Celsion Bulls and Bears: Balancing Investor Views Heading into Final HEAT Data

There appears to be a resurgence of interest in Celsion at the moment. Perhaps some new investors have stumbled upon my blog as of late, learning about Celsion via the recently conducted interview CEO Michael Tardugno had with Reuters or after reading the newly released CEO letter on the corporate website.

Celsion- June 2012

As I have said in my very first blog post and reiterated during subsequent posts/tweets, I am very optimistic and confident in the potential of ThermoDox®, and this is what shaped my initial investment in Celsion. That being the case, I would caution any investor who simply seeks out data/opinions reinforcing their own personal opinions, and this is even more important in pharma/biotech investing. Thus, my approach has been to challenge my investment thesis from day one, “prove myself wrong”, if you will, and this has given rise to a solid appreciation for some of the “bearish” views that some might have on Celsion.

Rather than a high-level bulls/bears piece, I thought I would get very specific, and look at this from multiple perspectives. Again, arming investors with as much information as possible has been the intent from day one with my blog. With that said, the table below summarizes this assessment:

"Bullish Views"	"Bearish Views"
General Very low market cap for a late-stage Phase III oncology company, "dirt cheap". Sufficient cash on hand until mid-2013, reiterated multiple times by the company. Low burn rate of $5M/quarter. Very low/negligible debt Analyst targets several multiples of current price (click here for a comparative review of Griffin Securities, Rodman & Renshaw, Brean Murray and Roth Capital analyst reports) Recent large investment stake by Orbimed Advisors Steady and consistent insider buying, not a single insider sale. Positive HEAT trial outcome should fetch anywhere from 250M-600M (in my humble opinion) market cap valuation Apparent sentiment shift post-ASCO, reflected in recent strength in stock price Strong management team, company encourages questions from shareholders (I can personally attest to this) 6/29/2012 Update--> $10M loan agreement announced (first $5M tranch now, second $5M only after positive HEAT data), in my opinion, completely eliminates nagging dilution concerns pre-data, a major positive for shareholders. Total of 102,740  warrants issued as part of this deal.	General Wall Street may be pricing Celsion appropriately given the level of risk in the HEAT trial, "efficient markets" at work? The "Feuerstein-Ratain Rule", might it be at play here? Admittedly out of necessity, company was trigger happy to raise money in 2011, sometimes at unfavorable prices (Note to Celsion--> If you repeatedly insist you have enough cash on hand, don't be surprised if shareholders get upset if another raise is made pre-data). Large-scale recent exits by Mangrove and Ayer capital, large institutional holders. Institutional ownership remains relatively low (~15%, though I suspect that will change nearing data)
ThermoDox® as an Asset / LTSL Pipeline ThermoDox® enjoys every available regulatory advantage available (SPA, orphan designation, fast-track, accelerated endpoint, priority review) A “pipeline within a product”, ThermoDox® has demonstrated clinical potential in multiple indications, including liver mets and recurrent chest wall breast cancer. Pancreatic cancer and bone metastases to be examined further downstream. Company specifically targeting high-unmet need areas within oncology Platform can be triggered by all available approved sources of hyperthermia (RFA, Microwave, HIFU), "heat is heat is heat." HIFU adoption in particular is inevitable given completely non-invasive approach, ability to monitor temperatures in real-time marries this technology to ThermoDox® Platform focus is on established chemotherapeutics, limiting risk and accelerating approval process (505b2) Patent protection to 2021 and 2024, respectively, for 3 lipid and 4 lipid Needham family patents Fully paid off patent, licensed from Duke Other pipeline products include docetaxel and carboplatin, as well as combining agents for real-time monitoring Use of hyperthermia growing in oncology regardless of ThermoDox®, this trend clearly bodes well for Celsion.	ThermoDox® as an Asset / LTSL Pipeline Celsion essentially banking everything on ThermoDox®, only late-stage asset Colorectal liver metastases (CRLM) trial deliberately slow to enroll patients, recurrent chest wall (RCW) will not be enrolled until end of 2013 earliest. All platform products limited to indications where hyperthermia is already part of SOC, places finite parameters around market size. Adoption of microwave and HIFU still slow in the US. Liposomes accumulate in the liver, thus, while ThermoDox® ideal for liver applications, accumulation outside of liver largely dependent upon leaky tumor vasculature. Improving delivery of old chemos not as "sexy" as new molecular entities, and in my opinion, payers not as willing to accept significant price premiums for them either. Docetaxel and carboplatin pipeline products still very early stage, years away from the market Modest (~5%) royalty due to Duke
HEAT Study and Outcome Phase III predicated on a Phase I trial demonstrating strong dose response relationship, particularly in patients who had failed multiple lines of therapy Robust trial design using PFS as an accelerated endpoint, and OS as secondary confirmatory endpoint Overwhelming majority of literature (please do look for yourself on my blog) points to local recurrence originating precisely where ThermoDox® activates via RFA sub-lethal zone Largest study in intermediate stage HCC, data from HEAT study will be "bullet-proof" and widely accepted by regulatory authorities. Succeed or fail, this trial will be a major contribution to the medical literature. Company and Chief Medical Officer in particular continue to stress importance of data quality, particularly given the radiologic PFS endpoint. Builds off of an existing standard of care for unresectable HCC in radiofrequency ablation (RFA), synergy potential very evident. Study has cleared multiple DMC reviews for safety, all unanimous recommendations to continue. ThermoDox® likely very safe. No protocol changes since trial initiated. Successful interim efficacy analysis completed November 2011, key endorsement that efficacy on the right track. According to the recent CEO letter, Celsion's anticipated timing of 380 PFS events (an event that will be PR'd, my guess sometime in early Q4) is "reasonably consistent with the assumptions that we made in constructing the HEAT study" Initiation of the CRLM trial (granted that trial is purely looking at local progression) before HEAT data can be viewed as a sign of confidence, mechanism of action for ThermoDox's proposed efficacy exactly the same. Further, recurrence patterns are very similar between CRLM and HCC, in fact, CRLM tougher to treat in general. Fair to say company has maintained a very close working relationship with the FDA, company prides itself on sharing this relationship with investors. Company lead investigators, all prominent KOLs, continue to express optimism about ThermoDox® and ongoing HEAT study.	HEAT Study and Outcome Phase I study small (24 patients), most patients were not HCC, progression times largely incomparable to established literature. No Phase II conducted. PFS not the "ideal" endpoint for a drug with a predominant local effect such as ThermoDox®, it simply is not. Implicit assumption of the trial is that local progression (and technical failures) will account for a sufficient number of events such that ThermoDox® can make an impact. Distant intrahepatic progression outside of ThermoDox®' "reach" remains the biggest threat jeopardizing the trial's outcome, something I have mentioned repeatedly. Trial did not include microwave ablation, which is also emerging alongside RFA as another ablative approach for HCC and liver mets. Enrollment paused/halted in Japan due to differences in SOC (bridging study to commence after HEAT results, partner Yakult still very much engaged, however)
Competition and Commercialization A good analog to point to for commercialization success is Doxil, another liposomal encapsulation of doxorubicin. Very large potential patient population in initial HCC indication. Current HCC treatment paradigm is very unclear, HEAT study will add tremendous clarity and confidence to medical community about RFA's potential in combination with ThermoDox® 1st line therapy in HCC and liver metastases, limited competition. Aggressive pricing potential given expected outpatient, rather than inpatient, utilization Attractive licensing asset (J&J and Merck marketed Doxil/Caelyx, now solely J&J), ThermoDox® is a "green-light" into emerging markets for big pharma Attractive deal in place for Japan with Yakult-Honsha Significant milestone achieved with signing of Chinese manufacturing partner Hisun (in many ways, this is much more than simply a manufacturing agreement) Significant (and I would argue, natural) off-label potential with CRLM, especially given strong HCC data Adoption facilitated by ease of incorporation into existing SOC, simple intravenous (IV) infusion (This is clearly not Delcath's ChemoSAT system)	Competition and Commercialization Most HCC patients are in China, difficult market for pricing, penetration, and IP protection. Entry into Japan, another key market with relatively flexible pricing potential, delayed by at least 1-1.5 years relative to US/EU. RFA alone + TACE also being used for similar tumor sizes, early stage Sorafenib might also be source of competition. Pricing too aggressively can lead to restrictions from payers (prior authorizations, step edits, etc), payers beginning to scrutinize medical benefit oncologics more closely in general. Aggressive pricing very problematic in fixed reimbursement, inpatient settings. Company should consider not only the obvious Nexavar and Doxil as pricing analogs, but also, TACE, doxorubicin-eluting beads (DEBDOX), Therasphere, SIR-spheres, and RFA itself, all as potential analogs to base pricing on. Matter of necessity for Celsion to secure a large partner to commercialize Ex-US, no licensing deals outside of Japan yet Impact of IV drug administration within interventional radiology suite will likely require some physician education, particularly to ensure compliance with optimal "timing" of administration and heat source

So what does all of this give you? Why should you care? Plain and simple, if you are bullish, be mindful of some of the potential bear views, and if you are bearish, know that a compelling bull case can be made to invest in Celsion. You all know where I ultimately stand on this, I think the HEAT trial will succeed, despite the risks I point out inherent in the trial, and ThermoDox® will very rapidly make its way as a first-line standard of care for unresectable HCC patients not eligible for transplantation. More importantly, I do think the management team is well aware of some of the “bear concerns” I have raised, and I am optimistic about their confidence in ensuring they are addressed/mitigated to the extent possible.

Risks remain, as they do with every biotech, and for that, I encourage everyone to continue their DD. At the same time, I would challenge investors to identify a company with a better risk/reward than Celsion. The market, dare I say, is beginning to take notice of the company's potential.

As always, please let me know if you have any questions or comments.

Best,
Siavoche

Dr. Ronnie Poon, HEAT Lead Investigator, Discusses HCC, Outlines Potential of ThermoDox

Released coincident to this year's ASCO conference, I was excited to see another investigator interview recording made available by Celsion today. As many of you recall, Rodman & Renshaw's Dr. Reni Benjamin conducted a similar interview a few months back with Dr. Steven Libutti (who leads the ABLATE Phase II study), which I commented on as well.

Arguably, this is an even more impactful interview (not to discount Dr. Libutti, of course) since it involves Dr. Ronnie Poon, a lead Co-PI in the HEAT study, and one of the most well-respected liver cancer physicians in the world. Of note, Dr. Ronnie Poon is based in China, which is by far the biggest potential market for ThermoDox in HCC, and he has personally treated "15 or 16" patients in the HEAT study according to the interview. Of course, Dr. Poon also lead the Phase I study as well.

I like how these interviews have been conducted, as they are not meant to be "advertising" for Celsion and ThermoDox. Rather, Dr. Benjamin asked Dr. Poon to discuss the typical treatment HCC patients receive, and from that very broad context, how ThermoDox might play a role in the treatment paradigm alongside resection, transplantation, transarterial approaches, and later stage treatments such as Nexavar. Below are some of the highlights of the discussion, but I highly recommend you listen for yourself (see below, I embedded it here as well).

• True global incidence of HCC likely underestimated, 750,000 cited in most sources, but this is likely an underestimation, 55% of which are in China. 
• Surgery and transplantation are the best treatments for HCC larger than 3cm, but very few patients are eligible for such treatment. Dr. Poon mentioned that in reality, only 2% of patients end up with transplantation, and 20-25% get resection.
• Transarterial treatments such as TACE and deb-TACE are used for patients with very large tumors, 5-6 lesions in number.
• Ideally, RFA should take the place of surgery because of the extensive time and invasive nature of surgery. Ablation has similar efficacy to surgery for tumors <3cm (some data does challenge what he said though, but it's a moot point since few patients are eligible for surgery anyways).
• Approximately 30% of HCC patients are eligible for RFA on first diagnosis, and Dr. Poon without ambiguity emphasized that RFA is indeed today's SOC for early/intermediate stage disease. Interestingly, Dr. Poon emphasized that among the 20-25% of patients getting surgical resection, 70% of those will develop recurrence and will inevitably receive treatment with RFA as well. Taking it all together, 40-45% of patients are eligible for RFA. 
• Dr. Poon mentioned that incomplete ablation and recurrence around the tumor margins are common issues in lesions >3cm, again, something I have reiterated many times, and this serves as the rationale for ThermoDox.
• Dr. Poon emphasized that local control can be improved by ThermoDox' proposed mechanism of action, in which high concentrations of chemo are released in the margins surrounding the tumor in the so-called, thermal zone, or sub-lethal temperature zone, where there are micrometastases present that cannot be seen using imaging techniques.
• Regular doxorubicin suffers from very high toxicity, ThermoDox is "definitely a safe drug", with side effects that are "not clinically significant"
• Dose response seen in Phase I was the rationale for jumping straight to Phase III. Dr. Poon mentioned that initially, there were "some issues" in working with the FDA to design the Phase III trial, primarily around the use of OS versus PFS as the study's primary endpoint. However, Dr. Poon emphasized that PFS is a clinically appropriate endpoint for intermediate stage patients. He later added that the trial was "designed as good as it can be"
• There will be a "lot of expectations for the results of this trial", according to Dr. Poon, primarily because the HEAT study is the largest intermediate stage trial conducted and there are very few, if any, other trials looking at this line of therapy (versus late stage, for example, which he mentions a lot of companies are looking at). 
• High quality trial sites selected in the HEAT study should help to reduce site to site variation in data
• Theoretically, a patient could get 6 or 7 administrations of ThermoDox before they hit the doxorubicin dose ceiling. Dr. Poon emphasizes that a typical patient might get 2-4 RFA treatments in their course of treatment. 
• Even a 20-25% improvement in PFS in this population is meaningful, according to Dr. Poon. Recall that the HEAT study needs to show a 33% improvement.
• As an adjunct to RFA, Dr. Poon highlighted that ThermoDox can be readily incorporated into standard practice, suggesting a rapid pace of adoption assuming positive data and approval of course. Simplicity and familiarity of doxorubicin should accelerate adoption, but education will still be needed to time the administration of the drug and beginning the RFA procedure to take advantage of the PK/PD profile of ThermoDox.
• One area where I will take issue with Dr. Poon is in how he described heat plus non-heat sensitive Doxil. While immediate release of chemo is indeed not seen with heat plus Doxil (as would be expected), he did not mention that there is some literature suggesting that RFA + Doxil increases the tumor necrosis volume. I was surprised he did not bring this up.
• An interesting area Dr. Poon suddenly veered into was around the topic of pricing, suggesting that price could be a barrier for some patients. However, Dr. Poon was quick to highlight the relatively high price of an often used analog for ThermoDox (Nexavar, a poor analog if you ask me in all honesty).

These were just the salient points brought up, again, I do recommend investors listen for themselves:

Looking broadly at these "meet the investigator" interviews Celsion has coordinated, I have to applaud them for doing so. Again, these are extremely well-known, world renowned physicians, so I can't think of much more they can do to generate interest for ThermoDox. Speaking for myself, I very much do appreciate hearing firsthand from highly respected clinicians in the field.

The data will ultimately tell the story...you can be sure that the eyes of the interventional/surgical oncology world will be glued to the outcome of the HEAT study, hopefully due by end of year (the inevitable PR of 380 confirmed PFS events triggering the 6-10 week "countdown" will give us much more clarity as to timing). As this year's ASCO winds down, I am already looking forward to ASCO 2013.

Best,
Siavoche