The Biotech Lottery Ticket

By Ryan Guenette - August 28, 2012 | Tickers: CELG, CLSN, NLNK, ONXX | 0 Comments

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Purchasing small biotech companies can be compared to purchasing a lottery ticket. If their blockbuster drug gets approved by the FDA, then the stock doubles in a day. If the drug does not get approved, the company putters along, reevaluating their position. That is why I strongly believe that long-term investors should not focus on small biotechnology companies, yet every once and a while, investors can buy a lottery ticket biotechnology company, but only with money that they can afford to lose. Again I strongly caution against using money that an investor needs to bet on biotech companies, but if there is so money laying around that you can lose, take a look at Celsion Corporation (NASDAQ: CLSN).

Celsion has already extensively rallied this year, up 147.06%. Despite this rally, I believe if Celsion’s biotechnology, ThermoDox, is approved by the FDA, the stock could easily double from current levels, possibly more. So is the risk worth the potential reward in this instance?

Brightening Future

In 2011, Celsion reported earnings per share of -$1.11. In 2014, the average analyst consensus believes the company will derive $0.39 per share from its business operations. This represents an increase of 135.14% over just three short years, an accomplishment for any size of company. Celsion swings from losing almost a dollar a share in 2011, to making cold hard cash in 2014. During this period, sales for Celsion are set to skyrocket. In 2011, Celsion had sales of $2 million. By 2016, the street expects Celsion to have sales of $258 million. This represents an increase of 12,800% over 5 years. The huge explosion in sales is set to occur on the contingency that their biotechnology is approved. If this technology is not approved, there is no reason why in 2016, Celsion’s sales could still be $2 million. To put the opportunity still available at the stock’s current price, the estimated 2016’s sales are approximately double what the current business is valued at. Celsion’s estimated fundamentals would send the stock price skyrocketing upward, but is contingent on an approval from the FDA.

The chart below displays what Celsion Corporation’s sales, operating profit, net income, net margin, operating margin, and earnings per share may look like over the coming years.

Prospects & Potential

ThermoDox, Celsion’s biotechnology, assists in the treatment of cancer tumors by heating them up, permitting existing, already approved cancer drugs to work more effectively and efficiently. ThermoDox has consistently displayed strong clinical data, an encouraging sign. While ThermoDox could possibly be utilized to target a vast array of cancers, Celsion is focusing its potential on liver cancer (hepatocellular carcinoma). With about 250,000 diagnoses annually that could be treated with ThermoDox. ThermoDox is especially effective for liver cancer, as tumors are commonly located directly next to major arteries, making surgery a risky operation. As Celsion nears closer and closer to its anticipated approval, as Celsion projects it will complete Phase III trials by the fourth quarter, it is worth discussing the potential of the biotechnology.

Later this decade, ThermoDox could reach $20 million in sales, Europe and the United States each reaching around $30 million, but the real opportunity is found China. With more than 400,000 new cases of liver cancer in China each year, the sales in China could top all other regions combined. Already signing a deal with Zhenjian Hisun Pharmaceutical to manufacture ThermoDox, Celsion acquired a $10 million loan from Oxford Finance and Horizon Technology Finance Corporation; then went on to announce on August 7^th that it had joined forces with Philips Electronics to begin testing ThermoDox in conjunction with Philips’ ultrasound-based heat delivery machines, planning to enter the market in 2014 or 2015. In conclusion, the potential for Celsion is tremendous, and should offer investors substantial returns, as an approval is forecasted to occur in 2013.

Who is the King of Biotech?

Compared to some of Celsion’s most prominent competitors, such as: Onyx Pharmaceuticals Incorporated (NASDAQ: ONXX), ImmunoCellular Therapeutics Limited, NewLink Genetics Corporation (NASDAQ: NLNK), and Celgene Corporation (NASDAQ: CELG), Celsion compares relatively in-line.

In terms of growth, Celgene is unmatched, while Onyx is a laggard in the industry. None of the companies in the industry pay out dividends, and none have expressed interests to do so. In the fundamental ratio comparison, Celgene is the only company with a reasonable multiple. When growth is taken into account, Onyx appears to be trading at a reasonable level. In the net profit margin comparison, Celgene stands out to the upside, while Celsion stands out the downside.

The Foolish Bottom Line

Buying a small biotechnology company such as Celsion can be compared to being in the Cash Cab at the end of a ride. “Would you like to do the double or nothing bonus round” is what these biotech companies are like, but if research is conducted on the technology, and a firm grasp is held on the company’s condition, it can turn the odds in your favor. Contingent on the approval of ThermoDox, Celsion could strike a gold mine. Their biotechnology has consistently shown promising strength, and has been highly effective in its trials. The foolish bottom line is that if you have some money lying around that you can afford to lose, put it on Celsion and let it spin.      

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