Some concluding thoughts for the weekend...
First the BAD news.
1) The shorts were the big winners this week. I tip my hat to them. They lost big a few weeks ago, and the markets tend to have a natural element of homeostasis. You win some, you lose some. We'll see what the coming weeks/months bring.
2) For those who are really concerned about this week's price action, zoom out a chart to 1M and take a deep breath. Then, zoom out even further to see where the stock once was. We're still at the very bottom and while it's unlikely we'll ever see $5+ with all the shares that have been issued in recent months, a recovery well beyond where we trade today is not entirely out of the realm of possibility.
3) Part of the reason for the decline this week is natural consolidation. Again, the stock went from .02 to .35 in less than two weeks. Even if it were to retrace back to .04, that's still a 100% gain in a month's time. Part of the reason is shorting. The stock peaked at .36 and has been shorted hard ever since. Part of it may be Delcath issuing new shares per the note conversion deal. Part of it may be due to the recent issuance of preferred shares that are convertible at .153/share. Part of it is simply due to profit taking -- many here are in with very low cost basis and would rather sell at a discount relative to where this *could* go, in order to lock in profits before it potentially drops back to where it traded before the run up.
4) The reason for the run up was essentially a short squeeze. Once that got exhausted, we are seeing more sellers than buyers. The reason for the squeeze was due to the news of no reverse split. Now, it appears a reverse split is going to happen -- and that management will continue to do whatever it can in order to get a reverse split to happen, even if it gets rejected again.
5) Unfortunately, there was no "good" news of a permanent sort (i.e. partnership, data release) that would create a new price floor. The stock went up on a squeeze, and is dropping now that the squeeze is over.
Now the GOOD news...
1) We have a product that is generating meager revenues in Europe, but in time, as more insurance plans reimburse for the procedure, those revenues should increase substantially.
2) Because the product has been approved in Europe, there's a decent chance it will also be approved in time by the FDA.
3) Interim data should be coming by the end of the year. In fact, there are currently two paths toward approval; one is a P3 trial and the other is a P2. The fact that data has not been yet released I see as a positive; the primary endpoint is Overall Survival so the longer patients live, the better it is for approval. The downside is that the longer patients live, the longer it takes to collect data about survival rates compared to the current standard of care.
4) As more and more people short the stock, it sets up the potential for another squeeze if/when positive data is released. Some shorts will make a lot of money if they time this perfectly -- but some will get greedy and will get trapped, just as some longs were greedy and didn't take profits when the stock went up.
5) Even though it does not appear a buyout is imminent as some had suspected, this doesn't mean that a buyout is completely off the table. In fact, I think the fact Delcath would rather do a reverse split than find a buyer/partner speaks volumes to management's confidence that the most value can be extracted after approval -- and typically with medical devices, outside demand comes later than it would if this were solely a developmental drug. I still think a partnership or buyout is in the picture, but I think Dr. Simpson wants to negotiate when the leverage is firmly in her hands -- she comes from ImClone, and so she knows the buyout game and how it works.
6) We are beyond speculating whether the drug works -- there is enough data from Europe and elsewhere that verifies the Chemosat system is effective. It's possible we fail the P2/P3 trials, but I would venture to say that is unlikely -- especially considering the delay in interim data, which again I suspect is due largely to patients' survival rates being extended due to the treatment.
7) The stock price is simply the value that someone is willing to pay TODAY. It is not reflective of the price this will be worth tomorrow, for better or worse. In 2000, before the iPod, Apple's stock was only worth $5/share. And there were tons of bashers and bears saying that was too high. In 1997, Amazon's stock was only $1.73, and there were many who thought it was foolish to invest in an online bookstore out of some guy's garage when titans like Barnes and Noble and Books a Million were in expansion mode.
8) This is just a random observation, but I tend to think that the stock is being attacked which creates fear which creates selling which attracts more bears who attack it. It's going to take news to reverse the cycle. That might take time. But, eventually news will come...and if you think it will be positive, there's nothing to worry about long term.
9) The value of Delcath's Chemosat system is potentially worth a lot more than what the market currently values it because right now, there is no guarantee the system will be available in the USA -- and if it is, it won't be for at least 1 or 2 years. But if not for the toxic financing deal, I seriously doubt that the stock would be as low as it is today. When you buy a share of Delcath today, you're buying the same company that people bought last Halloween when the stock was around $2. The technology hasn't changed -- only the perceived value as a result of the number of shares increasing.
That's all for now. I'm not going to post much here anymore unless something significant happens that alters my investment thesis. Long term, I think getting the stock for .15 is a bargain. It may drop back to .05, but it could just as easily spike to .50 on good news. Trust your DD, and remember the famous Buffet quote: "the stock market is a mechanism for transferring wealth from the impatient to the patient."
Good luck!
