Micro-cap oncology biotech Celsion Corp. (NASDAQ:CLSN) has been on a roll lately, surging 70% in the last five trading days on a string of positive news. The rally off of its lows started two weeks ago after the company reviewed the latest findings from its ThermoDox® HEAT study released at the 9th Annual World Conference on Interventional Oncology, in a press release on May 17th. That was followed by more positive news on May 22nd, when the company announced that it had been granted additional patents covering its proprietary ThermoDox® formulation in four of the largest markets for liver cancer globally, namely in China, Japan, South Korea and Taiwan. These new patents extend the overall term of the ThermoDox® patent portfolio to 2026. This was followed about a week later with the company announcing on May 30th that it would be presenting results from the ThermoDox® Phase III HEAT study at the 2013 European Conference on Interventional Oncology in mid-June. Although the stock has pulled back a bit after the announcement this Friday on a 6.3 million share dilutive offering, it has managed to hold on to most of its recent gains, and has more than doubled in May.
The rise in CLSN stock has been accompanied by a huge increase in volume from sub-one million share total daily trading volume to over 5 million everyday recently, with Friday's volume of 33.4 million shares approaching its float of 47.5 million shares. This is indicative usually of a surge in institutional buying and/or a short squeeze. While data on this quarter's institutional activity will most likely not be available until the mid-August deadline for funds to report their June end-of-quarter holdings in 13-F filings, we do know that leading fund managers accumulated CLSN shares in the prior quarter (Q1/2013) when most market players sold following the release of disappointing Phase III HEAT study data on ThermoDox® at the end of January. Of the six fund groups that we track on GuruFundPicks.com, accounting for 300-plus of the most significant institutional players in the market, four of them were net buyers of CLSN in Q1, and the other two did not report any change in their position.
Specifically, 79 legendary or guru fund managers collectively or in consensus added a net 0.84 million shares in Q1 to their 0.36 million share prior quarter position in CLSN, and 27 of the world's largest or mega fund managers together added a net 1.80 million shares in Q1 to their 2.11 million share prior quarter position. These moves are significant in that the 79 guru fund managers are hand-picked to include only the ones with outstanding long-term market returns, including the likes of Buffett, Soros, Icahn, Cohen and 75 others that have earned their distinction and respect in the investment community. The 27 mega fund managers are important in that collectively they account for well over $30 trillion in assets under management, and for between a third and half of all non-index institutional trading in the markets. Of the remaining two groups, 57 billionaires and billionaire fund managers in consensus added a net 1.22 million shares in Q1 to their 0.01 million share prior quarter position, and 23 healthcare/biotech-sector focused fund managers in consensus added a new 0.46 million share position in the company in Q1/2013.
Overall, CLSN got a 4.0 GuruRank and 4.7 MegaRank based on our proprietary and relative ranking system that numerically represents on a scale of 1 to 5 the attractiveness of the stock to guru and mega fund managers respectively, based on their holdings, change in holdings, percent of outstanding shares and number of guru or mega funds in the stock, as compared to the rest of the 5,200-plus stocks in our database on our website, GuruFundPicks.com. In contrast, CLSN received a 1.0 GuruRank in the prior Q4/2012, with guru fund managers selling 0.38 million shares in Q4/2012 from their 0.73 million share prior quarter (Q3/2012) position in the stock, just in advance of the 80%-plus plunge in the stock in January.
ThermoDox is CLSN's proprietary heat-activated lysolipid thermally sensitive liposome (LTSL) encapsulation of doxorubicin, a commonly used oncology drug that is delivered by IV (intravenous) infusion and accompanied by a range of heat-based treatments such as radio-frequency ablation (RFA), microwave and high-intensity focused ultrasound (HIFU). It works by delivering higher payloads of doxorubicin into the tumor by taking advantage of the tumor's leaky vasculature that enables liposomes to permeate inside it, and then the heat-treatment makes the blood vessels in the tumor even more permeable, thereby delivering up to 25 times more doxorubicin into the tumor.
There is a lot of enthusiasm in the medical and investment community about the potential of this treatment, and it is being currently tested in a phase 3 liver cancer study, and also phase 2 breast and colorectal liver metastases studies, and early-stage studies in pancreatic and other cancers as well. The latest emerging data from the HEAT study post hoc has demonstrated that ThermoDox markedly improves PFS (progression-free survival) and OS (overall survival) in patients if their lesions undergo RFA for 45 minutes or more, and applies to HCC lesions that represent a sizable subgroup of the approximately 300 patients included in that study. We believe that the pullback from the dilution event announced Friday may give investors another opportunity to get in on this promising biotech. At 6.3 million shares, the dilution represents just at about ten percent of CLSN's outstanding shares, and is typical of biotech companies at this stage. We would follow the gurus and other leading fund managers and look to scale into the stock gradually, especially if it dips below $1.50 in the next few weeks.
Overall, the 79 guru fund managers included in our database are bullish on micro-cap biotech companies like CLSN, adding $67.3 million in Q1/2013 to their $359.4 million prior quarter holdings in the group. Also, together guru fund managers hold 2.4% of the outstanding shares in the micro-cap biotech group, at par with their 2.4% weighting in the overall market. This equal-weighting in the group is in fact bullish, as typically institutional managers are over-weighted in large- and mega-cap stocks and severely underweighted in micro-cap equities.
The biotech group is up about 40% in the past twelve months, in new high territory, in tandem with the move in the broader indices. There are hundreds of upcoming catalysts on small-cap biotech companies in the next few months, including PDUFA dates, and pivotal clinical and mid- and early-stage clinical trial results, that could have a significant effect on the prices of the underlying stocks. These catalysts offer probably the best opportunities for out-sized gains for the not-so-risk-averse investor. Furthermore, investment in small-cap biotech stocks, especially micro-caps (those with market-caps of less than $500 million) is generally considered very speculative and a risky investment, in contrast to large-cap and some mid-cap biotech companies that have well established commercialized product portfolios that generate revenues and maybe even profitability.
We believe that knowledge of how the best minds in the investment community, in the form of guru fund managers, and the largest or mega fund managers are collectively positioning themselves in advance of these catalysts can inform our investment decision-making, often clueing us into a potential outcome. CLSN is not unique, as we have observed similar predictive power in the moves of leading fund managers, as reported in their quarterly 13-F and periodic 13-D/G filings, some of which are documented in our earlier article on Q4/2012 small-cap biotech picks by guru funds. Additional examples of how leading funds have successfully predicted stock moves for many popular stocks, across all industries, including in the case of Apple Inc. (NASDAQ:AAPL), are outlined on GuruFundPicks.com.
General Methodology and Background Information: The latest available institutional 13-F filings of 79 legendary or guru hedge fund and mutual fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 79 guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page and from the 13-F pages for those funds on our website, GuruFundPicks.com
These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds' best picks.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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