Breaking Down a Biotech Winner
By Alex Daley, Casey Extraordinary Technology
Traditional cancer treatment options are little more than a crude mix of “slash, burn, and poison” – that is surgery, radiation, and chemotherapy. There are radical new treatments in labs and trials all over the world that promise to throw out this trifecta; no other disease has received more of the research interest and funding that have defined modern biotechnology over the past three decades.
I’m not going to tell you about any of those here. Sure, many of them will be wildly successful and make many investors fabulously wealthy over the next few decades. But most will fail. And those that don’t will take a long time to turn a profit for investors.
Yet, there is one small company whose unique twist on cancer treatment is proving to be a major upgrade. We profiled this company in a recent edition of Casey Extraordinary Technology, and it turned in a gain of over 167 percent for subscribers in just six months’ time. It may yet make billions more still for investors.
You see, in recent years chemotherapy has become the core treatment for most cancerous malignancies. And while these toxic cocktails of chemicals have proven effective at destroying cancerous cells, they also have one problem. A big one.
Chemo, being essentially a poison, doesn’t just attack cancerous cells – it attacks a broad range of healthy cells too. As a result, the treatment can sometimes be as harmful as the cancer itself in the short run. The side effects are awful, and its use can quickly erode patients’ health. Some have even described chemo as a “cure that’s worse than the disease.”
This sad state of affairs for the world’s second most-prevalent chronic disease is why the cancer-research arena has been exploding over the past few years with the goal of developing more targeted, less-toxic therapies – in other words, to do a better job killing cancer cells while leaving healthy cells alone.
That’s exactly what Lawrenceville, New Jersey-based Celsion Corp. (CLSN) has the technology to do. And chances are the company is on to one of the biggest cancer-treatment breakthroughs in decades.
How It Works
Our story starts with liposomes. These nanosized artificial vesicles are made from the same material as our cell membranes – natural phospholipids, i.e., a version of the chemicals that make up everything from fat to earwax, and cholesterol.
Not long after their discovery in the 1960s, scientists began experimenting with liposomes as a means of encapsulating drugs, especially cancer drugs. Why? Something called the “enhanced permeability and retention” (EPR) effect. This is a property of certain sizes of molecules – for example, liposomes, nanoparticles, and macromolecular drugs – which tend to accumulate in tumor tissue much more than they do in normal tissues. It’s a useful feature for a cancer drug.
Thus, they offer a potential way to combat the two biggest drawbacks of traditional chemotherapeutics: systemic toxicity and low bioavailability at the tumor site. In other words, the drugs now employed are themselves are toxic to normal cells, and they tend to get largely used up before they even reach the tumor site.
Early attempts to encapsulate drugs inside liposomes did an okay job of dealing with the toxicity issue, but bioavailability at the tumor site was still limited. Our immune system saw to that. Just like virtually anything else artificial we put into our bodies, traditional liposomes were seen as invaders. Thus, they were rapidly cleared by the mononuclear phagocyte system, the part of the immune system centered around the spleen (yes, we do use it) that destroys viruses, fungi, and other foreign invaders.
However, a breakthrough arrived when scientists came up with a new way to sneak these artificial compounds into the body undetected by our defenses. The process gave us what are call “PEGylated” liposomes, with a covalent attachment of polyethylene glycol polymer chains. The effect of attaching these little plastic chains to the end of the liposome was to create a “stealth” liposome-encapsulated drug that was hardly noticed by the system.
Problem solved, right? Well, not exactly. A lot of hard work went into getting drugs into liposomes to reduce toxicity, then a bunch more into stopping our immune system from kicking in. But there was still yet another problem. The drug-release rates of these stealth liposomes were generally so low that tumor cells barely got a dose. Scientist had made them so stealthy that they even skated right by cancer cells, usually failing to kill off the tumors.
After decades of experimenting with liposome-encapsulated cancer drugs, scientists still had not been able to safely deliver therapeutic concentrations of the chemotherapy drugs to all tumor cells.
They had to devise a way to induce drug release when and where it would be more effective.
The next big idea came in more recent years, as scientists devised temperature-sensitive liposomes. Heat them and they pop, releasing the drugs just when you need them to. From stealth to non-stealth in a matter of seconds, and right on target.
Fortunately, they were able to make it work, but unfortunately, not at temperatures that didn’t essentially cook patients from the inside – sort of defeating the purpose of keeping the chemo at bay to reduce collateral damage. They failed to perform at tolerable levels of heat or time. Fifteen minutes of baking and still only 40 percent or so of the drug was released, and it took temperatures up to 112 degrees Fahrenheit. It might not sound like much, but it was enough to be intensely painful and damaging as well.
That’s where Celsion came in. It’s designed and developed a novel form of these temperature-sensitive chemo sacks – the first of their kind to work effectively and safely – otherwise known as a lysolipid thermally sensitive liposome (LTSL).
Celsion’s liposomes are engineered to release their contents between 39-42 degrees C, or 102.2-107.6 degrees F (thus, another translation of LTSL has become “low-temperature sensitive liposome”). And they release the contents at an extremely fast rate, to boot.
A Better Way to Use Chemo
These unique properties of Celsion’s LTSL technology make it vastly superior to previous liposome technology for a number of reasons.
– For starters, the temperature range is much more tolerable to patients and won’t injure normal tissue.
– Second, the temperature range takes advantage of the natural effect mild hyperthermia has on tumor vasculature. Numerous studies have shown that temperatures between 39-43 degrees C increase blood flow and vascular permeability (or leakiness) of a tumor, which is ideal for drug delivery since the cancer-killing chemicals have easy access to all areas of the tumor. These effects are not seen at temperatures below this threshold, and temperatures above it tend to result in hemorrhage, which may reduce or cease blood flow, hampering drug delivery. It’s the Goldilocks Effect: The in-between range is perfect.
– Third, Celsion’s LTSL technology promotes an accelerated release of the drug when and where it will be most effective. That allows for direct targeting of organ-specific tumors.
Celsion’s LTSL technology has shown that it’s capable of delivering drugs to the tumor site at concentrations up to 30 times greater than those achievable with chemotherapeutics alone, and three to five times greater than those of more traditional liposome-encapsulated drug-delivery systems.
The company’s first drug under development is ThermoDox, which uses its breakthrough LTSL technology to encapsulate doxorubicin, a widely used chemotherapeutic agent that is already approved to treat a wide range of cancers.
Currently, ThermoDox is undergoing a pivotal Phase III global clinical trial – denoted the “HEAT study” – for the treatment of primary liver cancer (hepatocellular carcinoma, or HCC), in combination with radiofrequency ablation (RFA).
RFA uses high-frequency radio waves to generate a high temperature that is applied with a probe placed directly in the tumor, which by itself kills tumor cells in the immediate vicinity of the probe. Cells on the outer margins of larger tumors may survive, however, because temperatures in the surrounding area are not high enough to destroy them. But the temperatures are high enough to activate Celsion’s LTSL technology. Thus, the heat from the radio-frequency device thermally activates the liposomes in ThermoDox in and around the periphery of the tumor, releasing the encapsulated doxorubicin to kill remaining viable cancer cells throughout the region, all the way to the tumor margin.
ThermoDox is also undergoing a Phase I/II clinical trial for the treatment of recurrent chest wall (RCW) breast cancer (known as the “DIGNITY study”), and a Phase II clinical trial for the treatment of colorectal liver metastases (the “ABLATE study”). But most of the drug’s (and hence the company’s) value is tied up in the HEAT study.
The HEAT trial is a pivotal 700-patient global Phase III study being conducted at 79 clinical sites under a special protocol assessment (SPA) agreement with the FDA. The FDA has designated the HEAT study as a fast-track development program, which provides for expedited regulatory review; and it has granted orphan-drug status to ThermoDox for the treatment of HCC, providing seven years of market exclusivity following FDA approval. Furthermore, other major regulatory agencies, including the European Medicines Agency (EMA) and China’s equivalent, have all agreed to use the results of the HEAT study as an acceptable basis to approve ThermoDox.
The primary endpoint for the HEAT study is progression-free survival – living longer with no cancer growth. There’s a secondary confirmatory endpoint of overall survival, too. Both the oncological and investing community are eagerly awaiting the results, which are due any day now.
So then, why are we on the sidelines now, right when the big news is due to hit? That all goes back to why Celsion was such a good investment to begin with, and what it can tell us about finding other big wins in the technology stock market.
A Winner in the Making
When we’re looking for a strong pick in the biotechnology, pharmaceuticals, and medical devices fields – once we have established the quality of the technology itself and ensured it will likely work as expected – there is a simple set of tests we apply to ensure that we’ve found a stock that can deliver significant, near-term upside. The most critical of these are:
– The technology must provide a distinct competitive advantage over the current standard of care and be superior to any competitors’ effort that will come to market before or shortly after our subject’s does. In other words, it must improve outcomes, by improving patients’ length or quality of life (i.e., a cure for a disease, or a maintenance medication with fewer side effects), or lower costs while maintaining quality of care (i.e., a generic drug). A therapy that does both is all the better.
– The market must be measurable and addressable. There must be some way to say specifically how many patients would benefit from a therapy, and to ensure that those patients have providers caring for them that would make efficient distribution of the therapy possible. For instance, a successful treatment for Parkinson’s disease might be applicable to hundreds of thousands of patients, with little competition from other treatments, whereas a treatment for Von Hippel-Lindau (VHL) might only reach hundreds. If the goal is to recover years of research investment and profit above and beyond that, then market size matters, as do current and future competitors that might limit your reach within a treatment area.
– Payers should be easily convinced to cover the new therapy at profitable rates. In the modern world of health care, failure of a treatment to garner coverage from government medical programs like Medicare and the UK Health Service, and private insurance companies (which generally cooperate closely to decide how to classify and whether to cover a treatment) is usually a game-ender. Payers have a responsibility not just to patients but to their shareholders or taxpayers to stay financially solvent. This means that if a therapy does not provide a compelling cost/benefit ratio, then it won’t be covered. For instance, if you release a new painkiller that is only as effective as Tylenol and costs $1,000 per dose, you’re obviously not going to see support.
– There must a clear path to market in the short term, or another catalyst to propel the stock upward. An investment in a great technology does not always make for a great investment. You have to consider the quality of the management team and structure of the company, including its ability to pay the bills and get to market without defaulting or diluting you out of your positions. And of course, time. The biggest and most frequent mistake investors make in technology is assuming that it is smooth and short sailing from concept to market. Reality is much harsher than that, and in biotechnology and pharmaceuticals in particular – with a tough regulatory gamut to run – the timeline to take a new technology to market can be anywhere from a decade to thirty, forty, or even fifty years.
Liposomes are a perfect example of that. Twenty years ago, I probably could have told you a story about a technology that was very similar to what was laid out above. It would be compelling and enticing to investors of all stripes – a breakthrough technology with the promise to revolutionize cancer care by making chemo less toxic and more effective at the same time. Yet had you invested in that promise alone, chances are you’d be completely wiped out by now, or maybe – just maybe – still waiting for a return.
That is why we invest in proof, not promises. So, how does Celsion stack up against our four main proof points?
Time to market: When we first recommended Celsion, it was in Phase III pivotal trials. This is the last major stage of human testing usually required before a company can submit an FDA New Drug Application and apply to market the product.
The process of bringing a drug to market, even once a specific compound has been identified and proven to work in vitro (in the lab), is perilous. Many things can go wrong along the way. If you look at investing in a company whose drugs are just entering Phase I clinical trials, for instance, it is still unclear if the therapy is effective in vivo (in the human body). This is a critical stumbling block for many companies, whose promising compounds immediately prove less effective or more dangerous than testing suggested. Even if Phase I goes well, it can take up to a decade and sometimes longer to get from there to market with a drug. And then, even Phase II trials often leave treatments five or more years from market – though there are exceptions in cases where a therapy is proven very effective or a disease has so few treatment options available. But shortcuts are rare, and investors have to consider the time and expense (which leads to fundraising and ultimately dilutes your return) of getting from A to Z.
In this regard, Celsion made a uniquely great investment. When we first recommended the company, it was in the midst of a pivotal Phase III trial and looked to be about a year or so away from its first commercialization. (Though, speaking to the length of these trials, this one had been started back in 2008.)
With many of the most high-profile companies in the industry – those working on vogue treatment areas and conditions, like hepatitis C treatments of late – when they get this close to market, the large banks bid up stocks to high levels, content to squeeze just a few percentage points out at the end. They have to be conservative, since they’re investing large amounts of other people’s money. However, biotechnology is such a fragmented space with far more companies than Wall Street can possibly cover in depth, that coming across a gem like Celsion late in the game with a potentially big win is not as uncommon as you’d think. The “efficient market” hypothesis fails to account for the fact that no one can know everything, including every stock. And Celsion had gone all but unnoticed for some time.
Payer acceptability: Celsion has the benefit of developing a 2.0-style product, an improvement over something that already exists. RFA is already in relatively widespread use and has proven effective enough that most every insurance and benefits provider will cover it. Even the early generations of LTSL, while not quite as safe or effective as desired, were enough of a benefit to gather pretty solid support from payers.
Celsion, through its clinical trial process, has proven its unique blend is safer, better tolerated by patients, and much more effective than its predecessors. Thus, payer support at a reasonable price is a pretty sure bet.
Market size: When we originally recommended Celsion, we stated that the company was sitting on a multibillion-dollar opportunity. And we stand by that statement. However, just because something is eventually worth that amount does not mean it’s bankable today as a short-term investment. So we try to keep our analysis narrowly focused on what can be directly counted on and measured. In Celsion’s case, that’s the Phase III treatment, Thermodox, and the one area in which it is being studied: primary liver cancer (HCC). Even just in this narrow band, however, we see the market opportunity for Celsion as in excess of $1 billion.
HCC is one of the most deadly forms of cancer. It currently ranks as the fifth most-common solid tumor cancer, and it’s quickly moving up. With the fastest rate of growth among all cancer types, HCC projects to be the most prevalent form of cancer by 2020. The incidence of primary liver cancer is nearly 30,000 cases per year in the US, and approximately 40,000 cases per year in Europe. But the situation worldwide is far worse, with HCC growing at approximately 750,000 cases per year, due to the high prevalence of hepatitis B and C in developing countries.
If caught early, the standard first-line treatment for primary liver cancer is surgical resection of the tumor. Early-stage liver cancer generally has few symptoms, however, so when the disease is finally detected, the tumor is usually too large for surgery. Thus, at least 80 percent of patients are ineligible for surgery or transplantation by the time they are diagnosed. And there are few nonsurgical therapeutic treatment options available, as radiation and chemotherapy are largely ineffective.
RFA has emerged as the standard of care for non-resectable liver tumors, but it has limitations. The treatment becomes less effective for larger tumors, as local recurrence rates after RFA directly correlate to the size of the tumor. (As noted earlier, RFA often fails at the margins.) ThermoDox promises the ability to reduce the recurrence rate in HCC patients when used in combination with RFA. If it proves itself in Phase III, there’s no doubt the drug will be broadly adopted throughout the world once it is approved.
A quick look at the numbers: According to the most recent data from the National Cancer Institute, the incidence rates of HCC per 100,000 people in the three major markets are 4 in the US, 5 in Europe, and approximately 27 in China. Based on these incidence rates, the total addressable market in these three regions (which we will conservatively assume to be the total addressable worldwide population for the time being) is approximately 400,000 (12,000 in the US, 40,000 in Europe, and 351,000 in China).
Assuming that 50 percent of HCC patients are eligible for nonsurgical invasive therapy such as RFA, approximately 200,000 patients worldwide would be eligible for ThermoDox. Further assuming an annual cost of treatment for ThermoDox of $20,000 in the US, $15,000 in Europe, and $5,000 in China, in line with similar treatments of the same variety, we estimate that the market potential of ThermoDox could be up to $1.3 billion. Not to mention the countless thousands of lives saved. (And that’s before the rest of the developing world comes online.)
Of course, this is an estimate of ThermoDox’s potential assuming 100 percent market penetration – something that simply never happens. While we expect ThermoDox in combination with RFA to become the standard of care for primary liver cancer, a more reasonable expectation for maximum market penetration after a six-year ramp-up to peak sales (from an expected approval in 2013) is probably 40 percent.
Improving outcomes or lowering costs: This is exactly what the Phase III trial was intended to prove: efficacy beyond a shadow of a doubt. Given preliminary data and earlier trial results, it was already a pretty sure thing, so in our model, we assumed about a 70 percent chance of success (to be on the conservative side, as always – it’s better to be right by a mile than to miss by an inch).
Once we incorporate that probability of success into our model, we come to a probability-weighted peak sales figure in 2019 of approximately $365,000,000 annually.
The average-price-to-sales ratio among the big players in biotech these days is about 5. If we apply a sales multiple of 3 (i.e., just 60 percent of the average) to Celsion’s probability-weighted peak sales for ThermoDox in 2019, we come up with a value for the company of nearly $1.1 billion, which would equate to about $33 per share if it did not issue any new stock between now and then – that’s more than 17 times where the stock was trading when we recommended a buy.
And remember, these numbers are only for ThermoDox under the HCC indication.
Our Move to the Sidelines
With final data from the current Phase III pivotal trial due expected to come in within the next few weeks, Celsion’s stock has ballooned in value from the $2 range to $7.50 or so in the past few weeks. Now, that’s a far cry from the $33 price we mentioned above, but remember, that’s a target for 2019. And it doesn’t allow for a whole range of things that could go wrong.
Chief among those concerns is that the Phase III data come in more poorly than expected. Even just a small variance in efficacy or a simple question about safety can knock a few hundred million dollars off those sales figures. Or it can push trials back a year or two, delaying returns and sending short-term-minded investors, like those who have recently bid up CLSN shares, retreating to the hills for the time being.
Further downfield there is sure to be competition as well, and of course we may get those miraculous chemo-free treatments mentioned up front.
In short, we don’t have a crystal ball and can’t tell you what the world will look like in 2019. If you believe yours is clear, ask yourself if you thought touchscreen phones and tablets would outsell traditional computers by 3 to 1 globally in 2012. If not, you might want to give the crystal a polish.
To be clear, the value of Celsion in the near term hinges on a binary event – the results of the ongoing HEAT trial. We are of the opinion that CLSN represents one of the best opportunities we’ve come across since we started this letter, and that the probability of a successful trial is high. Nevertheless, there is substantial down side if the trial is unsuccessful. And it could take years to recover, if ever, on news of a delay from any concerns raised.
We’d already advised subscribers to take a free ride early on in our coverage of the stock, taking all of the original investment risk away. However, even with that protection, the short-term potential is still more heavily weighted to the down side. Thus, we booked our profits and stepped to the sidelines on this one.
Celsion continues to be a model, even at today’s prices, for a great biotech investment with significant upside potential. But we’re content to wait for the market to hand us another, similar opportunity.
for Economic Prism
[Editor’s Note: Alex Daley is the senior editor of Casey’s Extraordinary Technology. In his varied career, he’s worked as a senior research executive, a software developer, project manager, senior IT executive, and technology marketer. The pages of Casey Extraordinary Technology are filled with investments just like Celsion – up-and-coming technology companies the market has yet to discover. With 2012 coming to a close, the service’s track record for the year is a remarkable 9 winners out of 9 closed positions, with an average gain of 61 percent. Get in on it now: subscribe today and save 25% off the regular price – as always, backed by our unconditional money-back guarantee.]