(Contributor's note: This article covers a micro-cap stock, which sometimes moves without rhyme or reason and carries significantly more risk than large-cap stocks. Please be aware of the risks associated with these stocks.)
Celsion Corporation (CLSN) has had an unbelievable week, up almost 100% from Tuesday to market open on Friday morning from the week prior. The stock was absolutely drilled on massive volume, trading half its float on Wednesday and more than its entire float on Thursday of this week. It was clear something was going on, as the company was consistently trading exponentially high multiples of its normal daily average volume.
In my article I wrote about it earlier in the week, I guessed that it could have either been a short squeeze, institutional buying, a news leak, or a combination of all three.
I've been covering Celsion since the beginning of January 2012, when it was anticipating its Phase III results for ThermoDox with RFA (radio frequency ablation).
ThermoDox is a unique liposomal delivery method of getting doxorubicin to the site of cancer tumors being treated. Preliminary trials looked great and the idea behind ThermoDox was one that made sense: delivering a concentration of an often-used cancer drug to the site of the tumor by its Liposomal transport system, and using heat to activate it en masse.
Today, Celsion announced a $9.83 million registered direct offering of their common stock. The press release stated:
Celsion Corporation (NASDAQ:) (the "Company") today announced that it has received commitments from institutional investors to purchase an aggregate of approximately $9.83 million of the Company's common stock in an at-the-market registered direct offering led by a dedicated health care fund.
The Company entered into definitive purchase agreements with these investors pursuant to which the Company agreed to sell an aggregate of 6,264,492 shares of its common stock at a per share price of $1.57. The shares were priced at-the-market with no discount to the previous day's closing bid price. In addition, there were no warrants issued as part of this financing transaction. The closing of the offering is expected to take place on or about June 4, 2013, subject to the satisfaction of customary closing conditions.
The estimated net proceeds to the Company from the offering are expected to be approximately $9.1 million. With the net proceeds from this offering, the Company projects to have an unaudited cash and investment balance of approximately $50 million. The Company intends to use the net proceeds from this offering for general corporate purposes.
Subsequent to this being announced, the company's stock was dragged down about 20% towards $1.57 like a magnet. The price has since recovered, trading now around $1.70. After reading through the press release a few times and letting the news stew, I really, really like this move here and now by Celsion for a few reasons. Here's the three bullish clues that I picked up from this financing almost immediately:
1. It's Almost Acquisition Time
As Celsion has been stating and as I've been reporting, the company is almost certainly going to be making some acquisitions as part of its "post-HEAT study corporate strategy". Jeff Church said in their previous conference call that the company had about ten potential candidates for M&A at the time. I pointed this out in a previous article:
Celsion also noted on its conference call that it had significantly cut costs and was working with Cantor Fitzgerald on potential mergers and acquisitions; a step that the company said could bring profitability and give it another leg (aside from ThermoDox) to stand on.
Going into this week, Celsion had plenty of money in the bank; enough to get them well into 2014, with their current burn rate of about a million a month. So, why raise money now? There could be four reasons for doing it right now:
- Least likely -- Celsion wants to "strike while the iron is hot" and take advantage of the recent run in the stock price
- More likely -- Celsion sees this as a great time to continue to bolster their balance sheet with significantly less dilution than their last financing
- More likely -- It's a market strategy move to put a floor on the stock
- Very likely -- Celsion is going to be shelling out money soon for something, probably an acquisition
2. There's News About to Come Out on Monday
As I pointed out in my last article about insiders buying:
I pointed out last week that insiders continue to buy on the open market at Celsion at under a dollar. Just to clue you in, insiders are called insiders for a reason: they know exactly what's going on behind the scenes. When insiders buy, it means they're confident based on their knowledge of what's going on behind the scenes. Has Celsion just acquired another company? Has Celsion got some more good ThermoDox news? Time will tell the tale here. To other Celsion investors, enjoy the ride, remember the importance of taking profits, and best of luck.
The same holds true for people that participate in these private placements. New to the method behind private placements in public equities? Let me fill you in on a couple of things that you might not know:
- It takes days to complete one, this could have been in the works since theoretical good news at the beginning of the week.
- It is 100% legal for people investing in private placements to have access to inside information, as long as pertinent disclosure agreements and other documentation is filled out. The parties participating in this could theoretically have access to the same inside information that insider buyers in Celsion have had access to over the past week.
- The people involved in private placements usually have tons of friends with money. This could be the theoretical explanation for our massive buying at the beginning of the week, potentially triggering a squeeze and hysteria that ran Celsion up briefly over $2.
As I stated in my previous article, there still may be good news forthcoming for Celsion:
What I learned from this was to pay attention to signs, and what we're witnessing could certainly be a sign that something has just swung Celsion's way. I'm convinced now looking back that the flash crash was insiders (at the company, or not) potentially dumping shares on the internal news of the ThermoDox results. We may never know, but if this same sentiment holds true for good news, we might be looking at a sign of news to come.
If this is a news leak that happened over the weekend or Monday, we should expect to see a filing and/or corresponding press release from the company by the end of the week, as per SEC regulation FD disclosure rules. We'll then know that the inside buying was no coincidence. Should we hear nothing from the company in regards to news or a comment on the trading, we'll know that this is either a short squeeze or institutional investors loading up.
Everything about this screams that a material event occurred on Tuesday. Legally, the company wouldn't have to disclose that event until Monday of next week under current SEC Regulation FD rules.
Celsion has proven in the past to be great with market strategy. Why would you release the news this week, when you know you can be afforded the luxury of doing it Monday morning next week, with an entire week of trading to go? That's "good news market strategy 101". More so than at the beginning of the week, logic is dictating to me that we may be looking at news first thing Monday morning.
3. Bottom Set at $1.57 Now, Technical Uptrend Holds
As I stated above, it's possibly (although not super likely) that this financing could have been done from a market strategy perspective of setting a bottom for Celsion stock. As you may have noticed from today's trading, a private offering price usually becomes a magnet for that company's stock price. Usually, this isn't great news, like in the case today where it cost Celsion a 15% haircut instantly.
However, if you put it into perspective with the moves that Celsion made this past week, it has essentially set a bottom price for the stock that's roughly 50% higher than the stock's closing price the previous week. They're offered a major percentage move in just under a week, which can sometimes be an advantage of being a risk-laden micro-cap stock that moves quickly.
From that chart, you can easily see where the new bottom is and how this financing locks Celsion in to the current technical uptrend that the stock has been in for the last few days. If this is simply a market strategy move, it's a good one in my eyes.
Furthermore, the dilution here is a non-event. Adding about 6.5 million shares to the O/S is merely a 10% dilution from the current share structure, which stands healthy at about 65 million outstanding shares, even after a wicked 50% post-HEAT dilution.
Also, subsequent to my last article and worth noting, Celsion was given a little love by the "option monster", Jon Najarian on CNBC's Fast Money Thursday night. The video clip to that can be found right here.
I took some profits on my $0.95 to $1 position yesterday when we pushed for $2. I then reinvested a portion of those profits on one of the small dips to $1.75 yesterday and also added aggressively to my position after the financing was announced today by purchasing $1.50 January 14' & 15' calls, as well as adding to my underlying count of Celsion shares. I'll continue to write short term out of the money calls as a short term hedge; premiums are decent now with all of the attention Celsion has been getting this week. It's a great time to write covered calls if you're holding long, in my opinion.
To all Celsion investors, this ride is far from over. Will next week hold news? I'll be keeping my eyes open and wishing you all the best of luck moving forward.