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TapeBeat's Analysis on Delcath System, Inc. (Nasdaq:DCTH)

|Includes:Delcath Systems, Inc. (DCTH)

Delcath Systems, Inc. (Nasdaq:DCTH); is a medical device company seeking FDA approval for its novel drug delivery system, Percutaneous Hepatic Perfusion, or PHP.  The system is a minimally-invasive means of delivering high doses of chemotherapy drugs to a specific region or organ without the systemic toxicity usually associated with chemotherapy.

Delcath initialized clinical trials on its system in 2006 for its PHP delivery system to treat patients with metastatic ocular and cutaneous melanoma in the liver.  Enrollment for this trial of 92 patients was completed in late October 2009.    The drug the system utilizes for this treatment is Melphalan, and the study runs this drug parallel to other patients receiving best available care as a reference point for efficacy.  The Phase III trial is being undertaken under a Special Protocol Assessment (NYSE:SPA) and was granted Fast Track designation by the U.S. Food and Drug Administration (FDA).  The National Cancer Institute is leading the study which has been granted Fast Track designation for the treatment of hepatic tumors secondary to melanoma and Delcath has been granted four orphan drug designations for its delivery stem.

Delcath announced in early February of this year that enough significant events have occurred in its trial to begin data analysis.  This analysis is expected to complete sometime in April, 2010.  On March 16th, the company gave an update on its progress stating "the next operational milestone for our company is the April completion of data analysis from our Phase III trial," said Mr. Eamonn P Hobbs, Delcath Systems president and CEO. "The trial's data analysis involves the initial review by the principal clinical investigators at each enrolling center, an additional review by the Company's retained Clinical Research Organization, and a final review of medical images for verification of results conducted by an independent core lab before final statistical results are compiled by an independent biostatistical group. We remain highly confident that the trial's data will meet the trial's primary endpoint, and our confidence was recently further buoyed by the FDA's acknowledgement of an expanded access program," added Mr. Hobbs. "Operationally, we are on track to have an inspectable Quality System at our Kingsbury manufacturing facility by April, which is a key step in the positioning of the Company for commercialization.”

Delcath’s website, http://www.delcath.com/, contains all the necessary information to confirm the afore-mentioned information and dates.  It also contains a graphical representation of how the PHP delivery system works.  Basically, the targeted organ (for this study the liver) is isolated from the rest of the body via a catheter that inserts and inflates a balloon in the vein that returns the liver’s blood back to the heart.  The vein’s blood is re-rerouted externally to a filtration system that filters out the otherwise toxic drug.  Then, high doses of the drug (for this study Melphalan) are infused into the artery supplying blood to the liver.  This infusion last for thirty minutes and, as mentioned earlier, is isolated from the rest of the biological system keeping it from being exposed to an otherwise lethal or harmful dose of the drug.  For chemotherapy, one of the bigger limitations to efficacy is the dosing permitted without compromising the subject.  With the PHP system, per Delcath’s website, ” The targeting and isolation achieved with the Delcath PHP System results in drug doses at the tumor site, as measured by the area under the curve, which may be as much as 100 times higher than traditional systemic chemotherapy”.

We’re excited about the possibilities of Delcath’s PHP system.  Until a better treatment regiment than chemotherapy is discovered for this and other forms of cancer, the PHP system is a means to minimize the side-affects associated with the group of drugs.  The website, Wikipedia, says it best where it states “most commonly, chemotherapy acts by killing cells that divide rapidly, one of the main properties of cancer cells. This means that it also harms cells that divide rapidly under normal circumstances: cells in the bone marrow, digestive tract and hair follicles; this results in the most common side effects of chemotherapy—myelosuppression (decreased production of blood cells), mucositis (inflammation of the lining of the digestive tract) and alopecia (hair loss).”  Please see the website http://en.wikipedia.org/wiki/Chemotherapy for more information on chemotherapy.

We also think it’s pertinent to point out some key facts about liver cancer.  These facts can be substantiated on Delcath’s website.

  • Annually, there are 240,000 cases of primary or secondary liver cancer diagnosed in the United States each year.
  • As many as 70% of patients with metastatic cancer will develop secondary liver tumors or metastases.
  • Less than 10% of patients with liver cancer are determined to be viable candidates for surgical removal of the cancer, the most effective treatment option for cancerous tumors.
  • The American Cancer Society states that the 5-year survival rate for cancer of the liver is 10%.  This compares to 66% for all other forms of cancer combined.

If Delcath received FDA approval for its PHP system of treatment of metastatic ocular and cutaneous melanoma in the liver using the drug Melphalan, this could open new doors for the treatment of not only this type, but also many other types of cancers.  Just as localized radiation treatment is getting more and more advanced in targeting specific regions, organs or tumors while minimizing radiation exposure to the rest of the patient’s body, Delcath’s system will do the same using chemotherapy drugs.  During the conference call with analysts on Friday, March 12th, Mr. Hobbs commented on how the PHP system can eventually be used on other cancers of the brain, lungs and pancreas.  He stated "What it comes down to is, anywhere where the vasculature can be isolated - in that the blood in and the blood out can be isolated with catheters - can be treated with this type of technology," Hobbs said in an interview with The Post-Star later on Friday. "We're making the first step in a very, very long number of steps that are going to potentially improve the prognosis for millions of cancer patients on a broad basis. But these things take time. They take a very long time” as noted by http://www.poststar.com/news/local/article_48748d06-3152-11df-a7d1-001cc4c03286.html.

As an investor, I remain cautiously optimistic about Delcath’s approval chances though initial data review looks very promising.  On February 4, Mr. Hobbs noted "We remain very optimistic that the Phase III trial will achieve a successful endpoint; and assuming a successful trial endpoint, we remain committed to filing our NDA with the FDA in April".    Additionally, the trial has been underway since 2006.  In order for a company to follow through with a four-year trial and the expenses associated with such, it must have a lot of faith in its system. Delcath is also submitting data to obtain CE mark approval in Europe.  However, due to the system being classified as a Class III device there additional validation testing and documentation was required which delayed the application there until 4Q 2010.  As noted earlier, Delcath’s manufacturing facility in Kingsbury, NY should be “inspector ready” as far as its quality systems are concerned in April.  This is further evidence of the faith that Delcath has in its product, the financial investment of the state of the art medical device manufacturing facility.  Financially, the company significantly strengthened its balance sheet with a $32.4 million offering, which completed in November 2009.  With minimal need for dilution and a very good product meeting a significant need once marketed, Delcath Systems should remain in the biotech investor’s spotlight.  Additionally, the PHP system will undoubtedly be expanded to cover other areas of need to locally isolate and treat cancerous tumours.  The current Phase III trial utilizes Melphalan.  However, I have no doubt that if the system is FDA approved, other chemotherapy drugs will be sent through trials utilizing the novel Delcath PHP system targeting additional organs.  One final key fact associated with this technology was quoted in the afore-mentioned article by the poststar.com website.  In it, Mr. Hobbs states the following “we don't know of any (competitors), and we think we would if there was anybody," Hobbs said. He added that Delcath's key patents are good until 2016, and there is a five-year extension on that available.  "We've got pretty broad patent coverage and about a 10-year runway of exclusivity, I think, on the patent side," Hobbs said.  Biotech analysts, physicians, patients and investors should take note!!

By Stephen Ramey and Philip Runfeldt




Disclosure: Stephen Ramey has long position in DCTH
Stocks: DCTH