Delcath Systems Struggles to Find Ways to Raise Cash and Stay in Business

Published: Sep 22, 2017

Delcath Systems Struggles to Find Ways to Raise Cash and Stay in Business September 22, 2017
By Mark Terry, BioSpace.com Breaking News Staff

New York – Delcath Systems is trying a couple different ways to extend its runway and keep its doors open. The company’s president and chief executive officer, Jennifer Simpson, recently issued a Letter to Stockholders to provide an outline of the company’s efforts. Most of it revolves around efforts to convince shareholders to support a reverse stock split.

In June, the shareholders voted no. Seeking Alpha wrote on Sept. 6, just before a second vote (which was also turned down), “Market reaction was swift, and the stock went on a wild 1900 percent run ($0.18 ~ $0.36). Can this happen again? The short answer is: probably not. With institutional investors on board with Delcath, and in view of the delisting scenario, I strongly believe that the reverse split will go through this time.”

It didn’t.

As a result, Delcath couldn’t comply to stay on the Nasdaq Capital Market. After discussions with Nasdaq and OTC Markets, the listing was shifted to the OTC Markets.

In her most recent letter, Simpson notes that the problems with the authorized share limit continues. “This leaves the Company unable to access the restricted cash otherwise available under the 2016 convertible notes or to pursue new equity financing (which, after diligent exploration of all available alternatives, are the only means of access to capital for us in the near future). Unless and until Delcath can make authorized shares available and thus access capital, it does not have the ability to fund its business and continue operations beyond the next few months.”

So the company made a deal with the 2016 convertible note holders that resolves the authorized shares limit problem. It involves issuing Series C preferred shares in exchange for $0.5 million in cash. This will allow Delcath to stay in business in the short-term while giving convertible note holders enhanced voting rights that would approve a reverse stock split. The vote will take place after 20 calendars after the date of mailing its Schedule 14C Information Statement to shareholders.

Simpson wrote, “In supporting this reverse split approval, the motivations of the Board and management have been properly focused on providing funds for the Company to continue operations, develop its products for improved cancer patient care, create a sustainable business and increase shareholder value. The Company’s stockholders in general have been given two opportunities to make their voices heard since June and twice voted more in favor than against (approximately 60 percent and 65 percent of voted shares for the September 7 and June 13 proposals, respectively). The approval of this reverse stock split is reasonably related to a rational objective—granting the Company access to capital so that it can continue as a going concern.”

InsiderFinancial wrote yesterday, “We covered the stock back on September 14 and suggested that, against a backdrop of some real market weakness and subsequent to a decline of more than 68 percent from June highs, there may well be some value in a speculative punt at the then current levels. We never want to try and catch a falling knife, but when a company has been beaten down on the potential for a reverse split as much as Delcath was during August and early September, and when this pressure is compounded by a voluntary delisting, there’s not much else that can push a company like this down more.”

Delcath has a product for sale in Europe, Chemosat, which is a delivery system to administer chemosaturation therapy directly to the liver. It is in a Phase III trial in the U.S., which to-date seems to be going well, although the positive data still needs to be confirmed.

If the trial gets a go-ahead, it could bring in more revenue, which would help with its capital structure problems. What InsiderFinancial believes is going on with shareholders is they hope the assets will be bought up at low prices.

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