Biotech investing is awfully tricky. For every stock pick that
performs well, a number of others blow up. From increasingly tough
hurdles with clinical trials to the mercurial rulings of the Food
& Drug Administration (FDA), it's a field littered with
landmines. And it often requires deep medical knowledge to gain an
That's why I generally steer clear of the biotech industry. On
occasion though, I suggest biotech stocks that look to have major
upside -- if the biotechnology is understandable, shows solid
testing data and is getting close to possible FDA approval. These
picks should never be a big part of your portfolio because of their
high-risk nature, but they can be added on the
to help juice gains when the occasional big gainer emerges.
Right now, I'm focusing on a biotech stock I first discussed in
October 2011. Back then,
three oncology stocks that had major upside. How have they done?
Threshold Pharmaceuticals (Nasdaq:
are both up more than 400%. And as I noted
back in February
, I think Threshold has even more upside ahead, perhaps past the
But what about my third pick,
? I recommended it at a price of $2.75 back in October, and it
eventually fell below $2 this past winter. This just shows you the
risk of putting a lot of money into just one biotech stock. Your
money could evaporate quickly.
now looks like it may have significant upside potential as well. In
recent months, investors have started to see the strong potential
for this company, and its
are finally making headway, moving up roughly 50% since the month
If you think you've missed the move in this stock, then don't
fret. By my math, shares could double or even triple from here --
if the cards fall into place.
As I noted back in October, Celsion's biotechnology -- known as
ThermoDox -- helps in the treatment of cancer tumors by heating
them up, enabling existing cancer drugs to work more effectively.
ThermoDox has always delivered solid results in clinical trials,
but this company was always a bit short on cash, repeatedly raising
fresh funds to keep clinical trials going.
rose from 10.7 million in 2009 to a recent 33 million, bringing
to existing investors. Who wants to own a stock like that?
The good news: Celsion is getting closer to the finish line with
its clinical trials and further dilution for this stock may be a
lot more modest. Equally important, the company's current $100
sharply discounts the potential
opportunity for ThermoDox.
Targeting Hep C
Although ThermoDox could conceivably be used to target a wide range
of cancer tumors, clinical trials have been focused on
hepatocellular carcinoma (
), also known as liver cancer, which is often the result of a
longstanding diagnosis of Hepatitis C. There are roughly 750,000
diagnoses of HCC worldwide annually, of which one-third could be
treated with ThermoDox. The heat treatment is especially important
in the HCC market because liver cancers are often right near major
arteries, so cutting out a tumor brings the risk of major arterial
damage. Indeed, a heavy amount of bleeding is the biggest cause of
mortality after liver cancer surgery.
Celsion continues to conduct Phase III trials, with stated plans to
complete them by the fourth quarter. Analysts at Brean Murray note
that "due to the potential ability of ThermoDox to reduce the
recurrence rate in intermediate HCC patients, we are optimistic
about its adoption as the future standard of care." In effect, they
say that if the FDA approves of the drug, then it could quickly
gain traction among liver cancer surgeons. In addition, ThermoDox
has "orphan drug" status, which means Celsion will be able to avoid
generic competition for seven to 10 years.
If ThermoDox hits the market, then sales could be in the tens or
even hundreds of millions annually. As a rough guess, based purely
on rates of HCC in various countries, ThermoDox could reach $20
million in annual sales in Japan later this decade. Europe and the
United States could have about 50% more sales than that.
Yet it's China that could be the blockbuster market, simply
because it has a much higher rate of liver disease. There are more
than 400,000 new cases of liver cancer in Asia every year, so the
revenue opportunity from that region could equal all other regions
A drug pre-approval test involving 200 patients is underway in
China, and Celsion signed a deal with China's Zhenjian Hisun
Pharmaceutical in May to manufacture ThermoDox in that country.
Zhenjian Hisun is also funding the initial production of ThermoDox,
which is being handled as a loan to Celsion.
Brean Murray's analysts have tallied up the potential revenue
streams and say Celsion could earn more than $1 a share by 2015,
even if further stock dilution takes the share count above 50
million. The forecasted growth in shares outstanding appears to
incorporate a worst-case scenario, and the share count could end up
closer to 40 million, pushing that
per share forecast higher.
In the past few sessions, this stock's momentum had been
blunted. We subsequently learned that the company has entered into
a $10 million credit facility (which some investors must have had
knowledge in advance). Shares always weaken whenever investors find
out a company is raising capital, but often find a floor once the
capital-raising is announced. The good news: the loan will not
dilute the share count, highlighting management's confidence that
other, less painful ways to raise cash will likely be available in
due time, whether through a licensing agreement or a share sale at
a higher price.
Risks to Consider:
Many drugs have looked like a "slam dunk" as they moved through
clinical testing, only to have the FDA decline to grant final
approval. As such, ThermoDox's current strong testing data should
be taken with a grain of salt.
Action to Take -->
After a strong run throughout June, shares of Celsion have seen a
bit of profit-taking recently, falling more than 10% in the past
few sessions. For those not yet in this stock, its recent $2.75
stock price is an even better entry point than before.
Brean Murray's analysts have a $7 target price, though that
comes with a 35% discount rate. If ThermoDox gets FDA approval,
then that discount rate would be sharply lowered and shares could
conceivably move toward the $10 mark, which would still value this
company at less than $400 million, yet still be a gain of more than
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.