Delcath Systems, Inc. (NASDAQ:DCTH) is a company that we have repeatedly highlighted as being one to watch in the biotechnology space across the last six months. It has been beaten down by way of a variety of inputs, and – at the time of our previous coverage of this one back on June 12 – traded for a more than 93% discount to its year open pricing.Against a backdrop of this decline, however, and with capital concerns weighing very much on sentiment both from the perspective of those in and out of the stock, Delcath has managed to forge forward with considerable operational advance. It is in this digression (operational advance versus price decline) that we rooted our bullish thesis for the company.This week, it looks as though markets are finally turning onto the discrepancy between price and value, and the company is running up as a result.As the aforementioned June 12 coverage, Delcath traded for $0.062 a share. On June 20, the company closed out at $0.22 a share – a 254% run since we highlighted it. Premarket on Wednesday, June 21, this has risen to $0.319, a further 45% on yesterdays appreciation.Overall, then, that's just shy of 420% in a week or so worth of trading.The question now, is, what's next? Our answer is that we think this one can run further, but there's a caveat.We pointed to operational advance as driving the action of late, but that is not entirely correct. Sure, we have seen a sentiment shift based on the markets turning attention Delcath's maturation along the development pathway for its lead asset over the last six months or so. However, the key to understanding the recent run is taking this maturation in consideration with a concurrent lifting of downside pressure based on capital structure concerns.For the past couple of months, management has been trying to get a reverse split past shareholders. However, it has had to delay shareholder meetings on a couple of occasions based on not being able to attract enough positive votes as part of a proxy addressing said reverse split from meeting to meeting. The latest iteration of this came on June 15, when shareholders once again voted as to whether to allow management to effect a reverse split at a between 1 for 50 and 1 for 500 ratio. The former of these might not have been too difficult to shoulder for current holders. Sure, nobody wants a reverse split, but sometimes it's necessary to maintain listing. The latter, however, was a stretch, and approval by shareholders would have opened up the door for management to effect a 1 for 500, something we see as potentially causing real trouble for current holders, regardless of listing status.As part of the most recent vote, a little over 70 million votes were cast For the split approval and a little over 37 million votes were cast Against. 1.5 million votes abstained. While the for votes outnumbered those against, the proposal received fewer votes in favor than the required majority of the total number of outstanding shares as of the record date.In other words, the reverse split is canceled.It is this cancellation that is really driving this company right now. It means that some sort of joint venture, a buyout or an offloading of the company's lead development asset is probably going to be likely, each of which serves to potentially add a premium on to current share price on execution.So, while things have been developing nicely on the ground for Delcath, it is the lifting of the capital structure rooted weight that has sparked a market refocusing – away from the potential for a reverse split and towards this company's drug development platform.So, what's the caveat?Well, chances are we're going to see a certain degree of profit-taking near term as the shorter-term operators pull profits off the table. This is probably going to translate into a correction, which could then scare a few of the more risk-averse operators out of their positions, compounding the downside action. With that noted, we expect this correction to turn around pretty quickly as buyers load up at the bottom in anticipation of any one of the above three exits for Delcath.We recommend readers new to this one catch up on our previous DCTH coverage here.We will be updating our subscribers as soon as we know more. For the latest updates on DCTH, sign up below!
Image courtesy of crafty dame via Flickr
Disclosure: We have no position in DCTH and have not been compensated for this article.
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