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Here's What Comes Next From Delcath Systems, Inc. (NASDAQ:DCTH)

Here's What Comes Next From Delcath Systems, Inc. (NASDAQ:DCTH)
Written by
Chris Sandburg
Published on
June 26, 2017
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As our regular readers will know, we have called Delcath Systems, Inc. (NASDAQ:DCTH) almost to a T year to date.Back in March, we highlighted the fact that the company had just cleared a path to regulatory approval for one of its lead development assets, Melphalan/HDS, with the FDA in the US. The company had just agreed a Special Protocol Assessment (SPA) that basically represented the regulatory agency in the US saying "if you can prove this, as part of a trial set up like this, we will greenlight the drug for commercialization".On June 12, we published this piece, concluding with the following:

"… taking into consideration the potential of its pipeline, (Delcath) looks incredibly cheap at current prices."

At that time, the company went for $0.05 a share. Three days later it started to run and, on June 21, topped out at more than $0.33. That's 560% there or thereabouts in a matter of days.­Subsequent to the run, we published our interpretation of the action as part of this piece, concluding with the following:

"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… we expect this correction to turn around pretty quickly as buyers load up at the bottom."

We got exactly the correction we were expecting, with Delcath bottoming out at $0.12 on Friday and closing out the session last week at $0.16 a share.To make sure our readers stay on top of this one, here is a look at what we are focusing on next.In a nutshell, we expect Delcath to stage a recovery towards the above-mentioned highs and to close the gap on the correction seen towards the end of last week.Our thesis on this is rooted in a few things.First, and as noted in our last coverage, the cancellation of a reverse split necessitates some sort of joint venture, a buyout or an offloading of the company’s lead development asset as a value driver if the company is to maintain its listing. We think the latter is probably unlikely, and that a joint venture is probably more likely than an outright buyout. Any such joint venture would likely inject some immediate cash into the company's balance sheet and – ultimately – drive valuation towards the one-dollar mark necessary to maintain NASDAQ listing.Second, there is plenty in the pipeline from a development perspective that could get this one moving regardless of the above-noted collaboration potential. The company has committed financing to the tune of $35 million through a securities purchase agreement with two institutional investors (secured last year) and this is more than enough to advance its lead development programs towards, and beyond, major catalysts. The OM indication is a phase III and it's set to read out during the fourth quarter of this year. A positive clinical benefit readout (coupled with a clean safety readout, which in some regards is the more important side of the data for this program) will initiate a high double-digit percentage point revaluation at a minimum.The initiation of the pivotal trial we touched on earlier, the one for which the company has agreed on an SPA with the FDA in an ICC indication, will initiate again during the fourth quarter of 2017. That is two major 2017 catalysts, each of which could drive upside reevaluation, and the latter of which will lead into a 2018 data release that could lead to the approval of a commercial asset is the drug in question performs against its SPA.Bottom line here is that this company is at something of an inflection point. Shareholders grew weary of the potential for a reverse split, and the associated capital structure issues that might come with it, and this dampened sentiment somewhat throughout the early part of 2017. With this potential now lifted, however, the thesis on this one is now rooted in the clinical benefit of its lead assets, as opposed anything else.In other words, the company now asking shareholders to take a position based on the science as opposed to the potential for mismanagement and dilution. While it's far from a sure thing, it's a $26 million company with two very late stage assets in development in large, unmet healthcare indications. Take this valuation into consideration against the backdrop of some of its peers, and it looks plenty cheap at current prices.New to this one? Get the whole story 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 Travis Wise via FlickrDisclosure: We have no position in DCTH and have not been compensated for this article.

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