Delcath Systems, Inc. (NASDAQ: DCTH) is experiencing a relatively flat day in the market today as investors await news with regard to the reverse stock split that it has been working to get approval for. At the end of the day, there are two ways this could go. After all, it’s a binary proposition. Either the company will receive approval, or it will not. Today, we’ll discuss the scenarios following either of the two.
The More Likely Scenario – DCTH Gets A Yes Vote (Please Read The Update Below!)
OK, have at it my friends. I know I’m going to upset at least a few people reading this. I’m prepared for the emails, StockTwits messages, and more. However, when I write something, I have to stand behind it. So, here’s how I see the whole Delcath Systems scenario playing out…
We all know that shareholders already voted no on the previous reverse stock split attempt. However, the game has changed quite a bit. You see, last time around, there wasn’t much by way of institutional holdings in the stock. Nonetheless, this time around, things have changed. Ayrton Capital LLC now owns about 9.14% of outstanding shares. This, mixed with Hudson Bay Capital Management’s 9.8%, means that institutional investors own about 20% of the company. These institutions understand the need for a reverse split and will likely use their voting power to make one happen. And they have a ton of voting power. In fact, between the two, there are 110,047,839 votes when we add up common share votes with Series B Preferred stock votes. Between these two institutional investors, DCTH has almost all of the yes votes it needs.
Update – After further research, I found that Ayrton Capital LLC relinquished its ownership of DCTH shares in mid August. While I did see the passive stake ownership when it was first purchased, I believed that the holding was still active considering research done this morning when I came across a Seeking Alpha article that mentioned this holding. I apologize for any inconvenience this may have caused. Since Ayrton no longer holds shares in the company, it is not likely that the reverse split will receive a Yes vote. As a result, I believe that scenario 2 listed below would be the best scenario for the company. Nonetheless, this does not change my belief that DCTH is a great company that has made mistakes, but has also made miracles happen for many!
This is reality my friends. I’m not going to sugar coat it, I have no need to manipulate, I don’t own nor plan to hold any position in the stock any time soon. Nonetheless, just because a split is likely on the horizons, doesn’t mean that this is a bad play. We’ll get into why later, but first, lets talk about scenario #2.
Update – The Most Likely Scenario
The less likely scenario here is that investors somehow drum up enough buzz on message boards to make a no vote happen. If this were to happen, DCTH would not be able to access the $13.7 million that it so desperately needs in order to make it to the next clinical catalyst. Nonetheless, anything can happen in the market, so it’s important to cover all bases.
With that said, if a no vote were to happen, it could be a horrible thing, or it could be a good thing. On the bad side of the fence, we have a company that’s struggling financially. A no vote on the reverse split would likely keep them in the same financial boat, which is essentially a path toward financial instability. Don’t get me wrong, if Jenny and her team accepted a bit less of an exorbitant salary, things could be better, but it’s likely that even this wouldn’t be enough to make a meaningful change in the financial picture.
However, there is a glimmer of hope here. If a no vote were to be the result of the planned reverse stock split, chances are that DCTH would be scrambling to find strategic alternatives, one of which may be the sale of the company. So, a no vote may push a buyout, and that would ultimately be good for investors.
Regardless Of How The Vote Goes, I Stand Behind Delcath
At the end of the day, Delcath Systems is a company that has made some mistakes, so too is CNA Finance, and so too is any company on the planet. At the end of the day, no company is perfect. Nonetheless, I still find DCTH to be an incredibly compelling opportunity.
I’ve seen various videos of patients explaining how Chemosat literally SAVED THEIR LIVES. We’re not talking about a headache medicine here. We’re talking about a cancer treatment! The treatment has been being used in Europe and the UK, and there have already been 2 hospitals that boast 100+ patients treated with this incredibly therapy in their facilities to date.
Now, DCTH is working to bring this life-saving option to cancer patients here in the United States. Granted, it’s not an easy process, but they are doing well. In fact, the company has multiple ongoing clinical trials and continues to strive to bring this life saving therapy to approval.
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The Bottom Line
At the end of the day, if DCTH gets the RS vote, great! They’ll have nearly $14 million to fund the company through the next catalyst and be on a solid foundation as they do so. If they don’t get approval, well, while this will lead to a bit of a rocky road, it’s not the end. The reality is that the company has created an incredible asset – an asset that is likely one that larger companies in the industry would be interested in acquiring. So really, no matter how the vote goes, there’s a silver lining on both clouds. With that said, we’re not looking at a damned if you do, damned if you don’t proposition here. At the end of the day, what we’re looking at is an opportunity!
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