$DCTH (Delcath Systems, Inc) was initially brought up to this board by @ryshab in the monthly updates. The share price went up 54.69% in the past 3 months, and 284.93% in the past 1 year. But after doing more research, I believe there could still be significant upside for this company moving forward.
$DCTH is a small-cap interventional oncology company with a market cap of ~$500M. It currently only has one commercial-stage product in the US, HEPZATO KIT, which focuses on liver cancer treatment. It just started to deliver revenue in 2024. It also has a product called “CHEMOSAT”, but it’s essentially the same product that targets Europe. The treatment can not cure live cancer still, but can make the patients survive much longer. This treatment is currently the only FDA-approved treatment of the same type. The procedures have to be done in treatment centers. A treatment center typically takes 6-9 months to activate and requires additional time to ramp up the capacity as they will need to train the medical staff. As in October 2024, there were 12 activated in the US. The company projected at least 15 centers by end of Q4 and planned to reach 30 centers in 2025.
The company’s revenue is still tiny but is growing rapidly. Revenue from 23Q4 to 24Q4 were (in million dollars):
0.5 → 3.1 → 7.8 → 11.2 → 15.1 (pre-announced)
The majority of revenue came from the US. Although the company also had more than 10 treatment centers in Europe, the quarterly revenue was only ~$1M. It appears that European health care providers has significantly lower insurance coverage on these procedures, e.g. It only reimburses ~$20k per procedure in Germany, while it reimburses $182.5k in the US.
If we only focus on the US market, it’s very simple to estimate future revenue after making a couple assumptions. Basically, each procedure generates about $200k revenue, the company would grow revenue by activating new centers and growing number of procedures per center. Currently, each center takes a little bit under 2 procedures per month on average. If the company can achieve their goal to reach 30 centers in 2025 and grow procedures per month per center to 3, then it will grow revenue run rate by 200%.
So I’m pretty optimistic about DCTH’s short-term and mid-term growth and the potential forward PS ratio appears very attractive to me. That being said, what multiples the market will give DCTH in 2026 and beyond may depend on potential new growth drivers as the current treatment centers mature. DCTH just started a new Phase-2 trial to expand the HEPZATO KIT treatment to cover liver-dominant metastatic colorectal cancer (mCRC). They will start another Phase-2 trial soon for another type of liver cancer. These new studies will open up new TAM if they succeed but it’s still too early to predict.
In terms of profitability, gross margin is pretty high at ~85%. Operational loss was $3.6M in Q3 and management said it was close to break-even. Cash on balance sheet was $14M in Q3. There’s no debt and management claimed that they would have enough cash flow to fund the operations and trial studies till profitability.
The stock has been up ~30% since the company pre-announced Q4 earnings on Jan 13th, as the numbers beat consensus by a huge margin. Despite the run-up, I plan to start a starter position soon.
I’ll appreciate any other thoughts.
Cheers,
Luffy