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Heisenberg Principle is a full time private individual investor and trader.
  • Is Amarin The Next Celsion? 10 Eerie Similarities 3 comments
    Mar 1, 2013 3:37 PM | about stocks: CLSN, AMRN

    "Every once in a while I'd have to take a beating. But by then, I didn't care. The way I saw it...everybody takes a beating sometime." Ray Liotta in Goodfellas

    Make no mistake about it. I took a beating on Celsion (NASDAQ:CLSN). I was overoptimistic about the odds of success in their Phase III trial for ThermoDox designed to treat patients with hepatocellular carcinoma (liver cancer), After CLSN announced the results its Phase III trial, the stock got hammered nearly 90% since due to failure to meet its primary endpoint. CLSN fooled this writer. I have learned my lesson. Amarin (NASDAQ:AMRN) will not fool me. This writer/investigator has learned a rude lesson about these types of drugs over the CLSN debacle. The experience made analyzing AMRN easier and more accurate. Since AMRN's drug Vascepa is an EPA-only (ethyl eicosapentaenoic acid) fish oil pill that lacks in the bad cholesterol raising ingredient Docosahexaenoic acid (DHA) while significantly lowering triglyceride levels, it a very different drug than ThermoDox. However, two stocks are investments and this article is analysis of investments -- not medical sciences. And the two of them have eerily similar aspects.

    While the drugs are very different, the stocks are investments and this article is analysis of investments -- not medical science. In the end, the fundamental reason CLSN fells 90% is because of the hopes of commercial success of ThermoDox for its first indication got crushed and the market cap for the other pending indications was called into question. Today CLSN sits with a $33 million market cap and is burning through cash every quarter. AMRN has now launched its drug for its first indication, but without a successful launch that reduces cash burn instead of increases it, AMRN will become no better than a biotech that has failed to get approval. What good is having a commercialized product if all that does is create larger losses? AMRN has hired an army of almost 300 sales and marketing personnel yet so far after a month the results look dismal at best with analysts downgrading their expectations at least in the short term. Meanwhile, AMRN still manages to have a $1.14 billion market cap. It is 100% pure speculation to justify it this high and close to 40 times the size of CLSN. If AMRN fails to show any measured, profitable success with this indication, it will call into question future indications (after they get FDA approval). FDA approval and successful Phase III trials are certainly much better for AMRN versus CLSN in the area of science, but from an investor perspective in the end they are both just products and if cost AMRN more to deliver the product than it brings in from it, it is just as bad (and actually worse) than having no product at all like CLSN (yet). I fear AMRN is heading down a similar path of CLSN, albeit in slow motion.

    10 EERIE SIMILARIES BETWEEN CLSN AND AMRN:

    1. Both talked a big game about partnerships but failed to deliver and at the final hour both were proud of their "go at it alone" strategy. AMRN is now 100% launching Vascepa alone, something CLSN was going to do with ThermoDox in the United States (or will still do if it ultimately gets approval for another indication such as for breast cancer). From AMRN's Q3 conference call:

    Consistent with our 3-option strategy, an acquisition of Amarin, a strategic collaboration, or self-commercialization, the latter of which could include third-party support

    Not only did the first two fail, thus far, but even its "go at it alone" strategy lacks the third-party support touted in the Q3 call. No mention whatsoever of it in the Q4 call.

    2. Both ThermoDox and Vascepa contain as active ingredients decades old "drugs" (ThermoDox uses encapsulated doxorubicin as the active ingredient while Vascepa is EPA, used by people in various forms since before biblical times)

    3. Both huge short positions. In my experience, especially learned the hard way with CLSN, when a short position is this overwhelming large especially in a biotech, there tends to be some very sophisticated and well informed shorts in there. AMRN's last reported short interest was at a whopping 25 million. Despite the poor performance of the stock, this short interest set a new record at last report and has been consistently growing in size. The short ratio likewise is at new highs of around 8. Similarly just before CLSN's great fall, short interest spiked to record levels.

    4. Both AMRN and CLSN have had cult-like followings. In both cases any time a negative article came out, one could immediate expect a blizzard of angry insults to fill the comment sections.

    5. Both have over-confident management that over-promises and under-delivers. CLSN management was calling ThermoDox "...one of the most important new drugs in a generation"

    6. Both one-trick ponies relying on one drug (though for multiple indications) with nothing else in the pipeline.

    7. Both most recent conference calls sounded more like funerals in tone than their usual "Party like it's 1999" confidence.

    8. Both had huge runs and were pricing such high success at such lofty levels you would have thought the second coming of Jesus Christ on almost upon us with a specific mission to aid these companies.

    9. Both fooled and dazzled investors with talks of patents and anecdotal observations of praise, neither of which spells commercial success.

    10. Both had very small teams despite their market caps. AMRN 31 employees (prior to sales force hiring) and CLSN 19 employees at last count.

    I am short AMRN at higher levels and continue to hold as a result despite the risks of being short. Vascepa could certain show a large improvement in sales or a company could suddenly become interested in helping them out through either a partnership or buyout. Caution is advised if anybody wishes to short AMRN at this level as it would be a high risk endeavor. One may want to consider further protection with the use of cheap call options just in case.

    Disclosure: I am short AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I have CLSN calls.

    Themes: short-ideas Stocks: CLSN, AMRN
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Comments (3)
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  • Quoth the Raven
    , contributor
    Comments (2083) | Send Message
     
    Great list! Love #7!
    3 Mar 2013, 10:08 AM Reply Like
  • alexlega
    , contributor
    Comments (12) | Send Message
     
    Nice counterpoint to other positive articles but in my opinion you fail to deliver a serious blow here.

     

    Basically, you ignore the science behind Amarin and its product (it is good science whether you like or not)

     

    You also do not take into account the state of the market (BASF bidding on Pronova when their product has no more shelf life past 2015, there is a reason for that: the O3 market is expected to grow nicely over the next decade).

     

    Moreover, you fail to see the (even) bigger picture: Amarin is trying (well, single handedly for the time being) to introduce a new standard of care for CV events. If they succeed, you may get hurt.

     

    Finally, I wouldnt short a company which is/was supported by heavy-hitters in the field such as Sofinnova, Orbimed and Abbingworth. I think they understand a couple of things on the science you, your readers and myself do not have the background to understand.

     

    I would agree that good science may not always turn into commercial success and that the road to success is in itself winding and difficult.
    However, I feel that in this case, given the management, the science, the patents etcetc you may get hurt in the long run with your investment thesis and your short position.

     

    Best of luck to you though.

     

    Cheers.
    6 Mar 2013, 12:59 AM Reply Like
  • Heisenberg Principle
    , contributor
    Comments (387) | Send Message
     
    Author’s reply » That is an excellent, well-balanced and logical comment. I cannot say I disagree with any of it. Good luck to you!
    6 Mar 2013, 01:01 AM Reply Like
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