Readers of my articles know I spend little time focusing on
biotech stocks. The science behind these companies is often so
arcane that analyzing these firms to find the best stocks to invest
in is best left to people with a serious grounding in medicine.
Even if a biotechnology company's approach is straightforward
and understandable, many other factors can trip up an investor --
from disappointing clinical trials to a cash-poorbalance sheet to a
fickle Food & Drug Administration (FDA) advisory panel.
Yet just I've come across a biotech company that:
• Employs an easy-to-grasp approach to treating cancer
tumors
• Has shown very strong clinical data thus far
• Is lining up important partners
• Has the cash to tide it over for now
• And most important, is on the cusp of a major set of
milestones that could catalyzeshares .
It's actually a stock I've discussed a few times before. I first
discussed
Celsion (Nasdaq:
CLSN
)
roughly 10 months ago in a profile of
three up-and-coming biotech stocks
. Though the two other picks took off like a rocket, Celsion's
shares stumbled as the months went on.
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Yet in the past few quarters, this stock has really gained
traction. I encourage you to
read this update
that I wrote in June, because it goes into greater-depth about
Celsion's breakthrough ThermoDox technology, which uses heat to
boost the effectiveness of tumor-treating drugs.
Shares have risen another 15% since then, but so much further
upside remains that I've decided to add Celsion to my
$100,000 Real-Money Portfolio
. It's an unusual pick for this portfolio, as it lacks the clear
downside support near current levels. But that's simply the nature
of a development stage biotech: There is more risk, and a key
setback could lead to sharp losses. Still, the reward here appears
to outweigh the risks in a big way.
Equally important, Celsion is getting much closer to the finish
line. It could be generating sales within a few quarters -- if all
falls into place. As I noted before, ThermoDox clinical trials are
set to wrap up in a few months, and with fast-track and orphan-drug
status in hand, we might see sales begin soon thereafter.
An updated outlook
In addition to signing a deal with China's major pharma company
Zhenjian Hisun Pharmaceutical in May to manufacture ThermoDox in
that country, here's what has transpired since:
- On June 28, Celsion announced it had secured a $10 million
loan from Oxford Finance and
Horizon Technology Finance Corp. (Nasdaq:
HRZN
)
. Half of this loan has already been disbursed and the other half
will come when certain clinical milestones are met.
- On Aug. 7, Celsion announced apartnership with medical
device firm
Philips Electronics (NYSE:
PHG
)
to start testing ThermoDox in conjunction with Philips'
ultrasound-based heat-delivery machines. The two firms will
commence Phase II trials in the next six months, implying
possiblemarket entry in 2014 or 2015.
Celsion currently has about $24 million in cash. And though it's
been bleeding about $6 million per quarter recently, theburn rate
should shrink in the quarters ahead as the company's clinical
trials wind down. On its second-quarter conferencecall , management
noted that cash on hand is sufficient for the next 12-15 months,
yet it's prudent to assume that the company will do a final round
of capital raising ahead of any product lunch.
The company recently filed a $75 million "mixedshelf offering ,"
which means it can raise some or all of that money through either
debt or equity. Shares appear to have digested the prospect of a
bit moredilution , as they have actually rallied a bit since the
plan was announced on Aug.13.
"To be clear, we have no current plans forequity financing
prior to data," management said during a call with analysts. That
reference to the release of Phase III clinical data (known as the
HEAT trial) is, as noted earlier, the big near-term milestone for
this stock. In addition, management presumably believes any
stockoffering will be done on more favorable terms after that
event. I encourage you to read
all of management's comments
about the status of ThermoDox.]
The Downside Protection -->
As a biotech stock, there isn't a lot of downside support. If the
FDA decides to reject approval of ThermoDox, then this stock would
likely quickly lose a significant portion of its value. As noted
earlier, ThermoDox is showing great results in clinical trials, but
the FDA has been known to snatch defeat from the jaws of victory
from biotech firms many times before.
Upside Triggers -->
The full analysis of all the data being tracked in the HEAT trial
will be released sometime in the fourth quarter. It's wisest to
assume it will come closer to the end of the quarter.
The following quarters should be a time of many more catalysts.
Not only will Celsion be providing updates on other clinical trials
(helping the investment community better clarify the total revenue
opportunity for the company), but it is likely to also announce a
range of global sales partnerships -- assuming ThermoDox gets the
FDA approval.
As is the case with many biotechs, Celsion is expected to
release key segments of clinical testing data at various medical
conferences. The stock is likely to trade up in advance of these
announcements (as all signs point to the data being robust). So
keep an eye out for Celsion's announced plans for oncology
conferences this fall and winter.
So what's this stock worth? It's hard to be precise. The company
is currently valued at around $115 million, which is a fraction of
the potential long-term revenue opportunity for ThermoDox. We do
know that technology could be of help to hundreds of thousands of
patients around the world (many of whom are in China). Yet we don't
know what the share count will look like in a few years, and we
can't yet assess what kind of profits Celsion will generate when
the sales base reaches maturity. (The company concedes that it
hasn't even finalized final pricing strategies yet.)
Instead, we need to simply give a sense that shares are capable
of rising up from just below $4 to the $5, $6 or even $7 mark as
these catalysts emerge. Frankly, there could be a lot more upside
than that. It's soon to know, but that view could sharply clarify
in coming quarters.
Action to Take -->
I will buy 2,000 shares (or roughly $7,000 worth) of Celsion 48
hours after you read this. Shares can be bought under $5.
-- 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.