Wednesday, December 19, 2012

Celsion and Oncothyreon

Celsion still is a good investment thesis.

If you have not heard, Oncothyreon had a failed trial this morning and had the share price cut by more than 50%. As a disclosure, I had no position in ONTY but was in it a couple years ago for the continue at the first interim. I do have a lot of friends and colleagues who were in it, some quite heavily, and they are hurting quite a bit this morning.

Celsion has had a number of people who are bullish because of models showing the trial “is running longer than it should, thus it must be doing well.” ONTY, as numerous trials have before this, should serve as a wake-up call to these investors. Fortunately, Celsion’s Thermodox has a plethora of features that allow me to be “watchfully bullish.”

For one, the method of action (MOA) is pretty clear.
Reviewing the concept in extremely basic language, Thermodox is the chemo doxorubicin, covered by a fatty layer. That fatty layer is engineered to be attracted to the “leaky” blood vessels that are found most prominently in tumors. So after Thermodox is infused into the patient, these entities congregate around tumors. When radio-frequency ablation (RFA) occurs, burning away the cancerous tissues, that fatty layers cracks open (it has been compared to a hexagonal soccer ball) and releases the doxorubicin, bathing the tumor and surrounding tissue in the chemotherapeutic agent.
Doxorubicin does two extra things germane to this process:
Its cell-killing activity is heightened by heat. Thus it’s even more effective than normal.
It lowers the temperature of the surrounding tissue. This means heat-activated ablation is more effective, especially in the margin areas that otherwise would not be completely ablated.

Importantly, both RFA and doxorubicin are known processes and drugs, with a familiarity by doctors and the FDA.

I question the models that show the trial is “going long.” We are actually on the schedule put out by management in the prior year. Enrollment took a heck of a lot longer than anyone initially thought. And HCC is a wide-open kind of cancer, where many issues interact and no patient can be said to be “average.” The size and number of tumors, where they are located, and general health (otherwise to the cancer!) all have a lot to do with their prognosis. While generally speaking the median progression-free survival (PFS) should be around 12 months for the RFA-only group in the trial, the clinical sites are at some of the most skilled RFA-practitioners in the world. Patients who are in clinical trials tend to have better outcomes, due partially to the placebo effect, to the improved follow-up care and also simply by the desire to live as evidenced by being willing to enter a clinical trial. I will not be surprised to see PFS for the placebo arm come in higher than 12 months.

The Japanese firm Yakult partnered with Celsion a couple years ago, and before partnering you can be sure they got a peek at the preclinical and other available Thermodox data. At the beginning of 2011 Yakult elected to pay an extra couple million dollars upfront in order to receive a lower-than agreed royalty rate going forward. I cannot imagine how that can be spun as anything but positive. Philips Healthcare has partnered with us using their high-frequency ultrasound (HIFU) technology at the heating mechanism in lieu of RFA. They are paying trial costs, which is a reasonable (and bullish) commitment, also having seen private company data. I think it fair to propose that preclinical and ph1 data are reasonably strong.

The most “squishy” factor to consider is the insider buying. Several officers and directors have recently bought shares on the open market or exercised options or warrants. As a reminder, this takes real money, either straight up or as “income” defined by the IRS, and so it is coming out of these folks’ disposable income. As the old saw goes, insiders can sell for many reasons, but there is only one reason for them to buy.
Alongside that, we need to look at the company’s refusal to do a financing prior to data, and in fact their reiterated commitment NOT to do so very recently. This is pretty much unheard of, and very bullish. Let me be explicit here – the insider buying and no-raise factors are bullish but these people do NOT have much more insight into the trial than investors do. They do not have unblinded info from the interim look, they don’t get “winks and nudges” from the Data Monitoring Committee (DMC), and they cannot trade if they did know such things. But they are the closest to the data and such actions should at least be acknowledged.

In sum, I feel Celsion at a sub $300M market cap is undervalued and eminently tradable. I think the HEAT trial has a very reasonable chance of success and have a 2-month target price of $20.

Disclosure and disclaimer:
I own shares and option of Celsion at the time of this writing and while my positions may change, I have no intention of doing so within three days of this article. My own resources, risk tolerance, and personal situation have been taken into consideration for any trades mentioned and should not be used as a basis for someone else's trades. Stocks may lose value and this is not recommendation to buy or sell this particular issue.
This is presented for educational and informational purposes only, and should not be construed as personalized legal, tax, investment, or financial advice.

2 comments:

Trond said...

Slight correction - thanks to DavisCupper from Yahoo.

I wrote the Yakult partner section too quickly off just my recollection.

The reduction applied ONLY to the approval milestone payment of $18M. Basically Yakult paid $2M more upfront, maybe another $2M later, and then would avoid paying an extra $7.2M, which is the 40% of the $18M approval milestone.
-Trond

bwat said...

Hey Trond, Bwatson here, great article all biotechs have risk, but as risks goes CLSN certainly appears to take a few unknowns out of the equation including an already approved drug.
Also I could be wrong but if we don't take the other 2 million I think the payment is only reduced by 20% either way a company that capitalized clsn without knowing results or if the drug worked should be considered bullish. Great article again