Delcath Systems (DCTH) Stock: Clearing The Air After Further Research


Delcath Systems, Inc. (NASDAQ: DCTH) is a stock that I’ve been following for quite some time. In fact, this will be my fourth post I’ve written about the stock this week. Yesterday, I wrote an article, and boy did I catch some flack for it – and rightfully so. One of the facts mentioned in the article was indeed false, and for that I apologize. Nonetheless, a big thank you to those on StockTwits that blew me up about it and made it clear that I was misinformed and that this misinformation was further seeping into the DCTH investing world. With that said, I spent quite a bit of time last night and this morning, digging around for the correct details, particularly surrounding institutional holdings and what this could mean for the reverse stock split.

My Mistake

In yesterday’s article, I mentioned that Ayrton had a holding of nearly 10% in the stock, and with the warrants on top of that, the firm had quite a bit of voting power with regard to the reverse split. I remember seeing when they purchased the passive stake, but for some reason, when they sold it, the news slipped under my radar. Nonetheless, they did indeed relinquish their ownership of the company back on August 11th. After coming across a Seeking Alpha article mentioning this stake, I believed that it was still active. I should have done further due diligence, but in the interest of speed, I simply did not, and for that I apologize.

DCTH And The Reverse Split

This is probably going to lead to even more angry messages on StockTwits, but I call it how I see it. Before I get into the details, I want to make it clear that I have not been paid by anyone to write this article. Also, I do not have shares in DCTH. While I would love to purchase it myself, I believe that there is something fundamentally wrong with writing about a stock in which you have a position. So, I never purchase positions in any stocks I mention in my works.

With that said, I do believe that a reverse split would be a good thing for Delcath Systems. While I no longer believe that the split is going to happen, the idea that it’s not going to happen will put the company in a tough place. Don’t get me wrong, it’s not a hurdle that they can’t get over, but they need funding, and they were looking to the RS as a way to achieve the goals they had with regard to funding. After all, if the split were to be approved, it would unlock $13.7 million or so in funding – enough to get the company well past the next clinical catalyst. Here’s why I don’t believe that the reverse split will take place:

  • Ayrton – While Ayrton did own DCTH past the cut off and they do have the opportunity to vote for the split, I don’t think they have. After all, if they had, we likely would have heard it by now, and the conversation surrounding the split would have been far different.
  • Extension – Something that doesn’t seem to have been mentioned by anyone other than those on message boards is that we should have known the news on the RS by now. However, the company processed an extension. That extension ends today! However, for some time now, DCTH seems to have been scrambling to try and get enough votes in for the split, which suggests that they have not received the support they were looking for with regard to the action.

What’s Next For DCTH

As I said, the idea that an RS is no longer likely is concerning financially and will likely act as a hurdle for the company. However, I don’t believe that this hurdle is one that the company won’t be able to clear. Nonetheless, the financial picture is a very ugly one, and funds are going to need to come from somewhere if DCTH plans on surviving this mess.

With that said, one of the big options, and one that many investors seem to be looking for, is for management to reduce their salaries and possibly even start investing in the company themselves. In fact, considering the current picture, they may be forced to do so. Yes Jenny, it looks like you may have to accept a salary that’s under a half a million a year, but you’ll get through it!

Another thing that we can’t gloss over here is the potential for an acquisition. Considering the fact that without a reverse split, financial obligations are going to be a pain for DCTH, the company may move forward with exploration of strategic alternatives, including but not limited to the sale of its assets or itself. This is a very real possibility. After all, considering what they have created with Chemosat, there is some real value here, and other players in oncology undoubtedly could benefit from having this asset in their portfolio.

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This Is Not A Bearish View

So, I know I’m going to get emails and messages asking why I’m so bearish on DCTH. The truth is that I’m not; I’m simply a realist. Realistically, the company is likely headed into a very tough time. However, that doesn’t mean that I don’t see value here. After all, with the company’s Chemosat being used successfully in Europe and the UK, and ongoing studies to bring the treatment to the United States, there is definitely a strong value proposition here. Nonetheless, I do want my readers to be prepared for what’s likely to happen. First, when news comes out that shareholders have voted down the reverse split, we’re likely to see a spike. However, from there, financial concerns will likely lead to declines until Jenny and her team find another way to cure the financial blues. Nonetheless, I’ll continue to follow the story and bring the news to you as it breaks!

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