On January 31, Celsion Corporation (NASDAQ:CLSN) lost more than 80% of its value after its ThermoDox product failed to show statistical significance in a Phase 3 trial. Prior to this news, Celsion had become the stock-of-choice among those companies developing medical devices and new technologies in oncology. In just one year, its market cap grew from $70 million to $300 million as it quickly created excitement for the space. But since its failed study, the level of interest in the space has fallen, and investors are more skeptical that small medical device companies can succeed in large clinical studies.
In this piece I am looking at what might be the best news for a small medical device company since the Celsion disaster, and how this news might impact the rest of the space and the approach of companies in the space moving forward.
On Monday, BSD Medical Corporation (BSDM) traded higher by over 17%. This happened following news of an exclusive deal with Tokyo's Terumo Europe to provide BSD's MicroThermX ablation system to 100 countries in Europe. The MicroThermX is a device used to delivery microwave energy or focused-radio frequency to the tumor of a patient with the conjunction of radiation therapy. This is a market-ready product that has flown under-the-radar, and on Monday the company announced this partnership, which will open up a potential $1 billion market for both companies.
BSD Medical is a company with no meaningful revenue. Over the last 12 months it has reported revenue of $2.62 million, but does not have an established marketing or manufacturing plan in place to successfully market its products. This is a company with an operating margin of (316.42%) over the last 12 months, posting a net loss of more than $8 million in the year. The fundamental positive is that with $7.73 million in cash, the company could operate without financing, however it chose not.
Following its partnership announcement, the company announced a direct offering at $1.23 per share with two institutional investors. The company will receive net proceeds of $5 million which should provide some flexibility. My guess is that the company had already agreed on this deal prior to Monday's large gains. Yet the timing of the offering is one of the reasons that the company is valued at just $50 million, despite having a billion dollar product. In a way, the company does not have the support from investors, and while this is negative, and although it is difficult, we should turn our attention towards the deal with Terumo and its potential impact.
The partnership with Terumo is sure to create a great deal of interest for the company, and perhaps the industry. Obviously, a company valued at just $50 million with such large sales potential is very attractive, and hopefully after this latest financing there will be no need to raise money further. The big question had been whether or not the company could gain interest for its MicroThermX line. Now that the company has gained this interest, and could now have a commercial success with limited costs on its hands it is very possible that investors will flock to the space. With that said, here are two additional innovating companies (creating new approaches to cancer treatment) that could benefit from this news in the next few months.
Delcath Systems (NASDAQ:DCTH) is a $150 million company that has lost 45% of its market capitalization over the last year. The company's approach is odd, to say the least. It uses a CHEMOSTAT filtering system to make current treatments for cancer safer to use. In a sense, it "filters" the substance, making it less harmful and less toxic to the body, therefore allowing the body to remain stronger while in treatment. Moreover, the system allows an agent to be targeted to specific organs while also cleaning the agent of harmful toxins. Therefore, it works effectively in two ways and has been approved in the EU.
Currently, its largest and most promising (based on data) market is in liver cancer, and in September the company will seek FDA approval. Thanks to its EU approval, there are many optimistic. However, also on Monday, the company announced that the FDA had extended its review on the cancer system (from June to September), meaning it will be a nail bitter.
The immediate problem that Delcath Systems could face is related to the expense of its operations. The company has just $23 million in cash and reported a net loss of more than $50 million over the last 12 months. Hence the company has enough cash to operate for half a year, and not near enough to launch its technology after an FDA approval. This reality could put additional pressure on the stock short-term, as investors might now expect financing prior to data, especially now that the FDA has extended the review.
This is a company with large sales potential, and with it already having an EU approval it will be interesting to see if the company is more aggressive in seeking new partnerships. Furthermore, it will be interesting to see if potential partners are drawn to the company. One of its chief problems has been convincing shareholders that interest exists or that it could find a reputable partner for large scale commercial launch. BSD Medical's partnership provides hope for this promising technology, suggesting that maybe there is a demand and a market for the more innovating approaches to cancer treatment.
The final company is OncoSec Medical (NASDAQ:ONCS), and it is even smaller than BSD Medical. It is a company developing what's called the OncoSec Medical System (OMS), which uses electricity combined with a chemotherapy or immunotherapy agent to basically improve the results. So far, the company has had great results with both ImmunoPulse (immunotherapy) and NeoPulse (chemotherapy) in early studies, proving not only a local and distant response, but also an increase in the uptake of an agent several 1,000 fold and decreased side effects associated with the agent.
Much like BSD Medical and Delcath, OncoSec Medical is a small cap stock with very little cash and investor support. However, the company also has much lower costs, losing just $6 million over the last year. Furthermore, the company has cash of $9 million on its balance sheet, giving it about 16 months of operational security. By that time investors will already know if its platform is effective in larger studies, and the company will most likely be significantly different in valuation.
Currently, the system is being tested on three different diseases, using ImmunoPulse, and has an EU marketing approval for NeoPulse. The company has been pursuing a partnership in the EU, and its possible that the news from BSD could aid in its search. In regards to ImmunoPulse, the company will be announcing data on three trials this year along with beginning new studies. There are a lot of investors following this company because of its strong early results and the overall effectiveness of the agent IL-12 (used with ImmunoPulse), and the platform's ability to be used with any agent on possibly any cancer. Therefore, the news from BSD Medical could not only create interest but the success of OncoSec could also add a spark to the industry, if successful at ASCO.
The most important word in that last sentence is "if" and investors should know that while BSD's new is a win for the space, OncoSec is a speculative stock. The company has the same risks associated with it that are present with other companies of its size that are underfunded. Currently, the company has enough cash to operate throughout the year, but beyond that point is a question. The future for the company lies in data, most of which will be presented in the following six months. It is a big year for this small company, and investors should view it as a high risk and high reward investment.
With the medical device space in turmoil, these three companies could stand as leaders for the space. Each has a number of catalysts moving forward and has produced good results to date. Sometimes an industry needs a "wakeup" of sorts, and who knows, maybe BSD Medical provided that spark and will attract interest to other innovating companies in the space.
Disclosure: I am long ONCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.