By
Alex Daley
:
Traditional cancer treatment options are little more than a
crude mix of "slash, burn and poison" - that is surgery, radiation
and chemotherapy. There are radical new treatments in labs and
trials all over the world that promise to throw out this trifecta;
no other disease has received more of the research interest and
funding that have defined modern biotechnology over the past three
decades.
I'm not going to tell you about any of those here. Sure, many of
them will be wildly successful and make many investors fabulously
wealthy over the next few decades. But most will fail. And those
that don't will take a long time to turn a profit for
investors.
Yet, there is one small company whose unique twist on cancer
treatment is proving to be a major upgrade. We profiled this
company in a recent edition of
Casey Extraordinary Technology
, and it turned in a gain of over 167% for subscribers in just six
months' time. It may yet make billions more for investors.
You see, in recent years chemotherapy has become the core
treatment for most cancerous malignancies. And while these toxic
cocktails of chemicals have proven effective at destroying
cancerous cells, they also have one problem. A big one.
Chemo, being essentially a poison, doesn't just attack cancerous
cells - it attacks a broad range of healthy cells too. As a result,
the treatment can sometimes be as harmful as the cancer itself in
the short run. The side effects are awful, and its use can quickly
erode patients' health. Some have even described chemo as a "cure
that's worse than the disease."
This sad state of affairs for the world's second most-prevalent
chronic disease is why the cancer-research arena has been exploding
over the past few years with the goal of developing more targeted,
less-toxic therapies - in other words, to do a better job killing
cancer cells while leaving healthy cells alone.
That's exactly what Lawrenceville, New Jersey-based Celsion
Corp. (
CLSN
) has the technology to do. And chances are the company is on to
one of the biggest cancer-treatment breakthroughs in decades.
How It Works
Our story starts with liposomes. These nanosized artificial
vesicles are made from the same material as our cell membranes -
natural phospholipids,
i.e.
, a version of the chemicals that make up everything from fat to
earwax, and cholesterol.
Not long after their discovery in the 1960s, scientists began
experimenting with liposomes as a means of encapsulating drugs,
especially cancer drugs. Why? Something called the "enhanced
permeability and retention" ((
EPR
)) effect. This is a property of certain sizes of molecules - for
example, liposomes, nanoparticles and macromolecular drugs - which
tend to accumulate in tumor tissue much more than they do in normal
tissues. It's a useful feature for a cancer drug.
Thus, they offer a potential way to combat the two biggest
drawbacks of traditional chemotherapeutics:systemic toxicity and
low bioavailability at the tumor site. In other words, the drugs
now employed are themselves toxic to normal cells, and they tend to
get largely used up before they even reach the tumor site.
Early attempts to encapsulate drugs inside liposomes did an okay
job of dealing with the toxicity issue, but bioavailability at the
tumor site was still limited. Our immune system saw to that. Just
like virtually anything else artificial we put into our bodies,
traditional liposomes were seen as invaders. Thus, they were
rapidly cleared by the mononuclear phagocyte system, the part of
the immune system centered around the spleen (yes, we do use it)
that destroys viruses, fungi and other foreign invaders.
However, a breakthrough arrived when scientists came up with a
new way to sneak these artificial compounds into the body
undetected by our defenses. The process gave us what are called
"PEGylated" liposomes, with a covalent attachment of polyethylene
glycol polymer chains. The effect of attaching these little plastic
chains to the end of the liposome was to create a "stealth"
liposome-encapsulated drug that was hardly noticed by the
system.
Problem solved, right? Well, not exactly. A lot of hard work
went into getting drugs into liposomes to reduce toxicity, then a
bunch more into stopping our immune system from kicking in. But
there was yet another problem. The drug-release rates of these
stealth liposomes were generally so low that tumor cells barely got
a dose. Scientist had made them so stealthy that they even skated
right by cancer cells, usually failing to kill off the tumors.
After decades of experimenting with liposome-encapsulated cancer
drugs, scientists still had not been able to safely deliver
therapeutic concentrations of the chemotherapy drugs to all tumor
cells.
They had to devise a way to induce drug release when and where
it would be more effective.
The next big idea came in more recent years, as scientists
devised temperature-sensitive liposomes. Heat them and they pop,
releasing the drugs just when you need them to. From stealth to
non-stealth in a matter of seconds, and right on target.
Fortunately, they were able to make it work, but unfortunately,
not at temperatures that didn't essentially cook patients from the
inside - sort of defeating the purpose of keeping the chemo at bay
to reduce collateral damage. They failed to perform at tolerable
levels of heat or time. Fifteen minutes of baking and still only
40% or so of the drug was released, and it took temperatures up to
112° Fahrenheit. It might not sound like much, but it was enough to
be intensely painful and damaging as well.
That's where Celsion came in. It's designed and developed a
novel form of these temperature-sensitive chemo sacks - the first
of their kind to work effectively and safely - otherwise known as a
lysolipid thermally sensitive liposome (LTSL).
Celsion's liposomes are engineered to release their contents
between 39-42° C, or 102.2-107.6° F (thus, another translation of
LTSL has become "low-temperature sensitive liposome"). And they
release the contents at an extremely fast rate to boot.
A Better Way to Use Chemo
These unique properties of Celsion's LTSL technology make it
vastly superior to previous liposome technology for a number of
reasons.
- For starters, the temperature range is much more tolerable to
patients and won't injure normal tissue.
- Second, the temperature range takes advantage of the natural
effect mild hyperthermia has on tumor vasculature. Numerous
studies have shown that temperatures between 39-43° C increase
blood flow and vascular permeability (or leakiness) of a tumor,
which is ideal for drug delivery since the cancer-killing
chemicals have easy access to all areas of the tumor. These
effects are not seen at temperatures below this threshold, and
temperatures above it tend to result in hemorrhage, which may
reduce or cease blood flow, hampering drug delivery. It's the
Goldilocks Effect: The in-between range is perfect.
- Third, Celsion's LTSL technology promotes an accelerated
release of the drug when and where it will be most effective.
That allows for direct targeting of organ-specific tumors.
Celsion's LTSL technology has shown that it's capable of
delivering drugs to the tumor site at concentrations up to
30 times greater than those achievable with
chemotherapeutics alone
, and three to five times greater than those of more traditional
liposome-encapsulated drug-delivery systems.
The company's first drug under development is ThermoDox, which
uses its breakthrough LTSL technology to encapsulate doxorubicin, a
widely used chemotherapeutic agent that is already approved to
treat a wide range of cancers.
RFA uses high-frequency radio waves to generate a high
temperature that is applied with a probe placed directly in the
tumor, which by itself kills tumor cells in the immediate vicinity
of the probe. Cells on the outer margins of larger tumors may
survive, however, because temperatures in the surrounding area are
not high enough to destroy them. But the temperatures
are
high enough to activate Celsion's LTSL technology. Thus, the heat
from the radio-frequency device thermally activates the liposomes
in ThermoDox in and around the periphery of the tumor, releasing
the encapsulated doxorubicin to kill remaining viable cancer cells
throughout the region, all the way to the tumor margin.
ThermoDox is also undergoing a Phase I/II clinical trial for the
treatment of recurrent chest wall (RCW) breast cancer (known as the
"DIGNITY study"), and a Phase II clinical trial for the treatment
of colorectal liver metastases (the "ABLATE study"). But most of
the drug's (and hence the company's) value is tied up in the HEAT
study.
The HEAT trial is a pivotal 700-patient global Phase III study
being conducted at 79 clinical sites under a special protocol
assessment ((
SPA
)) a greement with the FDA. The FDA has designated the HEAT study
as a fast-track development program, which provides for expedited
regulatory review; and it has granted orphan-drug status to
ThermoDox for the treatment of HCC, providing seven years of market
exclusivity following FDA approval. Furthermore, other major
regulatory agencies, including the European Medicines Agency
((EMA)) and China's equivalent, have all agreed to use the results
of the HEAT study as an acceptable basis to approve ThermoDox.
The primary endpoint for the HEAT study is progression-free
survival - living longer with no cancer growth. There's a secondary
confirmatory endpoint of overall survival, too. Both the
oncological and investing community are eagerly awaiting the
results, which are due any day now.
So then, why are we on the sidelines now, right when the big
news is due to hit? That all goes back to why Celsion was such a
good investment to begin with, and what it can tell us about
finding other big wins in the technology stock market.
A Winner in the Making
When we're looking for a strong pick in the biotechnology,
pharmaceuticals, and medical devices fields - once we have
established the quality of the technology itself and ensured it
will likely work as expected - there is a simple set of tests we
apply to ensure that we've found a stock that can deliver
significant, near-term upside. The most critical of these are:
- The technology must provide a distinct competitive advantage
over the current standard of care and be superior to any
competitors' effort that will come to market before or shortly
after our subject's does. In other words, it
must improve outcomes
, by improving patients' length or quality of life (
i.e.
, a cure for a disease, or a maintenance medication with fewer
side effects),
or lower costs
while maintaining quality of care (
i.e.
, a generic drug). A therapy that does both is all the
better.
- The
market must be measurable and addressable
. There must be some way to say specifically how many patients
would benefit from a therapy, and to ensure that those patients
have providers caring for them that would make efficient
distribution of the therapy possible. For instance, a successful
treatment for Parkinson's disease might be applicable to hundreds
of thousands of patients, with little competition from other
treatments, whereas a treatment for Von Hippel-Lindau (VHL) might
only reach hundreds. If the goal is to recover years of research
investment and profit above and beyond that, then market size
matters, as do current and future competitors that might limit
your reach within a treatment area.
-
Payers should be easily convinced to cover the new
therapy at profitable rates
. In the modern world of health care, failure of a treatment to
garner coverage from government medical programs like Medicare
and theU.K. Health Service, and private insurance companies
(which generally cooperate closely to decide how to classify and
whether to cover a treatment) is usually a game-ender. Payers
have a responsibility not just to patients but to their
shareholders or taxpayers to stay financially solvent. This means
that if a therapy does not provide a compelling cost/benefit
ratio, then it won't be covered. For instance, if you release a
new painkiller that is only as effective as Tylenol and costs
$1,000 per dose, you're obviously not going to see support.
-
There must a clear path to market in the short
term
, or another catalyst to propel the stock upward. An investment
in a great technology does not always make for a great
investment. You have to consider the quality of the management
team and structure of the company, including its ability to pay
the bills and get to market without defaulting or diluting you
out of your positions. And of course, time. The biggest and most
frequent mistake investors make in technology is assuming that it
is smooth and short sailing from concept to market. Reality is
much harsher than that, and in biotechnology and pharmaceuticals
in particular - with a tough regulatory gamut to run - the
timeline to take a new technology to market can be anywhere from
a decade to 30, 40 or even 50 years.
Liposomes are a perfect example of that. Twenty years ago, I
probably could have told you a story about a technology that was
very similar to what was laid out above. It would be compelling and
enticing to investors of all stripes - a breakthrough technology
with the promise to revolutionize cancer care by making chemo less
toxic and more effective at the same time. Yet had you invested in
that promise alone, chances are you'd be completely wiped out by
now, or maybe - just maybe - still waiting for a return.
That is why we invest in proof, not promises. So, how does
Celsion stack up against our four main proof points?
Time to market:
When we first recommended Celsion, it was in Phase III pivotal
trials. This is the last major stage of human testing usually
required before a company can submit an FDA New Drug Application
and apply to market the product.
The process of bringing a drug to market, even once a specific
compound has been identified and proven to work
in vitro
(in the lab), is perilous. Many things can go wrong along the way.
If you look at investing in a company whose drugs are just entering
Phase I clinical trials, for instance, it is still unclear if the
therapy is effective
in vivo
(in the human body). This is a critical stumbling block for many
companies, whose promising compounds immediately prove less
effective or more dangerous than testing suggested. Even if Phase I
goes well, it can take up to a decade and sometimes longer to get
from there to market with a drug. And then, even Phase II trials
often leave treatments five or more years from market - though
there are exceptions in cases where a therapy is proven very
effective or a disease has so few treatment options available. But
shortcuts are rare, and investors have to consider the time and
expense (which leads to fundraising and ultimately dilutes your
return) of getting from A to Z.
In this regard, Celsion made a uniquely great investment. When
we first recommended the company, it was in the midst of a pivotal
Phase III trial and looked to be about a year or so away from its
first commercialization. (Though, speaking to the length of these
trials, this one had been started back in 2008.)
With many of the most high-profile companies in the industry -
those working on vogue treatment areas and conditions, like
hepatitis C treatments of late - when they get this close to
market, the large banks bid up stocks to high levels, content to
squeeze just a few percentage points out at the end. They have to
be conservative, since they're investing large amounts of other
people's money. However, biotechnology is such a fragmented space
with far more companies than Wall Street can possibly cover in
depth, that coming across a gem like Celsion late in the game with
a potentially big win is not as uncommon as you'd think. The
"efficient market" hypothesis fails to account for the fact that no
one can know everything, including every stock. And Celsion had
gone all but unnoticed for some time.
Payer acceptability:
Celsion has the benefit of developing a 2.0-style product, an
improvement over something that already exists. RFA is already in
relatively widespread use and has proven effective enough that most
every insurance and benefits provider will cover it. Even the early
generations of LTSL, while not quite as safe or effective as
desired, were enough of a benefit to gather pretty solid support
from payers.
Celsion, through its clinical trial process, has proven its
unique blend is safer, better tolerated by patients, and
much
more effective than its predecessors. Thus, payer support at a
reasonable price is a pretty sure bet.
Market size:
When we originally recommended Celsion, we stated that the company
was sitting on a multibillion-dollar opportunity. And we stand by
that statement. However, just because something is eventually worth
that amount does not mean it's bankable today as a short-term
investment. So we try to keep our analysis narrowly focused on what
can be directly counted on and measured. In Celsion's case, that's
the Phase III treatment, Thermodox, and the one area in which it is
being studied: primary livercancer ((
HCC
)) . Even just in this narrow band, however, we see the market
opportunity for Celsion as in excess of $1 billion.
HCC is one of the most deadly forms of cancer. It currently
ranks as the fifth most-common solid tumor cancer, and it's quickly
moving up. With the fastest rate of growth among all cancer types,
HCC projects to be the most prevalent form of cancer by 2020. The
incidence of primary liver cancer is nearly 30,000 cases per year
in the U.S., an d approximately 40,000 cases per year in Europe.
But the situation worldwide is far worse, with HCC growing at
approximately
750,000
cases per year, due to the high prevalence of hepatitis B and C in
developing countries.
If caught early, the standard first-line treatment for primary
liver cancer is surgical resection of the tumor. Early-stage liver
cancer generally has few symptoms, however, so when the disease is
finally detected, the tumor is usually too large for surgery. Thus,
at least 80% of patients are ineligible for surgery or
transplantation by the time they are diagnosed. And there are few
nonsurgical therapeutic treatment options available, as radiation
and chemotherapy are largely ineffective.
RFA has emerged as the standard of care for non-resectable liver
tumors, but it has limitations. The treatment becomes less
effective for larger tumors, as local recurrence rates after RFA
directly correlate to the size of the tumor. (As noted earlier, RFA
often fails at the margins.) ThermoDox promises the ability to
reduce the recurrence rate in HCC patients when used in combination
with RFA. If it proves itself in Phase III, there's no doubt the
drug will be broadly adopted throughout the world once it is
approved.
A quick look at the numbers: According to the most recent data
from the National Cancer Institute, the incidence rates of HCC per
100,000 people in the three major markets are 4 in theU.S., 5 in
Europe, and approximately 27 in China. Based on these incidence
rates, the total addressable market in these three regions (which
we will conservatively assume to be the total addressable worldwide
population for the time being) is approximately 400,000 (12,000 in
theU.S., 40,0 00 in Europe, and 351,000 in China).
Assuming that 50% of HCC patients are eligible for nonsurgical
invasive therapy such as RFA, approximately 200,000 patients
worldwide would be eligible for ThermoDox. Further assuming an
annual cost of treatment for ThermoDox of $20,000 in the US,
$15,000 in Europe, and $5,000 in China, in line with similar
treatments of the same variety, we estimate that the market
potential of ThermoDox could be up to $1.3 billion. Not to mention
the countless thousands of lives saved. (And that's before the rest
of the developing world comes online.)
Of course, this is an estimate of ThermoDox's potential assuming
100% market penetration - something that simply never happens.
While we expect ThermoDox in combination with RFA to become the
standard of care for primary liver cancer, a more reasonable
expectation for maximum market penetration
after a six-year ramp-up to peak sales
(from an expected approval in 2013) is probably 40%.
Improving outcomes or lowering costs:
This is exactly what the Phase III trial was intended to prove:
efficacy beyond a shadow of a doubt. Given preliminary data and
earlier trial results, it was already a pretty sure thing, so in
our model, we assumed about a 70% chance of success (to be on the
conservative side, as always - it's better to be right by a mile
than to miss by an inch).
Once we incorporate that probability of success into our model,
we come to a probability-weighted peak sales figure in 2019 of
approximately $365,000,000 annually.
The average-price-to-sales ratio among the big players in
biotech these days is about 5. If we apply a sales multiple of 3 (
i.e.
, just 60% of the average) to Celsion's probability-weighted peak
sales for ThermoDox in 2019, we come up with a value for the
company of nearly $1.1 billion, which would equate to about $33 per
share if it did not issue any new stock between now and then -
that's more than 17 times where the stock was trading when we
recommended a buy.
And remember, these numbers are only for ThermoDox under the HCC
indication.
Our Move to the Sidelines
With final data from the current Phase III pivotal trial due
expected to come in within the next few weeks, Celsion's stock has
ballooned in value from the $2 range to $7.50 or so in the past few
weeks. Now, that's a far cry from the $33 price we mentioned above,
but remember, that's a target for
2019
. And it doesn't allow for a whole range of things that could go
wrong.
Chief among those concerns is that the Phase III data come in
more poorly than expected. Even just a small variance in efficacy
or a simple question about safety can knock a few hundred million
dollars off those sales figures. Or it can push trials back a year
or two, delaying returns and sending short-term-minded investors,
like those who have recently bid up CLSN shares, retreating to the
hills for the time being.
Further downfield there is sure to be competition as well, and
of course we may get those miraculous chemo-free treatments
mentioned up front.
In short, we don't have a crystal ball and can't tell you what
the world will look like in 2019. If you believe yours is clear,
ask yourself if you thought touchscreen phones and tablets would
outsell traditional computers by 3 to 1 globally in 2012. If not,
you might want to give the crystal a polish.
To be clear, the value of Celsion in the near term hinges on a
binary event - the results of the ongoing HEAT trial. We are of the
opinion that CLSN represents one of the best opportunities we've
come across since we started this letter, and that the probability
of a successful trial is high. Nevertheless, there is substantial
downsi de if the trial is unsuccessful. And it could take years to
recover, if ever, on news of a delay from any concerns raised.
We'd already advised subscribers to take a free ride early on in
our coverage of the stock, taking all of the original investment
risk away. However, even with that protection, the short-term
potential is still more heavily weighted to the downside. Thus, we
booked our profits and stepped to the sidelines on this one.
Celsion continues to be a model, even at today's prices, for a
great biotech investment with significant upside potential. But
we're content to wait for the market to hand us another, similar
opportunity.
Disclosure:
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. 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.
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