Delcath System's Two Chances of Legitimacy in 2011

| About: Delcath Systems, (DCTH)

In the world of biotechnology and big pharmaceuticals there has always been a delicate balance of dosage amount to obtain the desired efficacy versus the side effects associated with the higher dosages.

One company with a very innovative means by which to have the best of both worlds is Delcath Systems (NASDAQ: DCTH). Delcath’s innovative device involves the use of melphalan hydrochloride to treat metastatic melanoma of the liver (melanoma that has spread to the liver). Melphalan is typically administered orally or intravenously for multiple myeloma, ovarian cancer and occasionally malignant melanoma. However, administered levels required to treat melanoma were not effective, and earlier investigations found other applications for the drug.

Their novel device is in the form of their device/drug combination termed a “chemosaturation system”. Their proprietary system, as best described in this video, basically involves isolating the organ’s (liver for this application) return blood flow to the body by inflatable balloons placed in the vena cava.

The mephalan hydrochloride solution is directly injected into the artery supplying blood to the liver (the hepatic artery) to deliver a dose up to 100 times more concentrated than traditional chemotherapy would have. Then the return blood is rerouted after treatment through a filter device to remove the mephalan hydrochloride, and then it is returned to the patient’s body via a catheter in the jugular.

After treatment, the catheters are simply removed, balloons deflated and the patient is prevented from having his entire biologic system have to deal with the side effects often associated with chemotherapy. The targeted organ containing the malignant melanoma meanwhile received a substantial dose thereby increasing efficacy while maintaining a safety profile more palatable to the patient (and the FDA). For more technical information, please see the Delcath website.

Delcath Systems applied for an NDA for their device on December 22, 2010 with a request for priority drug review. The data in it exceeded their primary endpoints as noted here: "The FDA told us what result they would want to see" to approve PHP – an average duration of hepatic progression-free survival of 7.7 months in PHP patients and an average 4.0-month survival in control patients, Dr. Nutting said in an interview. “The results exceeded that," he noted, with an average hepatic progression-free survival of 245 days (8.2 months) in the patients randomized to initial PHP and an average of 49 days (1.6 months) in control patients who received best alternative care. The hazard ratio for the PHP patients compared with the controls for this primary end point was 0.301 (P =.0001).”

The typical FDA NDA acceptance deadline for this type of application is 60 days, though it may take a little longer with their deadlines being somewhat later this previous year. This puts the NDA acceptance with priority review at sometime from February 22nd to the end of the month. If given priority review, we should hear back from the FDA for its decision on whether to approve the novel device sometime in June.

Not to be forgotten in all the attention Delcath is getting for its submission to the FDA here in the US, on December 6 they submitted their CE Mark Technical File for marketing in the European Union. Per their CEO, Eamonn Hobbs, they expect a decision for CE Mark approval sometime in mid 2011 also. June and July could be an exciting time for Delcath Systems!

2010 marked a year of substantial volatility of the DCTH stock with the stock trading from 5.1 to well over 16 dollars per share. Current market cap of the company per Google Finance is about $469 million, which could be considered low for a company with a device that if approved for its current application request for metastatic melanoma of the liver could be generating good revenue over the next few years.

However, many other trials are likely being planned for other application such as other liver cancers as well as cancers of other organs that may be isolated from the rest of the human body and treated with the Delcath system. This sort of current application as well as potential applications could very well be drawing attention from big Pharma as a merger or acquisition target. Actually, there were rumors back in October 2010 pertaining to Delcath being a takeover target for Bristol-Meyers (NYSE:BMY).

While I don’t give much credit to these types of rumors, it is interesting to note that the stock rose over 12% on these rumors. Additionally, Jim Cramer mentioned on his February 3rd program’s “Lightning Round” pertaining to Delcath that “This is in the sweet spot. Companies like these are getting bought every day. I'm going to say that I like your stock.”

2011 looks to be a promising and exciting year for a company on the verge of greatness or on the verge of defeat. I need to review the phase III data a little more closely to give an opinion for FDA approval in June of this year. However, I have viewed it enough to give an opinion on the NDA acceptance with priority review. I believe Delcath Systems will have their NDA accepted sometime the last week of February of 2011 with the request for priority review. This will cast DCTH into the spotlight as opinions and rumors will circulate at a feverish pace pertaining to buyout, FDA approval and company worth.

Regardless of the FDA’s NDA acceptance, there is still the Mark CE decision also coming at about the same time as the FDA decision so there are two chances for this company to succeed and start marketing its novel device. Essentially, DCTH should see catalyst after catalyst after catalyst this year and most of it in the first half of the year. Investors in for the “long haul” have the potential for real gains meanwhile traders riding the dips and spikes will have an exciting time to say the least.

This brings me to one big question, why with all the potential here is the short interest in the stock so high?! With a short interest of almost 21% and over 13 days to cover, per this article, somebody’s going to be getting concerned fairly soon now. Will it be the “longs” or the “shorts” that will come out on top with DCTH? Hopefully, the ones coming out on top will be the patients and healthcare providers that need another weapon in their arsenal against an unforgivable enemy, cancer.

Good luck, place DCTH on your watch list and feel free to post your opinions on the company, its stock and its novel cancer treatment device.

Disclosure: I am long DCTH.

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