Wednesday, August 8, 2012

Delcath Is About To Change The Way We Treat Liver Cancer

Investment commentary:

Delcath Is About To Change The Way We Treat Liver Cancer

By Icarus Falling @ Seeking Alpha

Delcath Systems, Inc. (DCTH) is a development stage, specialty pharmaceutical and medical device company focused on oncology. Delcath's proprietary system for chemosaturation is designed to administer high dose chemotherapy and other therapeutic agents to diseased organs or regions of the body, while controlling the systemic exposure of those agents, through the CHEMOSAT® delivery system. The company's initial focus is on the treatment of primary and metastatic liver cancers. With 700,000 people per year diagnosed with liver cancer worldwide, the market is robust.

The company is already marketing and selling the CHEMOSAT® delivery system in Europe.

The CHEMOSAT® delivery system allows the administration of concentrated regional chemotherapy by isolating the circulatory system of the targeted organ. Once the organ is isolated, the CHEMOSAT® delivery system delivers high doses of chemotherapeutic agents directly to the liver, while limiting systemic exposure and the related side effects by filtering the blood prior to returning it to the patient. The procedure is minimally invasive and repeatable allowing for multiple courses of treatment with chemotherapeutic drugs and the potential for concomitant cancer therapies.

Basically, the patient gets a more effective dose of chemotherapy and less of the devastating side effects. Can you think of any liver cancer patient that would not want to use the CHEMOSAT® delivery system?

The company just released earnings on August 7, 2012. On the conference call, the CEO confirmed that the company is finalizing its NDA submission to the FDA for the CHEMOSAT® delivery system and that the filing should be complete by mid-August. Specifically in the press release announcing the quarter results, it stated:

In the U.S., our New Drug Application (NDA) is on schedule and we expect to submit the file to the FDA by mid-August," continued Mr. Hobbs. "Our amendments to our Investigational New Drug (IND) application to include Generation 2 in our Expanded Access Program and all future clinical trials and compassionate use cases were accepted by the FDA. Additionally, after consultation with the FDA, we have agreed to include the addition of Generation 2 in our NDA submission as a technical change to the Chemistry, Manufacturing, and Control module.

More importantly, after the NDA is submitted, the company has announced that it will be able to decrease its monthly cash burn to between $3 and $4 million per month. With approximately $30 million in the bank, another $20 million revolving credit facility and $31 million available through an at the market equity facility, the Company should have sufficient capital to see the CHEMOSAT® delivery system approved by the FDA. While an equity raise at that point is likely, that is not abnormal in the biotech field, just look no further than Arena (ARNA) raising capital 1 month before the FDA approval of its weight loss drug.

At this point, the only reasons the stock is stuck below $2.00 is lack of faith in management and the open ATM of $31 million and fear of future dilution. I believe these fears to be overblown and now is the time to take a long position in Delcath and reap the rewards.

There will be bumps along the way, but at $1.70 per share, the upside is too hard to ignore. The 4 analysts covering the stock all maintain a buy rating on the stock and have an average price target of $7.67. Simply rising to 50% of the average analyst price target would allow anyone purchasing at these levels to double their money.

With commercialization in Europe already started, United States approval expected early next year, and continued worldwide rollout over the course of the next few years, Delcath appears to have put its troubles behind it and will be making the transition from a development stage company to a commercial enterprise.

Disclosure: I am long DCTH, ARNA.

Additional disclosure: Nothing contained herein shall constitute financial, investment, legal and/or other professional advice. Investors buy and sell securities at their own risk. I am currently long the two stocks mentioned in this article and as of this writing intend to hold these stocks until I see a significant return. I reserve the right to alter my planned investment decisions based upon a change in circumstances.

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