LOS ANGELES, CA -- (Marketwire) -- 01/29/13 -- Investors in Celsion Corporation are eagerly awaiting the announcement of Phase 3 results from the company's HEAT trial of Thermodox + Radio Frequency Ablation (RFA) in treating liver cancer.
Arguments for the trial's success and failure have been made in several articles published across the internet. Most buy side investors we have spoken to feel that the trial is likely to fail in meeting its primary efficacy endpoints. Nevertheless, it is interesting that the company has not taken advantage of the recent run-up in share price from under $2 in June to just over $9 last week, to raise capital despite having a $75 million Shelf Offering on file. Management is either really confident in the outcome of the HEAT trial, or they are simply being reckless by not raising capital when the financing window is open.
Fair Value Model
Ahead of binary events, one must always determine whether or not the current share price justifies the risk of holding through the event. For firms such as Celsion, where there really is only one viable drug candidate, a fairly simple model can be used to determine fair value.
To begin, we assume that, upon trial failure, the stock will be worth net cash on hand. Based on Celsion's Q3 10-Q, the company had approximately 50 cents per share of net cash ($22.7 million cash minus $5.09 million debt divided by 35.01 million shares). Note, Celsion recently received $5 million from their Chinese pharmaceutical partner; however, since the company utilizes approximately $5 million cash per quarter, this payment does not change the cash position calculations materially from those based on Q3 numbers.
Next we make an estimate of the fair value of the stock upon trial success. Without getting into detailed analysis, let us assume that fair value for Celsion if Thermodox + RFA works is $1B market cap. This value assumes that Celsion could see Thermodox all the way through approval, but for a ballpark estimate, it is reasonable to say that a successful liver cancer therapy should be worth at least $1B in market cap or $28.56 per share.
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