiveness, and so does (2) doxorubicin without Thermodox technology because it can only be administered at a much lower far less effective dose. And that--the far less effective dose of doxorubicin is at the heart of the HEAT phase III study because Thermodox overcomes that obstacle.
Who is 'long' and who is 'short' has nothing to do with question of the science behind Thermodox. Thermodox employs an encapsulated nanoparticle method to pack a mega-dose of doxorubicin directly to the targeted site(s) of an existing carcinoma tumor(s). It overcomes the challenge of delivering an otherwise toxic amount of doxorubicin that would otherwise poison the patient to death. It is novel because current medical practices haven't been able to overcome the delivery challenges without killing the patient. Having again restudied the science and speaking with a medical source in oncology, I venture that there are higher odds of success versus failure, but this is based on the study of the science versus a trading strategy.
Therefore, because of the recent dip in the share price and taking into account the reality of biotech trading risk, I reissue my position that Celsion remains a strong buy going into January and through the published trial outcome based on both technical and scientific reasons. In fact, the current dip could be a momentary correction setting the share price up for double digits prior to the January published results. That too would make Celsion a strong buy. Finally, because of Celsion's pipeline backlog (wall breast cancer, prostate, etc.) of other marketable opportunities for Thermodox, I side with longs that if the HEAT trial is successful, I foresee an oncology share price anywhere in the $20-50/share price range in 2013. Therefore, I reiterate that Celsion is a strong buy especially since I think it is now oversold.
Disclosure: I am long CLSN, QCOR, CVM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investors buy and/or sell at their own risk. This article is for entertainment purpose only and offers zero individual advice. You are duly warned and obligated to seek the advice of a licensed market professional. 'Long' for me is until I sell and I do not 'short' stocks. I may sell any stock at any time.