Delcath Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of small-cap biotech Delcath Systems (Nasdaq: DCTH  ) popped more than 10% in intraday trading, as takeover rumors may have sparked investor excitement.

So what: The unconfirmed rumor has drug giant Bristol-Myers Squibb (NYSE: BMY) offering $15 for Delcath, representing a spectacular premium to its current price. While takeover talk is certainly cheap, it's widely known that Bristol, along with Onyx Pharmaceuticals (Nasdaq: ONXX  ) , have been yearning to get into the liver cancer space.

Now what: Fools know never to jump into a stock on takeover speculation alone. But with Delcath recently validating positive trial results for its drug delivery system, as well as raising about $35 million in a secondary offering, the stock does sport some serious hidden potential. If Delcath gets its PHP system approved by mid-2011, like its CFO expects, today's speculation-fueled surge will likely be a drop in the bucket.

Update: On Friday, Oct. 8, Delcath shares moved an additional 14% in intraday trading on no new news.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On October 09, 2010, at 8:22 PM, rrtzmd wrote:

    ...you clearly don't know your butt from a hole in the ground about DCTH's method, its history, and its potential...I have posted quite a bit on Yahoo's DCTH board and I'll quote one of them in order to try and provide a summary here:

    "...I have provided links showing that as long as twenty years ago, the medical community was aware of the existence of DCTH's process -- percutaneous HAI with hemofiltration...they were even using percutaneous HAI with hemofiltration -- exactly the same as DCTH's system -- and reporting results from patients in China and Japan...

    ...the process itself is FUNDAMENTALLY simple -- a pump, a filter, some plain catheters and a double balloon catheter...these are all things that could be purchased at your local medical supplies company...in PRACTICE, the process is more complicated to the extent that it requires a surgical suite, a fluoroscope, a perfusion technologist, an oncologist and/or surgeon, a radiologist and/or interventional radiologist, etc...but despite the intrinsic simplicity, NO ONE -- except DCTH management and stockbrokers -- has shown ANY interest in expending ANY money and energy in developing it...which is even more remarkable given doctors' and pharmas' love of reimbursable procedures...

    ...but even MORE remarkable is that, in TWENTY years, the process has NOT shown evidence of popularity DESPITE evidence from multiple studies showing that DOES cause tumors to shrink...so even though it is simple, even though it is a procedure, and even though it clearly shrinks tumors, only DCTH management and stockbrokers have shown the least bit of interest...

    ...why?...NOT because of technical difficulties...PERHAPS because of reimbursement issues...PERHAPS because of LACK OF EVIDENCE showing that simply shinking the tumors contributes anything significant in terms of improving mortality and/or morbidity...PERHAPS even because of turf issues -- oncologists having to "share" a patient with interventional radiologists...I DON'T know...but, in TWENTY YEARS, the process has simply NOT gained much popularity...

    ...CONSEQUENTLY, I argue that DCTH has developed a product that will likely have LITTLE audience...UNLESS they can develop some argument -- e.g. demonstrating that third party reimbursers will be willing to pay for it -- that would support the existence of a market for the product...what they have so far -- demonstrating superiority at shrinking tumors compared to "best alternative care" does NOT achieve that...

    ...by the way, I provided links supporting all of my comments but you'll have to rummage through the posts at Yahoo to find them...of course, the reason the ONLY people in the world -- outside of DCTH management -- that ever cared about DCTH's process were stockbrokers because it offered them a "line" that they could pitch to naive investors...

    ...also consider that ocular melanoma is the only indication so far...that's the ONLY phase 3 trial completed...the hepatocellular and neuroendocrine carcinomas are still in phase 2...as others have pointed out, even if approved, there are less than a 1000 such potential customers a year...but approval DOESN'T automatically translate into reimbursement...third party reimbursers will demand DEMONSTRATION of improved mortality and/or morbidity...so far, as others have pointed, DCTH hasn't clearly accomplished that...and shrinking liver tumors is unlikely to help survivability UNLESS they are making a significant contribution to killing the patient -- which usually isn't the case for most tumors that metastasize to the liver...

    ...moreover, it's not going to be used for any other organ because no other organ has the simplicity of arterial supply and venous drainage that the liver has -- something that DCTH's method demands...so ultimately, your market MAY BE melanoma with significant liver mets, neuroendocrine tumors with significant liver mets, and hepatocellular carcinoma...and without data supporting improved mortality and/or morbidity, don't expect third party reimbursers to pay for it...and, ultimately, this all explains why NO ONE has shown any interest in DCTH or their method in the past fifteen years...and why NO ONE except stockbrokers will show interest in the future...in fact, I wouldn't be surprised if the current rumor was started by some stockbroker in order to boost the price in anticipation of a secondary...

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