DCTH Declines After CHEMOSAT Receives Standard Review

After much anticipation over the last few weeks, Delcath Systems (NASDAQ:DCTH) announced Monday that the New Drug Application for its CHEMOSAT hepatic chemosaturation system has been accepted by the FDA with a standard review designation. DCTH investors had hoped for a priority review from the FDA, which would have expedited the review process from 10 months for a standard designation, to 6 months, allowing CHEMOSAT to enter the domestic market as early as the first quarter of next year if approved. DCTH submitted the NDA on August 15th, so the FDA should decide whether or not to approve CHEMOSAT before July of next year. A PDUFA date has not yet been set.

Shares of the medical device company are off by 17% as investors were pricing a priority review into the stock ahead of the FDA’s decision yesterday. Delcath will lose out on four additional months of potential sales now that the device, if approved, likely won’t enter the market until the second half of 2013. That’s four months of important revenue for Delcath, which remains a cash-flow negative company. But how well the device does on the market remains to be seen. CHEMOSAT was approved in the E.U. in April of last year, and the company reported its first revenue ($106K) from the device in the second quarter of 2012. Operating costs will change significantly with commercialization efforts and possibly lower R&D expenses, and the company has guided for cash use of $3M to $4M monthly in the fourth quarter. If the company can maintain that rate, their $29.3M in cash and equivalents on June 30 may last through the first half of next year. Unless CHEMOSAT sales in the E.U. grow exponentially, the company will need to tap into one of two existing capital sources before CHEMOSAT hits the domestic market. A $20M credit facility is available, but the company also has roughly $31M available through an “at the market” shelf registration, allowing the company to sell shares of common stock at any time up to the allotted amount. With commercialization in the early stages and little cash available, DCTH will need to raise capital soon, either through an ATM offering or by accessing the revolving credit facility. Either way, the news will be an unwelcome negative for DCTH shareholders.