Celsion (CLSN) investors holding long are not having a great day. As I pointed out in my earlier article today, the stock has been beaten to a bloody pulp, down 80% today over missed expectations from the company's Phase III HEAT trial for ThermoDox's use in Primary Liver Cancer. The company's future is now hanging in the balance of the decision making by executives and all short-term hope for Celsion stock has basically been lost.
This is not another article telling you that Celsion failed their Phase III results. There are many questions to ask about what went wrong. Alex Heisenberg points out that all of the math added up for ThermoDox. This is an analysis of what Celsion investors missed, which will hopefully help investors in the future learn how to gauge their holdings on their way to a binary event.
From their conference call this morning, recent insider buying and the company's previously offered statements in regards to ThermoDox, I have to believe that the Celsion executives are as floored and shocked by the nature of their Phase III results as investors were. The conference call this morning had a somber and humbling undertone to it, the way you feel when you're all in with a flush and you get called with a straight flush that you never even pieced together from looking at the board. In poker, they call it a bad beat, because everything says that you should have won and you didn't. It's the worst feeling in the world, like being punched in the stomach. Today, Celsion executives took a bad beat, and I feel as bad for them as I feel for the investors holding long.
Going back over the events of the day's past, I recounted the number of events that took place over the past month that gave me pause and reconsideration about my mostly bullish position. In poker, these are called "tells". They're small ticks and movements that people undertake while sitting at a poker table, sometimes unconsciously, that offer clues to their hand. Whether you see them or not, they're there, and if you can pick them up, you can gain serious leverage while sitting at the tables. I caught wind of a few tells from Celsion, and foolishly ignored them, blinded by my genuine hatred for Cancer and the effect it's had on me and the people around me.
Here's four "tells" that longs may have missed:
1. It was reported a week prior to releasing results that Celsion cancelled their showing at the Cowen conference.
The Cowen Conference, one of the biggest public relations event that would happen immediately following Phase III results, was scratched from their schedule. This was confirmed by Cowen and when the company was asked, they informed investors via an e-mail that the conference was cancelled due to a previously scheduled board meeting. Whether or not that is true, (I believe that to be a horrendous excuse), one would have postulated that immediately following results, you'd want to tell as many people as possible.
Instead, I took the other route, with a lot of other longs. I convinced myself that they may actually have to have the board meeting because of how good the forthcoming Phase III data was going to be. I was wrong.
2. Celsion Delayed their Results to the Last Possible Day
This one is all speculation, but the guidance was that the results were going to be released to the public in January of 2013. This guidance was hammered home by Celsion IR and front desk staff; then further disseminated to the investing public by myself and other traders keen on doing their own due diligence.
We may never know if they had actually just received the results towards the end of the month, or if it was part of a plan to strategize damage control and the company's future path. Either way, it gave even the most steadfast of longs a nervy feeling heading into today. Sometimes, it's the right move to ignore that feeling and press forward; in this case, it was not.
3. Frantic Selling and Analyst Downgrades Passed Off as a Bear Raid
After the panic from two weeks ago, I penned this article, talking about how I was ignoring the panic induced selloff that was initiated on Celsion. I wrote :
On Wednesday of last week, in what seemed like normal trading, Celsion's shares plummeted in a matter of seconds on nearly 1 million shares traded. Earlier in the day, Seeking Alpha published a editorial called "Taking Some Profits in Celsion," on the heels of which followed a bidwhacking bonanza. Celsion fell off a cliff, trading lower by roughly 30% before a single circuit breaker halt was issued, stopping the chaos in its tracks.
I continued to analyze the situation acutely and posed some guesses that, again, have left me dumbfounded.
With the CEO commenting that "the company remains on track" and "the fundamentals of the company have not changed," it would be hard pressed to imagine him sitting on bad Phase III data and making a comment of the sorts. Was it a bear raid, purposely done to take out stop-limit orders in order to suck up cheap shares or cover a short ahead of news? Could it have been a fat fingered trade, where the initial 985k share order went off as a market sell, effectively playing whack-a-mole all the way down the bid chain? Is it possible that a computer somewhere simply had a spastic algorithm failure, a la the Knight Capital Group mess from earlier in 2012? Could it simply have just been extreme panic selling, a likely culprit on a stock this volatile whose price has been up 5-fold in six months strictly on emotion and speculation? How about, with options expiring on Friday of the same week, wanting to drive the price down so contract writers could reap the benefits of the absurd premiums on out of the money options? Could it really have been a Phase III data leak? There were a multitude of potential reasons, but the day drew to a close and Celsion remained somewhat stable through after-hours trading.
All I can think of is that they must not have had the results in their hands by then. How else could a CEO come out and give the "all-OK"? If the timing of this bear raid corresponds with the data transferring parties, or if the CEO had this information before issuing comments about company fundamentals being OK, there is a serious potential legal liability.
Again, I chose to ignore the fuss, stating:
This investor has been buying on the panic and downgrades, hoping that the pro move here is to wait for the results. I've seen enough curious patterns of trading and timely upgrades/downgrades in my day to not let this last week falter my resolve in the company and in ThermoDox. Bulls and bears - like Highlander, there can be only one in this case. Whatever result, I'm appreciative of the hard work at Celsion and what they're trying to do for medicine. I'm standing with my long position in Celsion come hell or high water, and whatever side you're on, I wish you the best of luck.
I ignored my caveats with this one.
I knew something was wrong at Knight Capital (KCG) the day of their algorithm error, because the stock was getting crushed down to $9 on massive volume almost an hour before the story ever even hit the newswire. After investing long enough, I've started to learn, "there are no coincidences". I was able to trade the Knight disaster accordingly just by watching the volume. I took my short position, they released the news, the rest is history. The pre-news trading tipped me off. If you don't think there were insiders that dumped into that news, then I have some real estate in rural Alaska to sell you.
Same deal here. A 900k share order goes off at market, destroying the bid and causing a halt. Could this have been someone wanting to make their exit quickly? With the pending class action investigation now taking place, I'd be interested to see the results of a full investigation of when the company actually had the data in hand in comparison to the analyst downgrades and "bear raid". I hate that I'm even writing that, as someone who truely believes in the integrity of the company and executives; and their mission. But sometimes, if it walks like a duck and talks like a duck...again, "there are no coincidences".
4. The Feuerstein-Ratain Rule
TheStreet's Adam Feuerstein first came up with a rule for micro-cap biotech stocks, which states that biotechs with a market cap under $300 million have had a 100% failure rate with Phase III cancer studies. Going into this trial, the F-R rule was 22 out of 22. I was banking on Celsion to be the exception to this rule.
Call me hard headed, but I still don't believe in the validity of this rule. I'm from the same school of thought as Alex Heisenberg on this rule and it's application to Celsion. Alex offers up several concrete, logical reasons as to why this rule could have not applied to Celsion. Turns out, it was another item that we were both seemingly dead wrong on.
This rule is up for investors to look at and judge whether it's a worthy instrument. I cannot, for the life of me, find any kind of direct correlation between a company's market cap 120 days prior to data being released and the actual scientific data contained therein. This could also be why I'm not a biotech stock picking expert.
For whatever reason, I acknowledge that it held true here and offer up a congratulatory pat on the back to Feuerstein for continuing to find success with his model.
Always Leave Yourself Outs
While I was holding a small portion of my portfolio long Celsion, I got the urge to up my stake several times. Considered it, but didn't do it. Today, in the midst of a loss, I'm patting myself on the back.
"You still got the truck?"
"Sure. Come on."
"You don't hear much about guys who take their shot and miss,
but I'll tell you what happens to 'em. They end up humping crappy jobs on graveyard shifts, trying to figure out how they came up short. See, I had this picture in my head. Me sitting at the big table, Michael Tardugno to my left, Jeff Church to my right, helping solve the world's cancer problem. And I let that vision blind me at the table against the shorts and warning signs. Now, the closest I get to profits are playing Celsion as a bounce play, driving this lousy route handed down from Knish...to traders who forget the cardinal rule : always leave yourself outs."
Good luck, traders.
Additional disclosure: I own CLSN calls and puts.