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Delcath (DCTH) is a specialty pharmaceutical and medical device company focused on oncology, initially cancers in the liver that recently made the first commercial sale of its CHEMOSAT system in Europe. CHEMOSAT, Delcath's chemosaturation system, allows the administration of concentrated regional chemotherapy by isolating the circulatory system of the targeted organ. Once the organ is isolated, the Delcath chemosaturation 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.

Sale of System: A Significant Milestone

On April 13, 2011, the company obtained the CE Mark for the Delcath Hepatic CHEMOSAT ® Delivery System (CHEMOSAT System), allowing the company to market and sell the CHEMOSAT System in the European Economic Area EEA. The company filed an addition application and recently received the CE Marking for Generation 2 of its CHEMOSAT System with melphalan. After starting training at several European Cancer Centers, on March 20, 2012, the company announced the first commercial sale of a CHEMOSAT system for the European Institute of Oncology (Instituto Europeo di Oncologia - IEO).

"The first commercial order of our CHEMOSAT system is a significant milestone in Delcath's history, marking our transition from a research and development organization to a commercial enterprise," said Eamonn P. Hobbs, President and CEO of Delcath. "With the recent announcement of our fifth EU training center, we believe our launch plans for Europe are on track, and we expect to announce additional center agreements in the coming months…..We believe that our momentum is building and we are taking critical steps toward our goal of establishing CHEMOSAT as a new treatment option for patients with cancers in the liver in Europe."

This news follows closely after the announcement of two patients being treated with CHEMOSAT in Germany.

The Benefits of the CHEMOSAT System

Because the system is able to isolate the liver, CHEMOSAT allows higher dosing. From the 10-K

Phase III clinical trial demonstrated that the Delcath chemosaturation system is capable of delivering over 100 times more of the chemotherapeutic agent to the treated organ than traditional systemic chemotherapy. In our clinical studies on patients with metastatic melanoma it was shown that higher dosing led to significantly improved disease control in the liver.

The system also reduces toxicity exposures for patients.

Phase III clinical trial demonstrated that the Delcath chemosaturation system is capable of extracting on average 72% of the chemotherapy agent administered to the liver, which reduces the exposure of healthy tissue and organs to the effects of these chemotherapeutic agents.

CHEMOSAT is also minimally invasive and repeatable with shorter recovery times than surgical resection or isolated hepatic perfusion. By introducing the chemotherapeutic agent into the arterial blood supply feeding the liver, the system also treats the entire liver, both visible tumors and other that may be undetected by imaging and therefore go untreated.

*From Roth Capital OC Growth Stock Conference company presentation March 2012

The Future and the FDA

In December 2010, the company submitted a Section 505(b)(2) New Drug Application (NDA), to the FDA, seeking an indication for the percutaneous intra-arterial administration of melphalan for use in the treatment of patients with metastatic melanoma in the liver. In February 2011, management received a Refusal to File (RTF) letter from the FDA for the NDA. After reviewing the issues in the RTF and subsequent interactions with the FDA, management is ready to proceed with a resubmission of its NDA for U.S. approval of CHEMOSAT. From the 10-K:

The RTF requested information on a number of items, including manufacturing plant inspection timing, product and sterilization validations, statistical analysis clarification concerning randomization and additional safety information regarding patient hospitalization data in order to allow the FDA to properly assess the risk-benefit profile of the product candidate. On January 12, 2012, we held a pre-NDA meeting with the FDA to discuss our NDA submission and provide an update on the items identified in the RTF. Based upon the meeting and FDA correspondence received in response to our meeting request and the briefing packet we submitted, we are satisfied with the responses that we received from the FDA to certain questions we had regarding the NDA submission. Accordingly, we will continue with the preparation of our NDA submission as planned and expect to make the submission in the second quarter of 2012.

Management is optimistic in its 10-K commentary about the prospects for CHEMOSAT approval at the FDA and is already considering future growth initiatives and other indication in the U.S. after its initial acceptance:

Obtain Approval to Market the Delcath CHEMOSAT System in the United States for the Treatment of Other Cancers in addition to Metastatic Melanoma in the Liver. We concluded a multi-arm Phase II trial to evaluate the Delcath CHEMOSAT system for the treatment of other cancers in the liver, such as tumors of neuroendocrine and colorectal adenocarcinoma and cholangiocarcinoma origin that have spread to the liver as well as primary liver cancer. Furthermore, we also intend to pursue pharmaceutical partners to co-develop and fund additional cancer indications for the Delcath CHEMOSAT system. Upon successful conclusion of the related clinical trials, we intend to apply for regulatory approval of additional indications.

Potentially Lucrative Market

As this slide from the company's recent presentation at Roth Capital Growth Stock Conference demonstrates management believes this is a significant long term market opportunity as the company continues to expand regions and achieve approvals for broader indications.

*From Roth Capital OC Growth Stock Conference company presentation March 2012

The Risks

Delcath's shares are not without risk. The FDA rejected the company's initial NDA submission in February of 2011 with a "refusal to file" letter. Adam Feuerstein from TheStreet.com has a negative view of the company and questions the credibility of the CEO and the way the original FDA submission was handled, stating:

Delcath screwed up by submitting a hugely deficient data package in the first place. As a result of its incompetence, Delcath wasted a year just getting to the FDA review starting line.

He also questions the actual market potential in Europe versus mangagement's optimistic projections:

Delcath CEO Eamonn Hobbs told investors last week that the CE Mark for Chemosat allows the company to address a potential commercial opportunity of 100,000 liver cancer patients.

Really? Based on what data? The only phase III clinical trial of Chemosat conducted by Delcath enrolled melanoma patients with liver metastases. Delcath is running a small phase II study in patients with various tumors of the liver but no data have been presented or published yet. Neither of these studies enrolled any European patients.

As a longtime reader of his work, I respect Adam's views and his questions restrain my enthusiasm. Still, the recent announcement of the first Chemosat purchase in Europe and another announcement today about an initial launch and training agreement with the Netherlands Cancer Institute-Antoni van Leeuwenhoek Hospital (NKI-AVL) in Amsterdam, The Netherlands makes me think things are looking up. European oncology centers would not be adopting the technology without confidence that it offered patient benefits and that they could get paid for providing the treatment.

Warner Prevoo, MD Interventional Radiologist at the NKI-AVL, added, "We've been following the development of the CHEMOSAT system closely since preliminary results from the Phase 3 trial were reported at American Society of Clinical Oncology in 2010. We're pleased that we'll be among the vanguard of medical centers across Europe to begin to offer this treatment for cancers in the liver."

Conclusions

With the company's first commercial sale and training started at a number of other European cancer centers Delcath appears poised for near term growth. Out of four analyst the average estimate for next year (2013) is $42 million in revenues and 0.21/share loss. That would be almost a 1000% increase in revenues and position the company close to profitability. Given the company's small current market valuation of approximately $150 million, a more effective cancer treatment, and the prospects of significant near term growth in a potentially $7 billion market, Delcath merits inclusion in speculative portfolios.

Source: Novel Cancer Treatment Gains Acceptance