Since we began publishing on Celsion Corporation (CLSN), we have highlighted the difference between the hype Celsion has been selling investors and the stark reality of their failed business. Even at $1.36/share (approximately 19% below the stock's price at the time of our first report), we continue to believe Celsion is a compelling short with nearly 50% downside from current levels to our unchanged target price of $0.73 per share. In fact, Celsion's recent actions make us even more confident, and we wanted to highlight them to investors.
Failing Celsion Continues to Mislead Investors
No one can deny that Celsion is in dire straits. Its share price languishes near 5-year lows. Its main drug, ThermoDox, failed its pivotal phase 3 trial (here) and has no hope of near-term regulatory approval. Celsion has no other late-stage products in the pipeline. Celsion is also losing about $4 million to $5 million in operating income per quarter, which closely approximates cash spend, as can be seen here in their first quarter results. The Company is likely to burn through its $45 million of net cash rather quickly. On a per share basis, Celsion is burning $0.07 to $0.08 of cash per quarter against a starting balance of only $0.73 per share of cash net of debt.
As a result, Celsion has relied on heavily dilutive stock issuances to keep it afloat. Dilution seems to be part of the Company's DNA as the share count has increased by 600% over the past five year. Indeed, just this year since ThermoDox failed, Celsion has more than doubled its share count, and it still needs to raise additional funds. The best way to continue to do that is to sell hype, and we believe disparity between Celsion's latest filings and press releases underscore just how desperate the Company is.
Faking The Good News
Celsion wants investors to believe that the prospects for ThermoDox are exciting, particularly in China. On July 19th, Celsion touted in a press release that the Company had signed a memorandum of understanding for future development of ThermoDox with Zhejiang Hisun Pharmaceutical Company Ltd, found here.
We read the press release multiple times and think it's just recycled news. While it is clear that Celsion wants investors to believe this is a material positive development for the Company, the truth is that significant portions of the press release were copied verbatim from an old press release more than a year before on May 7, 2012, as seen here.
Whether or not the press release contained any substance or was even new, it did the trick and Celsion's shares jumped from $1.22 to $1.42.
We think the PR is basically just meaningless hype. We know this because Celsion never filed an 8-K for the press release or included a copy of the memorandum as an exhibit. The SEC mandates that an 8-K be filed for "material definitive agreements entered into by a company that are not made in the ordinary course of business," as per this SEC document description found here.
CLSN has filed 8-Ks for every other transaction that was material. The fact that Celsion did not file an 8-K proves this memorandum of understanding does not cross the threshold for materiality. Why not? Because Celsion already filed an 8-K with the original press release here more than a year ago.
We've seen these shenanigans before and it is never positive for shareholders. We reported a similar situation by a speculative, hype-filled company called Uni-Pixel (UNXL) with regard to its manufacturing and supply agreement with Eastman Kodak, as seen here. Since we reported on this, the shares of Uni-Pixel are down about 45%. We expect a similar result with Celsion.
Hiding The Bad News
While Celsion is touting irrelevant old news as being positive, the Company is hiding the bad news from investors by filing 8-Ks without putting out corresponding press releases! On July 22, Celsion quietly released an 8-K announcing approval for a reverse stock split, found here. The reverse split could be anywhere from 2-for-1 or 9-for-2, as seen here. Any investor should know that reverse stock splits are typically only done by desperate companies under significant duress.
More importantly, as part of the reverse stock split, Celsion will increase the number of shares the Company is authorized to sell from just 240k shares to anywhere from 34 million to 57 million more shares of stock!
The reverse split will allow Celsion to double or even quadruple the share count through additional share issuances! As if 600% dilution over the past five years wasn't enough, the Company's preparing to dilute shareholders by up to 4x all over again. Put another way, a shareholder from five years ago might have as little as 4% of his original ownership stake in the Company once it's done with this next round of dilution.
Now we know why Celsion issued the press release from July 19th: to pump up the stock price and excite investors with breathlessly positive press releases that have no substance behind them so Celsion can distract them from the real news - its intention to sell shares in the future and further dilute shareholders.
Clear Bad Intentions
Celsion's intentions are crystal clear. Celsion is doing the reverse split solely to enable it to raise more money.
Don't trust a company like Celsion. Its main drug does not work and has no near-term hope. The management team is trying to raise money to keep their jobs at the expense of shareholders. We repeat our $0.73 per share price target.