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Heisenberg Principle is a full time private individual investor and trader.
  • Why The Feuerstein-Ratain Rule Doesn't Apply To Celsion 11 comments
    Jan 20, 2013 6:33 AM | about stocks: CLSN

    Shares of Celsion (NASDAQ:CLSN) took a hit in Friday in part over concern over what the self-named "Feuerstein-Ratain Rule." Essentially this rule states that 120 days before the release of Phase III data for cancer drugs that if a company has a market cap under $300 million, the trial will be a failure. The research behind the rule spans 10 years and finds 21 such examples and in each of the 21 cases the Phase III trial failed or a 0% success rate. At the same time, for companies with market caps over $1 billion, 21 actually succeeded out of 27 for a 78% success rate. The theory behind the rule is that companies with a market cap under $300 million would be bid up by smart investors and institutions if they had a realistic good chance of showing positive Phase III data and that those trading over $1 billion trade there before smart investors and institutions already know the odds of success are high and bid up the prices of the stocks of those companies there.

    The problem with that theory: the reason why those companies who are successful are "bid up" is because investors typically well in advance have already been given the crown jewel: results of Phase II data in their hands in which to analyze and make such an intelligent, reasonable determination about the odds of success and the market size for the drug. In CLSN's specific case, however, 11 regulatory bodies around the world including the FDA were so confident, so excited, and so encouraged by CLSN's Phase I data, they were allowed to skip the Phase II trials entirely and move onto Phase III. If the Phase III data is positive, CLSN may very well indeed rise to a market cap of over $1 billion, which would ironically support the theory behind the Feuerstein-Ratain Rule since CLSN's Phase III trials are really only its second Phase, which typically the Phase that gives investors enough information to bid up (or not) biotech stocks whether you refer to that Phase as "Phase II" or "Phase III."

    If and when CLSN reports positive Phase III data, perhaps it won't be a violation of the rule at all. Perhaps the rule would make more sense if it states that a company's market cap foretells its odd of success for its third Phase, rather than Phase III, given that the whole basis for this rule is investor knowledge of the results of a second Phase, which is always much larger in trial population size than Phase I. In CLSN's unique case, there was no Phase II and therefore no chance to get that post-Phase-II rally in market cap that is the very foundation behind the rule. In short, I believe investors got spooked and confused by the analyst downgrade plus the mischaracterized generalization of this rule.

    As my previous two articles here and here have shown, I believe positive data conclusions about Phase III is already easily calculable as highly probable degree, therefore CLSN will therefore rise again like a phoenix from the ashes despite the "Feuerstein-Ratain Rule" since the rule, at least as it is being presented, would not apply to CLSN.

    Disclosure: I am long CLSN. 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.

    Themes: long-ideas Stocks: CLSN
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Comments (11)
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  • badslinke
    , contributor
    Comments (6) | Send Message
     
    Love your work Alex. A voice of reason amidst the baseless bashing and bear raids. There appears to be an entire network of naked short sellers behind these flash crashes, stretching from TheStreet.com all the way to the mafia.

     

    Dig deep enough, and the connections are all there.
    21 Jan 2013, 02:44 AM Reply Like
  • chrisdoc
    , contributor
    Comments (41) | Send Message
     
    entire network.... or logical investors
    31 Jan 2013, 09:58 AM Reply Like
  • Quoth the Raven
    , contributor
    Comments (2081) | Send Message
     
    Extremely cogent points -- why not get this published as a premium article? Nice work, as usual.
    21 Jan 2013, 02:27 PM Reply Like
  • chrisdoc
    , contributor
    Comments (41) | Send Message
     
    Because the F-R rule is fact.
    31 Jan 2013, 09:58 AM Reply Like
  • bazooooka
    , contributor
    Comments (2893) | Send Message
     
    Alex, for myself and those of us who average in slowly, I'm in no rush to get to a Billion. I kind of like being below the radar.
    21 Jan 2013, 09:27 PM Reply Like
  • Quoth the Raven
    , contributor
    Comments (2081) | Send Message
     
    Averaging in slowly would make sense if THE ENTIRE COMPANY didn't hang in the balance of these Phase III results. If they're positive, you going to average up after the price rockets 250% in a day?
    21 Jan 2013, 09:31 PM Reply Like
  • adamfeuerstein
    , contributor
    Comments (322) | Send Message
     
    Oops.
    31 Jan 2013, 07:40 AM Reply Like
  • dharma_bear
    , contributor
    Comments (281) | Send Message
     
    LOL
    31 Jan 2013, 01:07 PM Reply Like
  • Quoth the Raven
    , contributor
    Comments (2081) | Send Message
     
    Right again, you were, but seriously -- Feuerstein-Ratain Rule when applied to biotechs is a useless rule based on random numbers used for market cap that hold no serious correlation with science.

     

    This is like betting on red at the roulette table on the 23rd time after it comes out black 22 times. No matter what past results show, the probably of red vs. black remains 49%/49%.

     

    F-R will be proven wrong in the not too distant future, even if Celsion couldn't do it.
    31 Jan 2013, 12:55 PM Reply Like
  • dharma_bear
    , contributor
    Comments (281) | Send Message
     
    If the odds were truly even the probability of having gotten the observed results by random accident are 1/2^22, about 1/(4 million). IOW, p<.00000025
    31 Jan 2013, 01:20 PM Reply Like
  • gbstern13
    , contributor
    Comments (151) | Send Message
     
    I think the rule more likely demonstrates the influence that larger biotechs can have on the FDA panel than anything else.
    6 Feb 2013, 09:24 AM Reply Like
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