The ThermoDox Data Release: Utilizing Options to Minimize Risk

Shares of Celsion Corp. (NASDAQ:CLSN) have climbed 103% since PropThink last wrote on the ThermoDox developer in November, which is due to release pivotal Phase III results within the month. The Phase III HEAT study evaluates Celsion’s lead — and only — candidate as a treatment for Hepatocellular Carcinoma using a combination of encapsulated doxorubicin and Radio Frequency Ablation (RFA) to deliver a targeted dose of the chemotherapeutic agent to the intended treatment site — in this case, the liver. Big expectations for the ThermoDox results helped lift CLSN shares to their current levels after management put a timeframe on the Ph. III results, indicating that they expected the HEAT Study had reached 380 progression events, and according to trial protocol, had triggered data collection, unblinding, and final analysis of the results for release in January.

But investors have limited data from previous trials on which to base ThermoDox expectations, meaning that a positive data release is far from certain; already 20% of CLSN’s 30M float is betting against a positive release. Rather than take a stance on limited information and a highly volatile event, PropThink put together an options strategy structured around the data release (expected this month) to take advantage of returns without the full risk that accompanies owning the stock outright.

ThermoDox Phase III results carry considerable risk, and the stock will swing precipitously one way or the other. The HEAT trial is a double-blind, placebo-controlled study evaluating 700 primary liver cancer patients undergoing either RFA in combination with ThermoDox (encapsulated doxorubicin) or RFA alone. The first and only clinical trial of ThermoDox that offers any precedence of the therapy’s efficacy was a Phase I, open-label, 24-patient trial involving both primary liver cancer (HCC) and secondary liver cancer (liver metastases) patients. Only nine patients had HCC, the target of the HEAT Study, and Celsion used a sub-group analysis as rationale for the current Phase III trial. Celsion proponents cite the strong dose response in the Phase I trial as reason enough for positive findings in the HEAT study. Interestingly enough, the company was able to bypass a proof-of-concept Phase II trial, a facet that Bears suggest is indicative of poor future clinical performance, but was made possible for CLSN in large part by doxorubicin’s track record as a chemotherapy agent. But despite limited clinical proof for ThermoDox, the FDA has agreed to a Special Protocol Assessment for the HEAT study, validating the trial protocol and indicating that if the trial meets its pre-set Progression Free Survival endpoint (33% PFS improvement), the drug will likely receive FDA approval. Most importantly, the company has no other assets in the pipeline and is running low on cash.

Expectations are that CLSN, which currently trades at ~$9.14, could climb to $15 or higher on positive results based on a relatively high short interest, uncertainty over the trial’s success potential, and a large unmet medical need in HCC. And if the HEAT trial fails to show a benefit, CLSN could trade to $2 or lower given the company’s lack of additional pipeline assets and need for capital. To that end, a February $12-$17 Call spread, carrying a total cash outlay (not including commissions) of ~$1.50 offers an interesting way to get involved in this binary trade without risking much capital. This call spread strategy involves buying the lower priced calls and selling the higher priced calls mentioned above in equal amounts. For instance, one could buy a February $12 Call for $2.45 per contract and sell a February $17 Call for $0.95, a net cash outlay (total risk) of $1.50 per contract (not including commissions). The maximum potential gain on this strategy is $3.50, and the maximum potential loss is the initial $1.50 waged per contract (100 shares) on the call spread. Total return potential of 133%, risk of 100%, and prices are subject to change as option premiums for CLSN are moving pretty rapidly given the upcoming event.

PropThink is gauging interest in an options-specific addition to our current life science offerings. If interested, please email