This past weekend, Delcath Systems (Nasdaq: DCTH) announced clinical data from the CHOPIN study that are highly encouraging for Hepzato’s medium- to long-term growth prospects. Then, in a separate news release, Delcath revised FY2025 revenue guidance downward, cautioning investors to temper expectations for Hepzato’s near-term growth. In our last note on Delcath, titled appropriately “Patience Required,” we highlighted that the company’s participation in Medicaid’s National Drug Rebate Agreement (NDRA) would result in a flatish Q3, followed by a Q4 revenue rebound. In last week’s revised FY2025 outlook, the company made it clear that the pricing impact of NDRA combined with an unexpected seasonal dip in utilization, would lead to softer-than-expected Q3 AND Q4 results. Delcath will remain highly profitable, but investors should not expect meaningful growth to return until FY2026. Juxtapose the somber revenue update with the highly encouraging CHOPIN data announced last weekend at the European Society of Medical Oncology (ESMO) meeting, and investors are left scratching their heads about what to do with Delcath. It seems likely to us that “More Patience Is Required” for Delcath, and that the stock could remain range-bound for the foreseeable future. However, in our opinion, the future for Delcath and Hepzato has never looked brighter than after the CHOPIN data. We stand by our statement from our last note with one notable exception: “…for those willing to patiently hold Delcath through this (these) transient quarter(s), the potential rewards should be significant.”
Short-Term Pain
Investors were already preparing for the short-term pain of NDRA in Q3, but during the company’s call this Monday, it became clear that the main reason for the downward revenue guidance wasn’t NDRA. Instead, it was seasonality affecting new patient starts in Q3, which will have ripple effects into Q4 and maybe into early 2026.
It feels timely to remind investors that Hepzato (branded Chemosat in Europe and often referred to as percutaneous hepatic perfusion, or PHP, in medical publications) is a unique product that requires a unique sales process. Since its approval, CEO Gerard Michel hasn’t shied away from telling investors how challenging — and even complicated — it is to get sites activated. Investors have been constantly reminded that scheduling, training, and proctoring three specialists—a perfusionist, an interventional radiologist, and an anesthetist—per site is challenging. The site activation process can be complicated and, at times, a bit slow. However, once a site is up and running, things seem to go smoothly —at least, that’s what investors thought.
The Law Of Small Numbers
Investors could estimate Delcath’s revenue for each quarter with a surprisingly high degree of accuracy by simply multiplying three variables: the number of active sites, the average monthly or quarterly utilization, and the average price per Hepzato Kit. NDRA threw a temporary wrench into the formula by dragging down the average price for Hepzato by about 12%, from $187,500 to roughly $167,500. However, as we stated earlier, the impact of NDRA was expected to be transient, predominantly affecting Q3. As long as the other two variables —utilization and sites —behaved as expected, growth would return in Q4.
In the weekend’s press release and subsequent Monday call, investors learned that utilization took a hit over the summer months, dragging down another variable in the formula. CEO Michel said on Monday’s call, “So if you get a drop in new patients all of a sudden, you get the law of small numbers. Given the high price, you have a wide swing in revenue. We do believe at least part of that is because we saw cancellations and we saw scheduling issues. We do believe part of it was frankly just summer vacations. We have to have 3 health care providers available for these treatments. There really are no backups trained. It’s just an issue of REMS. Now we’re trying to get backup docs trained. It’s not as simple as one would hope but we’re working hard to get that done.”
Frankly, so far in its commercial launch, Delcath has benefited from the “law of small numbers.” Given the substantial price of Hepzato, minor changes in the other variables—such as a couple of new sites or a slight increase in utilization—helped significantly grow revenue. However, as reflected in the updated guidance, small numbers moving in the wrong direction—such as a slowdown in new site activations or a decrease in utilization—can also weigh on revenue.
The Ripple Effect
On average, a Hepzato patient receives four treatments, with each procedure occurring every six to eight weeks. A lost patient isn’t just lost revenue for this quarter; it also impacts future quarters. Therefore, the ripple effect of this Q3 seasonality will influence Q4 and possibly extend into 1Q2026. However, even accounting for the ripple effect from Q3 into Q4, we believe the company’s updated FY2025 guidance is slightly pessimistic. Based on CEO Michel’s comments on Monday’s call, NDRA’s impact remains unchanged, new patient starts are returning to normal levels, and the number of active sites has increased to 24. We estimate the monthly utilization rate for Q3 to be around 1.75 kits per site. If we assume the ripple effect from Q3 keeps the utilization rate steady in Q4, our updated Hepzato calculations for U.S. revenue are as follows;
Delcath reported $44 million in sales for the first half of the year. They have guided to $20.5 million for Q3. The company’s revised guidance for FY2025 sales ranges from $83 million to $85 million, which implies Q4 revenue of $18.5 million to $20.5 million. Our calculation above of $21.1 million doesn’t include Chemosat sales, which are generally around $1.5 million a quarter. That would give Delcath $22.5 million in Q4 revenue. In our opinion, the company, after providing initial guidance in May and then revising it downward twice, is giving itself some breathing room for a Q4 beat.
It is also important to emphasize that, despite the downward revenue guidance, Delcath remains highly profitable. As part of its updated guidance, it forecast positive net income and EBITDA, and $4.8 million in operating cash flow for Q3. As of the end of Q3, the company had almost $90 million in cash.
CHOPIN To The Rescue
There’s no denying that Delcath’s downward guidance could weigh on the stock in the near term. However, the short-term pain from NDRS, slower site activation, and seasonality is more than offset by the likely medium to long-term upside for Delcath’s Hepzato (and Chemosat) business from last week’s CHOPIN data. The study results showed a statistically significant improvement in progression-free and overall survival when Hepzato was sequenced with the immune checkpoint inhibitors (ICIs) ipilimumab and nivolumab (IPI/NIVO) compared to Hepzato alone in patients with metastatic uveal melanoma (mUM). This was the best-case outcome for Delcath, validating the tolerability and efficacy of sequencing Hepzato with ICIs.
The Gatekeepers
Medical oncologists are the gatekeepers to accessing mUM patients. For most medical oncologists, their natural bias is to prescribe when appropriate, which tends to lean them towards systemic therapy as first-line treatment. In the case of mUM, this means tebentafusp (Kimmtrak) for HLA-A2-positive patients (approximately 45% of mUM patients) and IPI/NIVO for the remaining mUM patients. For many centers, Hepzato, liver-directed therapy, is often only considered once a patient has progressed after systemic treatment. The CHOPIN data should change this paradigm.
After having to market off the 2022 single-arm FOCUS data since the launch, Delcath sales representatives and medical science liaisons now have strong new controlled data to share with medical oncologists. These data support the merits of using Hepzato earlier in the mUM treatment paradigm, alongside systemic therapy. The sooner Hepzato is started, the more patients will be treated, increasing utilization and driving revenues.
Sequencing could also help insulate Delcath from the seasonality phenomenon that has bitten them this quarter. Spotty summer availability for the team of specialists doesn’t have to lead to “lost” patients. Instead, a patient can be started on systemic therapy and have Hepzato treatments sequenced once the team is back together. As CEO Michel stated in the CHOPIN press release, “Since many oncologists start systemic therapy first, this approach provides valuable lead time for patient assessment and scheduling PHP, helping to overcome logistical barriers and support broader adoption and near-to medium-term uptake.”
Broader Interest
Interest in sequencing Hepzato with systemic therapy extends beyond IPI/NIVO. The principal investigator from FOCUS, Dr. Jonathan Zager, is planning a study where mUM patients will receive two Hepzato treatments before starting Kimmtrak, followed by additional Hepzato treatments as needed. As the study design suggests, Dr. Zager is an advocate of liver-directed therapy as a first-line treatment before systemic therapy.
Breadcrumbs To Bigger Things
In the company’s CHOPIN press release and during Monday’s call, there are several references to ICI resistance caused by liver metastases. The press release references cutaneous melanoma, non-small-cell lung cancer, urethelial carcinoma, and renal cell carcinoma as tumor types where liver metastases are known to cause ICI resistance. It shouldn’t be lost on investors that the key opinion leader chosen for Monday’s call, Vincent Ma, a medical oncologist from the University of Wisconsin, has a research interest in ICI resistance, in particular for cutaneous melanoma. He has authored several papers suggesting that treating liver metastases can help correct ICI resistance. The CHOPIN study, which demonstrates the tolerability and efficacy of Hepzato with IPI/NIVO—two of the most commonly used ICIs—could therefore spur future investigator-led studies of Hepzato outside mUM and potentially off-label use.
Frustration & Patience
There’s understandably some frustration amongst Delcath investors. The decision to provide revenue guidance in May to soften the blow of NDRA, only to have to revise that guidance downward twice, isn’t a good look. Whether it’s blamed on seasonality, the law of small numbers, or something else, Delcath investors feel cheated out of the upside from CHOPIN. Yet despite these missteps, in our opinion, the upside for Delcath and Hepzato is more compelling today than it was a week ago. More patience will be required, as the stock is likely range-bound for the remainder of 2025. Nevertheless, our conviction for the medium to long-term prospects for Delcath remains high. This time next year, we believe Delcath should be materially higher (or acquired). If we’re wrong, we will probably be out of patience.