Delcath Systems (DCTH) rocketed upward yesterday as rumors that the company was being courted by Bristol-Myers Squibb made their way around the web. While I’m skeptical that the buyout will materialize, I own Delcath shares and believe that their chemotherapy delivery technology will be a major advancement to the way cancer is treated - at least in a small subgroup of patients. With buyout rumors swirling and a probable NDA submission within the next month, I wanted to take this opportunity to give a brief introduction to chemotherapy in general and the Delcath platform specifically.
Chemotherapy is the treatment of cancer by chemical means. In its most general sense, it’s just employing a particularly nasty molecule to kill cells. It’s poison plain and simple. While a number of other mechanisms of action exist, most chemotherapy treatments are molecules that have proven successful at killing cells by rendering cellular DNA inactive.
Most generally, the molecules irreversibly bind to DNA through a distinct chemical reaction. The simplest form of chemotherapy was actually derived from mustard gas. You can see the similarity in the chemical structures below along with Melphalan - the molecule used in Delcath's system. The chlorides (the Cl in the drawings) are where the business takes place. Certain parts of DNA are able to displace the chlorides resulting in a permanent chemical bond between the DNA and drug molecule. The DNA is then unable to carry out its normal day-to-day functioning and the cell dies.
However, the toxic payload usually isn’t intrinsically selective for cancer cells. The only selectivity we can gain is by treating the body as a whole and hoping to wipe out just the cells that are dividing quickly – a subset of cells in which cancer would belong. Unfortunately, so do cells in the bone marrow, digestive tract, and hair follicles. This leads to a nasty set of side effects including myelosuppression (decreased production of blood cells), mucositis (inflammation of the lining of the digestive tract), and alopecia (hair loss). The fact that the selectivity problem has been completely solved isn’t for lack of trying. The issue lies in the fact that cancer cells are almost identical to healthy cells – often the only difference is that they are multiplying out of control when they shouldn’t be.
Delcath’s Percutaneous Hepatic Perfusion
The selectivity issue was tackled by Delcath in a rather simple way. Rather than tune the selectivity of chemotherapeutic agents through molecular modification, the percutaneous hepatic perfusion (PHP) technique simply isolates the organ of interest and applies the chemotherapy locally.
This is done by injecting a series of tubes into three major veins and arteries – one in the neck and one in each leg. A balloon is inflated to divert blood flow around the organ – the liver in this case – and Melphalan is then delivered to the desired organ only. After the chemo passes from the organ, the blood is filtered to remove the poisonous molecules and then returned to the body. What’s more, due to the isolation technique, chemotherapy can be delivered in concentrations several times higher than traditional chemo. If you're interested in more of the specifics are very cool video is available through the company's website.
The PHP system offers a tremendous advantage over traditional therapy. Not only are side effects lessened – and these side effects can be rather serious – the treatment is more effective. Traditional chemotherapy concentrations have to be carefully controlled to kill quickly reproducing cells while not killing slowly reproducing healthy cells. The Delcath system allows the concentration to be very high in the affected organ but very low elsewhere.
The science is extremely cool and worth getting to know, in my opinion. Investing, however, requires a look at much more than the underlying science. The main questions facing Delcath are going to be how well it can get hospitals to adopt the technology and how well it can get insurance companies to cover the cost – and of course whether or not the buyout will materialize. Those questions are for another post.
Disclosure: Long DCTH. I have an October covered call at $9 on the entirety of my holding so I’m unlikely to make any money on any additional upward price movement.