It's been roughly one month since
$100,000 Real-Money Portfolio
, and they're already up nearly 25%.
In fact, this stock has more than tripled from its52-week low ,
and for some early investors who have already seen a huge move, the
thought of booking profits must be quite tempting.
But that would be a mistake.
Take a look at this stock's impressive run in the past
Management's moves in the next few months are crucial in
establishing the kind of value this company deserves, so exiting
this stock now would be quite premature.
In a moment, I'll explain the catalysts ahead for this surging
biotech, but first, let's address a key near-term headwind.
On Aug. 13, a few days before I added Celsion to my portfolio,
the company filed a $75 million "fixedshelf offering . "This means
the company now has the authorization to raise that much money in
the form of new stock, debt, or some combination of both. Yet
investors hate to see this kind of financial action. Just look at
what happened to shares of biotech firm
when the company announced it was selling shares to raise more
That's why you need to brace for a hiccup in Celsion if the
company makes a similar announcement. The fact that shares are
moving up quickly means management may be tempted to "strike while
the iron is hot."
To put things in context, Celsion currently has 33.24 millionshares
outstanding . If the company had proceeded with a capital raise
back in August (with shares trading at $3.28), then that would have
swelled the share count by 22.9 million shares, in effect diluting
existing shareholders by 70%. Now with shares approaching $5.50, a
$75 million capital raise would lead to the issuance of 13.6
million new shares, or roughly 40%dilution .
This still counts as a worst-case scenario. In fact, there's a
very good chance Celsion will try to borrow money instead. That's
what the company did back in June, leading Financial Officer Greg
Weaver to note the following on a mid-August conference call: "This
management team continues to focus on cost controls and make our
cash work as hard as possible and the virtually nondilutive loan
proceeds provided additional strength to thebalance sheet as we
Let's spilt the difference and assume that Celsion raises money
through the sale of debt and equity, leading to a more reasonable
20% dilution. For Celsion, raising money now is crucial to ensure
the company doesn't look to be in dire financial straits as it
negotiates terms with potential marketing/licensing partners. In an
ideal world, the company would skip the capital raising and simply
land such a partner, which would ostensibly bring in cash upfront.
But in the world of biotech, the stars never line up so easily.
To be sure, the longer Celsion waits, the better the negotiating
position will be. Right now, the company is making presentations at
several international oncology conferences. That helps explain why
shares are on the move right now. Sometime in the fourth quarter,
Celsion will have completed its all-important Phase III clinical
trials for its cancer-fighting treatment ThermoDox. Soon
thereafter, the company is expected to publicly release that data,
which could then pave the way for a rapid review by the U.S. Food
and Drug Administration. A marketing or licensing partner? That
could come by the first quarter of 2013 -- if not sooner.
Risks to Consider:
As is the case with any biotech stock, there are myriad risks,
from an FDA rejection to slow uptake by the medical community.
Precisely gauging the potential opportunities for Celsion's
ThermoDox is still a challenge, and we won't get a clear read on
that actual revenue andprofit road map for this company for many
more quarters to come.
Action to Take -->
Celsion continues to face a compellingmarket opportunity,
especially in the area of liver cancer, which is increasingly
prevalent throughout Asia. Even if this company dilutes current
shareholders with a 40% expansion in the share count, then you're
still looking at a $300 millionmarket value , which is well below
the ultimate potential market size for the company's ThermoDox
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of CLSN in one or more if its "real money" portfolios.