Delcath Systems to Take on Onyx Pharma's Nexavar

Two weeks ago, Delcath Systems Inc (DCTH) announced at their annual meeting of shareholders that they were in the process of submitting to the FDA a phase III protocol designed to test their Percutaneous Hepatic Perfusion system to deliver high dosages of doxorubicin against Nexavar for inoperable primary liver cancer. Nexavar was recently approved by the FDA for the indication of primary liver cancer and is co-developed by Onyx Pharmaceuticals (ONXX) and pharma giant Bayer.

If you are not a Delcath Systems shareholder, this news would have gone unnoticed, and certainly ONXX shareholders may also have missed this announcement along with the rest of the biotech universe. But we believe this may not be a non event and may warrant further analysis as some interesting observations can be made.

1. Adriamycin (Doxorubicin) is a chemotherapeutic manufactured by a division in Pfizer (PFE).
2. Nexavar (ONXX) and Sutent (PFE) have an intense rivalry going that originated in kidney cancer and now is being played out in liver cancer.
3. Nexavar was approved based on data from a trial that used a placebo as control without taking into consideration alternative available therapies.
4. Nexavar, and Sutent for that matter, is a systemic treatment which may permit combination therapy with regional strategies such as Delcath's Percutaneaous Hepatic Perfusion system.
5. Onyx is looking into the synergistic effects of doxorubicin and Nexavar.
6. Delcath's EPV is about 40 mill and Onxy's EPV is about 1.5 billion, if Delcath's therapy was to show superior to Nexavar in a head to head as in this proposed phase III, DCTH valuation would certainly be a huge multiple of current levels.
7. Delcath's Percutaneaous Hepatic Perfusion is a potential treatment for other cancers of the liver. They currently have an ongoing phase III and multiple phase II studies, and the system is drug agnostic.

Given the above points, and the fact that Delcath Systems currently has only 6 employees, we believe Delcath Systems (DCTH) is a prime candidate for a deal with a big pharma and/or a takeover bid within the next 6-12 months.

Disclosure: Author holds a long position in DCTH

Comments

[CrossProfit]

Very interesting observation.
We will have to look into this more carefully. DCTH has dropped from the 4 range and there have been buyout rumors before.

The question is, has management learned how to negotiate? If DCTH does not hire someone with the skills needed to make a deal, they could have the best innovation in the world yet never monetize it. If they do hire someone, then they have to learn not to interfere as well. Not kidding.

CrossProfit

[Biotech Picker]

It was pointed out to me that there is a misspelling of PFE's drug referenced. The correct spelling is 'Sutent', if you notice the link in point 2 the spelling is correct, but in the article I, for whatever reason, threw in an extra 't'. Sorry for that. And please do not let that get in the way of the analysis.

Also it was mentioned to me that Sutent does not compete with Nexavar in liver cancer as only Nexavar is approved for this indication. Yes this is true. But please understand the main point was to tie in Pfizer because of the use doxorubicin, not necessarily Sutent.

Also I had a comment that Sutent has not shown in early trials as much promise for liver cancer as hoped. This is besides the point. In fact, according to this article - www.thehindubusinessli... - Pfizer is planning a phase III trail for liver cancer in Asia. I cannot confirm but I believe this will be testing Sutent (anyone know different please post). But even if true (that Sutent dies not work in liver cancer) this supports my analysis that the use of DOXO with Delcath PHP may draw PFE attention.

Thanks for the feedback.

[thedonald11]

How does a company with 6 employees get on the nasdaq ? I hope they are collectively the 6 smartest people on the planet. What does DCTH have to sell ? It's a delivery system, with 6 people with their fingers crossed.