CEO letter

August 17, 2009

Dear Celsion Shareholders,

Celsion is pleased to report an exciting development in the second quarter of 2009; the expansion of our Phase III liver cancer clinical trial to include sites in Japan. This development comes as a result of an innovative partnership with our Japanese partner, Yakult Honsha. It represents what we believe is an unprecedented agreement with Japan's Regulatory Authority, the Pharmaceutical and Medical Devices Agency (PMDA), for the support of our trial without the typical clinical bridging studies normally required for Japanese registrational studies. This arrangement has the potential to bring ThermoDox®, Celsion's lead clinical candidate, to market two years earlier than would otherwise be expected in Japan. Japan has the highest incidence of primary liver cancer in the industrialized world. We believe this early market entry would translate into $30 million in added royalties and provide a cost savings of between $5 and $7 million for Celsion, as our agreement with Yakult provides that they fund all costs associated with studies in Japan.

I want to thank our dedicated employees at Celsion for helping to bring about this extraordinary agreement. I can find no similar example where the PMDA has allowed a global registrational study to include a Japanese cohort, the data from which can be immediately used to file for drug approval in Japan. This accomplishment is one of many that our team has achieved as we've successfully transformed Celsion from a device to an oncology focused drug development company during the past two years. The effort and commitment of our employees is consistent with the promise of ThermoDox and our platform technology to provide a significant treatment option for cancer patients and the medical community that supports them.

The expansion of our Phase III liver cancer trial, which now has 196 patients enrolled and 158 randomized, is just one of our many accomplishments this quarter. Celsion has also made significant progress in our pivotal Phase I/II Recurrent Chest Wall cancer study and our strategic initiative to study the potential of ThermoDox in combination with High Intensity Focused Ultrasound, or HIFU, to treat difficult cancers.

2nd Quarter Financials

Celsion is in an aggressive research and development phase. The resources required to bring about such important progress, such as the accelerated enrollment in our primary liver cancer clinical trial, has resulted in higher costs for the Company this quarter.

Our net loss for the second quarter ended June 30, 2009 was $4.6 million or $.45 per diluted share as compared to a net loss of $2.4 million or $.24 per diluted share for the second quarter of 2008. For the six months ended June 30, 2009, the Company's net loss was $8.2 million or $.81 per diluted share as compared to a net loss of $6.5 million or $.64 per diluted share for the first six months of 2008.

Total Operating Expenses for the second quarter of 2009 increased by $ 2.6 million over the prior year's second quarter, primarily due to an increase in Research and Development costs for the primary liver cancer clinical trial. Celsion has structured its clinical trial contracts with Contract Research Organizations (CROs) and other vendors such that levels of payments are directly tied to the progress made in patient enrollment. Thus, the acceleration in patient enrollment in the primary liver cancer study during the second quarter resulted in higher costs versus 2008.

Turning to the Balance Sheet, in June 2009, the Company received the final $15 million payment from Boston Scientific for total payments of $60 million from the sale of the Prolieve. The Company ended the quarter with $14.9 million in cash and investments.

Global Phase III Liver Cancer Study

We recently transitioned our Global Phase III Liver Cancer study to a new CRO. Under the terms of our engagement, we are aggressively adding some 30 sites to our trial over the next three months in three new countries: Malaysia, Thailand and the Philippines. We employed this new strategy to offset any delays we might see with our Clinical Trial Authorization (CTA) in China. Under the new agreement, we agreed to a milestone-based payment schedule and agreed to definitive dates for study enrollment. We designed the agreement so that our CRO would incur a financial penalty if the enrollment dates and targets are not met.

Our CTA in China is on track with our most recent projections. We expect to be enrolling patients in our first sites in China this year, assuming we receive a positive response to our submission from the State Food and Drug Administration (SFDA). China's Center for Drug Evaluation (CDE) reports that it has completed its review of our submission. Typically, a sponsor can expect a formal response from the SFDA within four to six weeks following CDE's review. We are expecting to receive a positive response within this time frame. We are seeking approximately 150 patients from 15 sites in China over a five to six month period. This would mean enrolling two to three patients to each site per month, which we believe is achievable.

We also have CTAs in the U.S., Hong Kong, Korea, Taiwan, Canada and Italy. We have 29 sites up and screening patients, which is on track with our projections. Korea and Taiwan are meeting or exceeding our expectations and Italy has all five of its sites up and began enrolling patients in February, proving to be quite productive.

Overall, patient accrual through July is ahead of our estimates. We currently have enrolled 196 patients in the trial. Of those, 158 have been randomized, two qualify and will be treated and 33 are not eligible.

With our new sites, the commitment of our new CRO and our recent accrual momentum, we continue to believe that we have the funds to complete enrollment of the trial. We believe we can achieve this within the first quarter of 2010. We may choose to extend the enrollment period, however, to accommodate a minimum number of patients required by Japan's Pharmaceuticals Medical Devices Agency for Japanese New Drug Application (NDA) submission. If this happens, we would anticipate it taking no longer than two to three months. This projection is reflected in our latest expense forecast and our management objectives.

I would like again to stress how excited we are to open up Japan to our liver cancer study. It has not been easy. It has required extraordinary coordination, meeting difficult time lines and the ability to find common ground to address issues unique to PMDA interests. But it has been well worth it.

We believe this is a precedent-setting arrangement that will, if supported by data, allow Yakult to file a NDA concurrently with the U.S. filing and to bring ThermoDox to market approximately two years sooner than the usual pathway would allow. We believe it will provide Celsion with milestone and royalty payments two years sooner and that it will extend the effective period of Japanese market exclusivity for Celsion and Yakult by two years.

We expect that the incremental revenue value of this earlier market introduction is conservatively in excess of $30 million in royalties. In addition, we could realize an $18 million approval milestone payment in 2012 rather than waiting until 2014; and because Yakult will fund the Japanese portion, Celsion will realize the immediate avoidance of between $5 and $7 million in Phase III clinical trial costs, depending upon the number of Japanese patients enrolled.

This innovative collaborative effort is a win-win-win any way you look at it. It further endorses the confidence we've seen from the FDA's collaborative approach to our study. It brings Celsion an earlier revenue stream from potentially the world's largest market for ThermoDox. It provides Yakult an earlier market entry and effectively longer exclusivity. However, the real winner will be the Japanese liver cancer patients who potentially will have accelerated access to the promise of ThermoDox.

Pivotal Phase I/II Recurrent Chest Wall Cancer Study

Our pivotal Phase I/II Recurrent Chest Wall Cancer (RCW) study is enrolling patients at four sites: New York University, St. Barnabus Medical Center in N.J., Rhode Island Hospital and Florida Cancer Institute. Duke University and Virginia Commonwealth University will be active this month. Along with Cancer Treatment Centers of America in Oklahoma, which will join the study at the 50 mg dosing, we will have initiated seven of 10 sites in August.

ThermoDox has shown remarkable evidence of clinical activity in treating this disease and we initiated our Phase I/II trial based largely on the FDA's written support that this study would be considered pivotal, pending a robust objective complete response rate, which is our primary endpoint. The data from our Phase 1 study at Duke show that ThermoDox, in combination with hyperthermia, has the potential to be an effective treatment option for patients with this devastating disease. To date, 100 percent of evaluable patients have shown evidence of clinical activity.

Across all dosing cohorts, the response rates reported through 2009 include six patients with stable disease, five patients with partial responses and two patients with a complete response. Two more patients have been added to Duke's study. We have yet to get the clinical data, but we do know that the patients have rounded out the study's 40 mg cohort.

Our Phase I/II study is designed to start at 40mg. If this dosing is supported by safety data from three to six patients, the dose will escalate to 50mg. Assuming no dose limiting toxicity (DLT) is found, 50mg will be declared the maximum tolerated dose (MTD) for the remainder of the study and will continue until 100 patients are enrolled. This is an open label study. Patients will be followed for safety, but a survival benefit will not be assessed.

We expect to have the information we need to report Phase I results by October or November this year and to have a first data set for Phase II early next year. Although our early experience suggests recruiting patients can be challenging, I want to stress that we have a clear plan to reach patients directly, to broadly publicize the study through traditional and electronic media, to engage support groups, and to establish awareness among the breast cancer medical community.

HIFU and ThermoDox

Besides its potential for treating liver cancer and recurrent chest wall cancer, we believe ThermoDox can be used in combination with high intensity focused ultrasound to treat two very important indications: metastatic bone cancer and pancreatic cancer.

We signed a joint research agreement last October with Royal Philips Electronics, the premier manufacturer of investigational magnetic resonance imaging (MRI)-guided high HIFU systems. Celsion is using this technology in combination with ThermoDox to deliver high concentrations of doxorubicin - the potent anticancer agent in ThermoDox - directly to tumor sites. By using Philips' HIFU technology to deliver targeted, localized activation temperatures, Philips' and Celsion's research will explore the potential for ThermoDox to non-invasively treat a number of solid tumor cancers that may be susceptible to the combination of a high concentration of doxorubicin and concurrent hyperthermia.

Our agreement with Philips provides that the funding for these studies will be principally borne by Philips under their existing research and development program. Celsion has amended its existing Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute (NCI) to incorporate experiments that may be of particular interest to Celsion. Our immediate objective is to have preclinical work completed by year end, sufficient to support a pre-IND meeting with FDA.

This is novel research that is going to take some time to explore fully. Our early work with input from our medical consultants and the NCI indicates that ThermoDox with HIFU could someday be used to treat the cancer lesions and alleviate the pain of bone metastases, which affect more than 300,000 patients in the U.S. annually. We also believe it can be used in the treatment of pancreatic cancer, an indication with an extremely high mortality rate, affecting more than 37,000 people in the U.S. each year.

Our work on this research is progressing well. We have completed the Theoretical Thermal Modeling that establishes the optimum tissue heating algorithms. We've created thermal tissue temperature profiles and maps and we've compared different heating algorithms and drug administration regimes in an effort to understand their effect on drug concentration in tissue. Our phantom modeling is underway. Our phantom studies are designed to optimize HIFU power levels, heating trajectories and durations of sonications that keep heated areas at target temperature while avoiding near and far field heating. We expect to be analyzing mouse muscle tissue used in HIFU plus ThermoDox experiments in August and our protocols for experiments with rabbits are complete.

We have identified and are working with three sites on these studies. They include the NCI, Sunnybrook Health Sciences Centre, Toronto (for small animal bone & muscle studies) and Université de Bordeaux (for large animal studies). Additionally we have sponsored academic research at University of Oxford under the direction of Dr. Coussios, who will be presenting his work and data at the International Symposium Therapeutic Ultrasound.

Milestones

We have high expectations for this year. We continue to believe that we will have a CTA in China; we expect to complete the Phase I portion of our RCW trial; we expect to enroll more than 300 patients in our Phase III trial; and, lastly, we continue to believe that a second license agreement will be signed this year.

We are on target with our plans and have committed ourselves to delivering on milestones that reduce our development risk. We have substantially funded our ThermoDox clinical program, and provided a clear regulatory pathway. We have stabilized and focused Celsion, and built a strong clinical capability.

In closing, the second quarter of 2009 was extremely productive for Celsion. We are making significant progress against our clinical program milestones, expanding our platform through key alliances, all the while being careful to manage our expenses and cost.

Our fundamentals are solid and we will continue to work hard to deliver and build shareholder confidence and value. Enhancing the valuation of the Company is my primary responsibility, and one that I take seriously.

Sincerely,
Michael H. Tardugno
President and CEO