December 14, 2012

$PVCT: Comparing illustrative $CLSN bull and bear cases, and how they help inform us about $PVCT

Two informative articles recently appeared about Celsion Corp. (NASDAQ: CLSN). The stock has had quite a run-up in 2013.

Click figure to enlarge it.
The first article, by Alex Daley, presents the bull case. The second article, by Adam Feuerstein, includes a short-side fund manager's bear case.

I want to set aside CLSN's headlines, stock performance and trading angles (whether long or short) in approaching, structuring and writing this post. Both authors and article undoubtedly are focused on the near-term, and there thought processes are useful and informative. More broadly, their comments also are applicable to longer-term views.

In Daley's article, "...there is a simple set of tests we apply to ensure that we've found a stock that can deliver significant, near-term upside." Summarized, this is:
  • Improving outcomes or lowering costs: " must improve outcomes, by improving patients' length or quality of life, or lower costs while maintaining quality of care, or both;"
  • Market size: "...the market must be measurable and addressable;"
  • Payer acceptability: "...payers should be easily convinced to cover the new therapy at profitable rates;" and
  • Time to market: "...there must a clear path to market in the short term."

Daley and Mr. Short CLSN are arguing asynchronously about the first half of Daley's first criterion: More improvement. Daley thinks CLSN is:
  • A better lysolipid thermally sensitive liposome (LTSL) technology,
  • A better approach with chemotherapy than just chemotherapy alone, and
  • A better solution with radiofrequency ablation (RFA) than RFA alone.
CLSN -- more improvement (greater, equal or lesser cost) or lower cost (no lesser improvement)? Ultimately, the synthesis of the above is CLSN improves outcomes (before progressing to discuss the other items). Mr. Short CLSN, on the other hand, thinks CLSN will be shown not to improve outcome and "be unable to demonstrate a significant benefit on delayed tumor progression in the phase III study" (because "more often than not, tumors grow back in distant parts of the liver away from the lesion(s) that's been ablated using RFA" and CLSN/Thermodox).

If CLSN does not improve outcome, cost or price is not relevant. If it does, cost then is relevant; however, Daley does not provide sufficient information to understand pricing magnitude and flexibility (i.e., treatment price, cost and, thus, gross margin) and address either (i) incremental improvement per unit price (and cost and gross margin) or (ii) lower cost with no lesser improvement.

Provectus has not released sufficient information to prove the claim PV-10 improves outcomes. At least that what traditionalists, purists, skeptics and others have said. I suppose, then, a Daley-like proponent of the company or Mr. Short PVCT really having nothing to argue about, let alone debate the merits other criteria. Perhaps...

Check One. I posit PV-10 dramatically improves outcome. That outcome comes at a dramatically lower cost compared to either competitors or standards of care. Length of life improves. Quality of life improves. A lot.

Check Two. I posit the addressable market is very large. The addressable markets of individual indications like melanoma or metastatic melanoma, or HCC are substantial in their own right. Considering PV-10 as a true multi-indication treatment, whether individually or in combination with other therapies and approaches at the appropriate rung of the treatment ladder, proposes a monstrously large addressable market.

Check Three. I posit payer acceptability will be inevitable. This, of course, goes back to the cost of manufacturing PV-10 and, subsequently, the pricing of the drug. The rather large gross margin the drug permits provides tremendous flexibility is smartly pricing it. Pricing impacts profitability and thus valuation. Pricing also impacts the competitive landscape is a very large way as well.

Check Four? Not quite yet. While the company is much closer to the end of of the path to market than it has ever been, the finish line has not yet been reached. I can yet posit anything here...yet.

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