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What's next for Delcath?

|Includes: Delcath Systems, Inc. (DCTH)

Methods related to isolating a specific organ of the body in order to deliver a large amount of chemotherapy have been developed over  the last 40 years. These are, among others, Hepatic Arterial Infusional therapy (HAI) and Isolated Hepatic Perfusion (IHP). Main drugs administered have been doxorubicin, melphalan, TNF, oxaliplatin, 5-FU and some others to treat aggressive malignancies such as colorectal cancer, hepatocellular carcinoma, breast cancer, sarcoma and a number of methastases from primary cancers.

Unfortunately, these techniques didn’t gain much acceptance due to their complicated setup, increase in morbidity, related toxicities and  more importantly: a lack of efficacy evidenced by decades of clinical trials using them. Data concerning response rates and other parameters come expertly explained in a couple of reviews that summarize the work done in the last years and an outlook on thermal ablation and perfusion hyperthermia.

 Delcath’s PHP is basically the same as IHP except it uses a double balloon catheter instead of clamps to isolate the liver from the general blood circulation, it allows some circulation through one of the lumina of the catheter instead of by-passing it and it filters the blood so it can get back to circulation at least 80% cleansed.

Now, I’m going to provide a deeper insight into Delcath’s clinical trials. The phase I study was designed to establish MTD and RR. The former was set at 3mg/kg of melphalan and a 30% overall radiographic response in treated patients (n= 28) was reported while there was a 50% overall response in patients with ocular melanoma (n=10). These data were published in 2005 and are freely available online on Delcath’s website.

The three-year phase III trial involved administration of PHP-mel vs standard of care in patients with liver methastases from metastatic ocular or cutaneous melanoma, most of them had the former which, , has in fact shown better results in the past as described in the papers I referred to previously. The primary endpoint was set as the hepatic-progression free survival (h-PFS) and secondary endpoints were ORR and OS. The abstract showing these results was presented at the ASCO annual meeting in June. In summary, median h-PFS for PHP-mel was 245 days vs 49 days for the BAC arm. ORR was 34% for PHP-mel vs. 2% for BAC. Therefore, the results exceeded the primary endpoint and were regarded as quite positive as the stock price reflected when they were first presented in April. However, after ASCO the stock plummeted to stabilize in the $6-$8 range. So, how come  this happened? Weren’t the results  compelling enough  to keep a sustained uptrend in the stock’s price? By researching  some publicly available information, it’s easy to see that there are a few issues about the data presented by Delcath:

-         The PHP-mel did improve the disease control, but data were not so good in terms of overall survival. Median OS was 301 for BAC and 298 days for PHP-mel. Why?

-         Well, 55% of the patients crossed over from the BAC arm to the PHP-mel arm. Actually, median PFS rose to 398 days in patients who crossed over vs 124 days in patients who did not. That question was raised at one of the meetings by German researcher Dr. Schadendorf, of the University Hospital in Essen. Given that according to the news release I got this from, he’s involved with Bristol Mayers, I’d forget about a buyout from this pharma. However, one must take into account that this was done as a compassionate treatment in the BAC arm that experienced progression despite being treated.

-         There were two deaths linked to the process by neutropenic sepsis. It may have been due to a failure in the filters that resulted in a release of a high dose of melphalan to the blood stream. The FDA requested Delcath to suspend the trial enrollment and this had a big impact on the company’s prospects and hence on the stock price.

-         Patients selected were mostly affected by ocular melanoma and were the “healthiest”, with an ECOG of 1 or 0 in a scale that ranks from 0 to 4.

On the competition front.  Yes, there are indeed some devices approved for this purpose. Vascular Design’s Isoflow looks very similar to Delcath’s PHP. I have not investigated thoroughly  the IP of these two companies, but from Delcath’s 2009 investor presentation one can infer that they have secured the IP. Nonetheless, I assume that its patents aren’t very strong at least in terms of inventive step since similar devices with the same application have been developed in the past.

On the marketing side, I saw impressive estimates on the market share and opportunity that this device, if commercialized, may achieve. It’s difficult to assess an exact amount of sales or market share and I don’t want to go further into it. There are some estimates based on the average population that suffer from these cancers, but unfortunately, not all patients will be available for treatment and the numbers lack accuracy in my view. 

So now, what’s next? Delcath is expected to submit an NDA to the FDA before this year’s end. After acceptance from the FDA, an advisory panel and/or a PDFUA date will be programmed by mid-2011 and the stock may -or may not-, run up. Based on Vascular Design’s experience and the fact that they got FDA clearance, one may think that Delcath will get it too. However, what VD got is an FDA 510(k) marketing clearance which is designated to devices that have not undergone clinical trials. On the contrary, Delcath did perform CTs with its device so approval might be a bit trickier in this case. I personally don’t see Delcath undervalued as some pointed out, with a P/B of 20, and counting on the fact that, apart from june’s spike, it’s trading in a historically high range of $7-9. After August dilution, Delcath is probably set for a run up from now until its NDA submission and a potential mid-2011 approval.

Disclosure: I have a small position on DCTH in the hope of a run up heading to the NDA submission and a subsequent FDA panel or PDFUA date.