Assessing Risk Ahead of Company Changing Data
Natalie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After a week of trending lower, Celsion (NASDAQ: CLSN) rallied with gains of more than 10.50% following the announcement of a partnership in China. Under the terms of the partnership, Celsion will receive upfront cash and incentives up to $100 million. This created a sense of relief to current investors ahead of company changing data. However, investors shouldn’t use this news as a guaranteed proof of success, and should still tread carefully in the days ahead.
Celsion at a glance
Celsion is developing a Phase 3 treatment for Primary Liver Cancer called ThermoDox. The company combines radiofrequency thermal ablation (RFA) with a high dose of the drug doxorubin. The idea of the treatment is to target a specific area and then cover the tumor through the process of heating the accumulated drug. If successful in its Phase 3, 600 patient trial, ThermoDox would become the primary treatment for this type of cancer, and could report sales upward of $1 billion.
After a 360% move higher investors are having a hard time in maintaining their confidence ahead of such crucial Phase 3 results. If the trial is successful then Celsion could very easily trade higher by another 150%, but if it fails, then most of last year's gains will be lost. It's a tough decision for any investor, whether to buy, hold, or sell. Because any way you look at it, this stock has a very high risk to reward ratio.
A bull & bear outlook for Celsion
According to Alex Heisenburg, the company has already delayed the progression of the disease over the control arm by at least 111%. Also, it has slowed the progression of the disease by more than 144%. Heisenburg's data was mathematically superb and he gave numerous reasons for his bullish thesis (I highly suggest the read). It's data such as this that has allowed Celsion to be one of the market's best performers during 2012.
While bulls make a strong case for a successful Phase 3 trial due to ThermoDox's more than 30% benefit versus using RFA alone to treat large tumors, there is always a bearish side. The idea to ThermoDox is to stop the re-growth of liver tumors. The product works by focusing on a specific area of the liver. However, bears argue that the majority of tumors grow back in various parts of the liver and that the chosen compound, doxorubin, has not been able to produce a meaningful disease-free-survival benefit in previous studies. As a result, there are many who believe the study will be ineffective and that gains will be lost.
The question looking ahead to final data is whether or not ThermoDox will be successful in stopping the re-growth of tumors. It may very well stop the disease from spreading, but can is stop tumors from re-growing once it has been removed or treated? This is the billion dollar question, and one that has created an awful lot of doubt in recent weeks from both the retail investor and analysts, such as Brean Capital. Yet despite these strong opinions, we do not know and will not know until the company announces data. It's the investor's job to assess if the known information is worth the risk.
Final take on Celsion (before we know the answer)
Here's my conclusion: You can not use any information that comes out in the days prior as an indication or a hint as to what will happen when Celsion reports its final data. Everyone is looking to make a prediction and is hoping to be correct with their call, and at this point, they have a 50% chance of success. Yet due to this speculation, the average investor tries to dissect and determine any potential hints that could indicate the outcome one way or the other.
Last year, Acadia Pharmaceuticals (NASDAQ: ACAD) raised $7 million just before announcing data for its Parkinson's disease drug. This caused selling pressure as many tried to connect the dots and believed it indicated a failed study. However, we all know the results of the study, and the success that followed. Acadia has since inceased in value by more than 160% and looks as though its drug will become the new standard of care for treating Parkinson's disease. However, those who tried to read too much into a simple move were left without these large gains. Therefore, it's important to keep this in mind when referring back to Celsion: Just because it signed the agreement and made a move ahead of Phase 3 results doesn't mean that it's an indication of something to come.
Some believe that Celsion’s new partnership indicates a successful trial, but honestly, there is no way to know nor is there a way to use the wording or developments that may occur before an announcement to determine the outcome. I am neither long nor short the stock, but respect the fact that this news will be important to many investors. Therefore, my advice to investors ahead of data is to simply be careful and to properly assess the risk vs the reward when deciding on the investment; and to not try and determine the outcome with rumors and or speculation.
Brake1Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!