Seeking Alpha
Special situations, micro-cap, biotech, healthcare
Profile| Send Message|
( followers)  

The last time I wrote about Delcath Systems (NASDAQ:DCTH), I drew comparisons between their CHEMOSAT system and the failed liver cancer drug known as ThermoDox, which Celsion (NASDAQ: CLSN) is still attempting to salvage.

These two products don't operate through the same mechanism, but they both attempt to improve the delivery of chemotherapy agents to the liver for patients with hepatocellular carcinoma and other forms of liver cancer. They've both generated substantial interest from the market due to the huge monetary potential for the liver cancer indication(s), as well as the notion that oncologists will try anything to prolong the lives of liver cancer patients who are ineligible for liver transplants, or are still waiting for one.

Delcath's market capitalization was $113 million when I last took a look at it. I felt that this didn't reflect the true valuation of CHEMOSAT given its market potential. I was bullish on the stock, and considered a long position (as noted in the disclosure) but didn't actually pull the trigger. In hindsight, this was a pretty big mistake!

Since then, CHEMOSAT has moved up by about 30% giving it a current valuation of over $147 million. This brings DCTH's YTD gains to nearly 60%.

Although DCTH performed quite well, it still hasn't erased the damage that was done after May 2012 when the company sold $20 million worth of common stock.

Still, these losses were trivial compared to those realized in 2011 after Delcath received a refusal to file letter from the FDA.

After a bunch of delays and problems, we have a PDUFA goal date of June 15, 2013 for Delcath's CHEMOSAT NDA.

If the speculation over CHEMOSAT's upcoming PDUFA resembled the run-up we saw for Celsion's Phase III HEAT trial data, we'd see DCTH appreciate an additional 85% or more before the FDA decision.

It's not guaranteed to happen, but it's feasible. Consider that CHEMOSAT is not only further developed in the liver cancer indication than ThermoDox ever was, but is already in the commercialization stage in Europe.

So ultimately, investors interested in DCTH have two major options on the long side.

1.) Play DCTH for the run-up potential leading to its PDUFA goal date of June 15th 2013

2.) Buy DCTH and hold until (hopeful) FDA approval.

Option 1 is a trend play, and option 2 is a bet on a binary event.

For those who want to bet against CHEMOSAT by going short DCTH, I think the "sweet spot" for the trade would be closer to the FDA decision. DCTH has a very clear upward trend that may not break until we know CHEMOSAT's fate in the US market.

Source: Delcath Drifts 30% Higher On PDUFA Anticipation