The biggest headlines yesterday, at least in the world of biotech, were mostly about the huge disappointment given by Celsion’s (NASDAQ: CLSN) product Thermodox in phase III trials for the treatment of hepatocellular carcinoma (HCC). While Celsion is developing Thermodox for a number of indications, investors are now (rightfully) worried that the actual mechanism behind the product’s efficacy is flawed.
Thermodox is based on a very theoretical (and innovative) model originally invented in 1996 by David Needham - a professor at Duke University. Thermodox’s active ingredient is actually a commonly used chemotherapeutic agent called doxorubicin, which is encapsulated in lysolipid thermally sensitive liposomes (LTSLs) to make a heat-activated doxorubicin payload that targets very specific areas of the body after activating using radiofrequency ablation (RFA). The general idea is that this would deliver an ultra-concentrated blast of doxorubicin, which would also be helped by the actual heating of the cancer tissue.
The Phase III HEAT Study was initiated in 2008, was conducted under Special Protocol Assessment (SPA) under the FDA, and was truly going to be the “make or break” trial for the company and the product. Leading up to the January 2013 release of the data, the investment community attached a lot of hype to the potential of Thermodox to treat a wide variety of cancers. This drove the stock up by about 70% until the data was finally unveiled.
Yesterday (January 31st, 2013), the company reported results which showed that the primary endpoint (33% improvement in progression-free survival) was not reached. The secondary endpoint, defined by overall survival, is yet to be fully analyzed. The one good piece of news was that Thermodox’s safety profile remains quite solid, as patient tolerance of the therapy was terrific.
We can’t say that the Thermodox program is dead, but it’s very clear that any faith that the investment community had in this product was shattered after the failure of the HEAT study. Not only have investors been waiting a very long time for these results with the pent-up hope of having a sleeper hit liver cancer therapy, but a lot of money has been drained this 700-patient trial. The question remains whether or not the HEAT trial will yield any sort of value for CLSN investors, but the picture looks quite grim.
This is why it’s not surprising that CLSN dropped over 81% yesterday, all the way down to $1.51 (and a market cap of about $53 million). If you consider that the company has a net worth of a bit less than $13 million (as stated on the balance sheet), Thermodox is worth about $40 million now.
The question is whether or not to believe in Celsion’s ability to turn Thermodox into something of value, or whether to abandon ship or even short the company on the notion that it could eventually go bankrupt (or at least perform equity financings to offset operating expenses.)
It’s really tough to put a price on Thermodox at this point, because there is a good chance that it will never be developed into anything useful. In that case, it is almost a liability! This is why I wouldn’t advise trying to catch this falling knife from a fundamental perspective. We might see dip buyers who are simply chasing a ticker that dropped 81% in one session, but I have a hard time believing that there will be significant interest from the bulls on CLSN with the possibility that Thermodox will be a complete fail of a project.
On the other hand, shorting CLSN could be a bit dangerous. Not only is there a chance that a position could be wiped out (or put deep into the red) on a “correction” of some sort, but I think that bears who weren’t betting against CLSN prior to the phase III data have missed the boat. There isn’t much meat left on the bone, and there are much better shorting opportunities elsewhere.
Perhaps it’s best to watch CLSN from the sidelines, just to see what ends up happening to Thermodox and Celsion. I am saddened that ~$230 million of CLSN investors’ wealth was wiped out overnight, and by the fact that a cancer therapy I was hopeful about will likely end up as a bust. This is why investors should always be careful with how much they put into any trade.