Monday, June 27, 2022

Delcath Systems, Inc. (NASDAQ:DCTH) Continues To Sprint Down The Wrong Path

Delcath Systems, Inc. (NASDAQ:DCTH) is a stock we recently covered, noting “The descent has been accelerated of late as the company delists from the Nasdaq and heads down onto the OTC following a repeat vote in which shareholders have expressed their unwillingness to back a new reverse split. But the story gets worse: Delcath Systems has found a way to continue its warpath of dilution, announcing last week that it would be forcing through a new reverse split due to funding needs associated with servicing rights linked to outstanding converts. So, the cycle of pain continues.”
And continue it has indeed. The warpath of dilution is stepping up another notch as the company just turned in a new S-1 to hit the market up for “moar” cash. It’s so hard to break old habits. The company is citing this step as a direct consequence of shareholders’ unwillingness to approve the recent petitioned-for reverse split. It’s very difficult to imagine a worse all-around state of affairs for a company. We wouldn’t touch this stock with a million foot pole.
Delcath Systems, Inc. (NASDAQ:DCTH) frames itself as a specialty pharmaceutical and medical device company focused on oncology.
DCTH focuses on the treatment of primary and metastatic liver cancers. The company is developing melphalan hydrochloride for Injection for use with the Delcath hepatic delivery system to administer high-dose chemotherapy to the liver. It offers melphalan hydrochloride under the Delcath Hepatic CHEMOSAT Delivery System for Melphalan name in Europe.
The company was founded in 1988 and is headquartered in New York, New York.
According to company materials, “Delcath Systems, Inc. is an interventional oncology Company focused on the treatment of primary and metastatic liver cancers. Our investigational product – Melphalan Hydrochloride for Injection for use with the Delcath Hepatic Delivery System (Melphalan/HDS) – is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and associated side effects. We have commenced a global Phase 3 FOCUS clinical trial for Patients with Hepatic Dominant Ocular Melanoma (OM), and plans to initiate a Registration trial for intrahepatic cholangiocarcinoma (ICC) by the end of 2017 contingent on effecting the reverse stock split as outlined in the Company’s consent proposal. Melphalan/HDS has not been approved by the U.S. Food & Drug Administration (FDA) for sale in the U.S.  In Europe, our system has been commercially available since 2012 under the trade name Delcath Hepatic CHEMOSAT® Delivery System for Melphalan (CHEMOSAT), where it has been used at major medical centers to treat a wide range of cancers of the liver.”
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In the 8-K filed alongside the S-1, we got a number of key details for how this step is being handled:
“As a result of the lack of requisite approval by our stockholders for our proposed reverse stock split, the parties and the two investors in the 2016 convertible note placement entered into an amendment to the August restructuring agreement on October 10, 2017 as follows: (i) on the date that we do effect a reverse split of our common stock, (x) we will exchange, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, an aggregate principal amount of those notes equal to $279,015.90 for new warrants to purchase an aggregate of 44,642,544 shares of our Common Stock, and we shall redeem all the Series C Preferred Shares then outstanding for a cash payment of $590,000 and (ii) upon the initial consummation, on or prior to December 15, 2017, by the Company of the offering contemplated by this registration statement on Form S-1 the following shall occur: (i) pursuant to Section 3(b) of the Restricted Notes, we shall be deemed (as adjusted downward by the Black-Scholes value of the warrants being issued in this offering) to have automatically, and irrevocably, adjusted the conversion price to 200% of the purchase price of a share of our common stock in the offering contemplated by this registration statement, (ii) the maturity date (as defined in the notes) shall automatically be extended to the earlier to occur of (x) the first anniversary of the date of consummation of the offering contemplated by this registration statement and (y) December 30, 2018, (iii) until the earlier of (x) this maturity date and (y) the 75 th calendar day after the date of consummation of the offering contemplated by this registration statement on Form S-1, all installments to be made under the notes shall be deemed automatically deferred with no conversions during that 75 day period, (iv) we agree to redeem any portion of the outstanding notes at any time requested by either investor thereto with $7.3 million in cash to be reduced by $0.6 million to redeem the Series C Preferred Stock remaining in the restricted accounts with respect to the 2016 convertible notes and (v) the conversion floor price on the notes is $0.05 and not subject to adjustments.”
At this time, carrying a capital value in the market of $20.3M, Delcath Systems has a significant war chest ($14.7M) of cash on the books, which must be weighed relative to about $12.6M in total current liabilities. DCTH is pulling in trailing 12-month revenues of $2.4M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 14.3%. This is an exciting story, and we look forward to a follow-up chapter as events transpire. Sign-up for continuing coverage on shares of $DCTH stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $DCTH, either long or short, and we have not been compensated for this article.

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