Readers of my articles know I spend little time focusing on biotech stocks. The science behind these companies is often so arcane that analyzing these firms to find the best stocks to invest in is best left to people with a serious grounding in medicine.

Even if a biotechnology company’s approach is straightforward and understandable, many other factors can trip up an investor — from disappointing clinical trials to a cash-poor balance sheet to a fickle Food & Drug Administration (FDA) advisory panel.

Yet just I’ve come across a biotech company that:

• Employs an easy-to-grasp approach to treating cancer tumors

• Has shown very strong clinical data thus far

• Is lining up important partners

• Has the cash to tide it over for now

• And most important, is on the cusp of a major set of milestones that could catalyze shares.

It’s actually a stock I’ve discussed a few times before. I first discussed Celsion (Nasdaq: CLSN) roughly 10 months ago in a profile of three up-and-coming biotech stocks. Though the two other picks took off like a rocket, Celsion’s shares stumbled as the months went on.

Yet in the past few quarters, this stock has really gained traction. I encourage you to read this update that I wrote in June, because it goes into greater-depth about Celsion’s breakthrough ThermoDox technology, which uses heat to boost the effectiveness of tumor-treating drugs.

Shares have risen another 15% since then, but so much further upside remains that I’ve decided to add Celsion to my $100,000 Real-Money Portfolio. It’s an unusual pick for this portfolio, as it lacks the clear downside support near current levels. But that’s simply the nature of a development stage biotech: There is more risk, and a key setback could lead to sharp losses. Still, the reward here appears to outweigh the risks in a big way.

Equally important, Celsion is getting much closer to the finish line. It could be generating sales within a few quarters — if all falls into place. As I noted before, ThermoDox clinical trials are set to wrap up in a few months, and with fast-track and orphan-drug status in hand, we might see sales begin soon thereafter.

An updated outlook
In addition to signing a deal with China’s major pharma company Zhenjian Hisun Pharmaceutical in May to manufacture ThermoDox in that country, here’s what has transpired since:

• On June 28, Celsion announced it had secured a $10 million loan from Oxford Finance and Horizon Technology Finance Corp. (Nasdaq: HRZN). Half of this loan has already been disbursed and the other half will come when certain clinical milestones are met.

•  On Aug. 7, Celsion announced a partnership with medical device firm Philips Electronics (NYSE: PHG) to start testing ThermoDox in conjunction with Philips’ ultrasound-based heat-delivery machines. The two firms will commence Phase II trials in the next six months, implying possible market entry in 2014 or 2015.

Celsion currently has about $24 million in cash. And though it’s been bleeding about $6 million per quarter recently, the burn rate should shrink in the quarters ahead as the company’s clinical trials wind down. On its second-quarter conference call, management noted that cash on hand is sufficient for the next 12-15 months, yet it’s prudent to assume that the company will do a final round of capital raising ahead of any product lunch. 

The company recently filed a $75 million “mixed shelf offering,” which means it can raise some or all of that money through either debt or equity. Shares appear to have digested the prospect of a bit more dilution, as they have actually rallied a bit since the plan was announced on Aug.13.#-ad_banner-#

 “To be clear, we have no current plans for equity financing prior to data,” management said during a call with analysts. That reference to the release of Phase III clinical data (known as the HEAT trial) is, as noted earlier, the big near-term milestone for this stock. In addition, management presumably believes any stock offering will be done on more favorable terms after that event. I encourage you to read all of management’s comments about the status of ThermoDox.]

The Downside Protection –> As a biotech stock, there isn’t a lot of downside support. If the FDA decides to reject approval of ThermoDox, then this stock would likely quickly lose a significant portion of its value. As noted earlier, ThermoDox is showing great results in clinical trials, but the FDA has been known to snatch defeat from the jaws of victory from biotech firms many times before.

Upside Triggers –> The full analysis of all the data being tracked in the HEAT trial will be released sometime in the fourth quarter. It’s wisest to assume it will come closer to the end of the quarter. 

The following quarters should be a time of many more catalysts. Not only will Celsion be providing updates on other clinical trials (helping the investment community better clarify the total revenue opportunity for the company), but it is likely to also announce a range of global sales partnerships — assuming ThermoDox gets the FDA approval.

As is the case with many biotechs, Celsion is expected to release key segments of clinical testing data at various medical conferences. The stock is likely to trade up in advance of these announcements (as all signs point to the data being robust). So keep an eye out for Celsion’s announced plans for oncology conferences this fall and winter.

So what’s this stock worth? It’s hard to be precise. The company is currently valued at around $115 million, which is a fraction of the potential long-term revenue opportunity for ThermoDox. We do know that technology could be of help to hundreds of thousands of patients around the world (many of whom are in China). Yet we don’t know what the share count will look like in a few years, and we can’t yet assess what kind of profits Celsion will generate when the sales base reaches maturity. (The company concedes that it hasn’t even finalized final pricing strategies yet.)

Instead, we need to simply give a sense that shares are capable of rising up from just below $4 to the $5, $6 or even $7 mark as these catalysts emerge. Frankly, there could be a lot more upside than that. It’s soon to know, but that view could sharply clarify in coming quarters.

Action to Take –> I will buy 2,000 shares (or roughly $7,000 worth) of Celsion 48 hours after you read this. Shares can be bought under $5.