Executive Summary / Key Takeaways

• Delcath Systems is successfully executing the U.S. commercial launch of its HEPZATO KIT, achieving significant revenue growth and reaching profitability milestones in Q1 2025, marking a critical transition from a development-stage company.
• The company's core hepatic delivery system technology offers a differentiated approach to treating liver-dominant cancers by delivering high-dose chemotherapy directly to the liver while minimizing systemic exposure, providing a potential competitive edge over systemic therapies.
• Strong operational execution is driving U.S. expansion, with the company on track to meet its goal of 30 active treatment centers by the end of 2025, supported by an expanded commercial team and improving site activation processes.
• Financial strength, including a debt-free balance sheet and positive operating cash flow, is enabling strategic investment in a pipeline targeting larger indications, specifically liver-dominant metastatic colorectal cancer and metastatic breast cancer, representing substantial market opportunities.
• While facing competition from systemic therapies and operational complexities in site activation, Delcath's focused strategy, technological differentiation, and financial health position it for continued growth and potential platform expansion, contingent on successful clinical trial execution and market adoption.

A New Chapter: From Development to Commercial Momentum

Delcath Systems, Inc., an interventional oncology company founded in 1987, has long been focused on developing a unique approach to treating cancers that have spread to or originated in the liver. Its core innovation lies in a hepatic delivery system designed to isolate the liver's circulatory system, allowing for the administration of high-dose chemotherapy directly to the tumor site while significantly limiting the drug's exposure to the rest of the body. This technology, known as CHEMOSAT in Europe and combined with melphalan as the HEPZATO KIT in the United States, represents a differentiated strategy in the complex landscape of liver cancer treatment.

For years, Delcath's journey was primarily one of clinical development, culminating in the pivotal FOCUS trial for metastatic uveal melanoma (mUM). The successful outcome of this trial paved the way for a transformative moment: the U.S. Food and Drug Administration (FDA) approval of the HEPZATO KIT on August 14, 2023, for the liver-directed treatment of adult patients with mUM meeting specific criteria. The subsequent commercial launch in January 2024 marked a critical inflection point, shifting the company's focus from clinical validation to commercial execution and market building.

The first quarter of 2025 results underscore the success of this transition, demonstrating significant revenue growth and a notable improvement in financial health. This commercial momentum is not merely a validation of the product but serves as the financial engine powering Delcath's ambition to leverage its core technology platform for a much broader set of liver-dominant cancers.

The Technological Foundation: Targeted Delivery as a Differentiator

At the heart of Delcath's investment thesis is its proprietary hepatic delivery system. This technology enables percutaneous hepatic perfusion (PHP), a procedure that temporarily isolates the liver's blood flow. During the procedure, a high dose of chemotherapy, specifically melphalan in the case of the HEPZATO KIT, is delivered directly to the liver, circulates within the isolated organ, and is then filtered out of the blood before it is returned to systemic circulation.

This targeted approach offers tangible and potentially quantifiable benefits over traditional systemic chemotherapy or other liver-directed therapies. By concentrating the drug in the liver and minimizing systemic exposure, the technology aims to increase the efficacy of the chemotherapy against liver tumors while reducing the severe side effects often associated with high-dose systemic administration. The pivotal FOCUS trial demonstrated an objective response rate (ORR) of 36.3% in mUM patients treated with the HEPZATO KIT, including a 7.7% complete response rate, compared to a historical control ORR of 5.5%. This significant difference highlights the potential of the localized, high-dose delivery to achieve meaningful tumor responses in a challenging disease setting. While specific, directly comparable quantitative metrics on reduced systemic toxicity versus systemic therapies were not detailed, the fundamental mechanism of isolating hepatic circulation is designed precisely to achieve this benefit, which management believes enables faster patient recovery and potentially higher efficacy in hepatic-dominant tumors.

The hepatic delivery system is not limited to melphalan or uveal melanoma. In Europe, the CHEMOSAT device has been used with various chemotherapies for a range of liver cancers under its broader device label. This history of use across multiple tumor types underscores the platform potential of the technology. Delcath's strategic focus is now on demonstrating the value of this platform in larger indications, leveraging the core technological advantage of targeted hepatic delivery.

Navigating the Competitive Currents

Delcath operates within the competitive landscape of oncology, specifically vying for treatment share in liver cancers. While its direct competitors include large pharmaceutical companies like Bristol-Myers Squibb (BMY), Merck & Co. (MRK), Pfizer (PFE), and AstraZeneca (AZN) with broad oncology portfolios featuring systemic therapies like immunotherapies (e.g., Opdivo, Keytruda) and targeted drugs, Delcath's approach is fundamentally different.

These large players command significant market share in the overall oncology space, driven by blockbuster drugs, extensive R&D budgets (e.g., BMY's $2.5 billion R&D spend in Q1 2025), and global distribution networks. Financially, they exhibit robust gross and operating margins (e.g., BMY's 75% gross margin, 25% operating margin; MRK's 80% gross margin, 30% operating margin) and strong cash flow generation, providing a stable financial foundation that contrasts with Delcath's earlier stage.

Delcath's competitive positioning is that of a specialized, niche player offering a highly differentiated, procedure-based therapy. While its revenue scale is significantly smaller (Q1 2025 revenue of $19.8 million vs. BMY's $11.5 billion), its gross margin of 86% in Q1 2025 is notably higher than those of its larger competitors, reflecting the value placed on its specialized product and procedure. However, Delcath's operating margin remains negative due to significant selling, general, and administrative (SG&A) expenses ($11.3 million in Q1 2025) associated with building its commercial infrastructure and R&D investments ($5 million in Q1 2025) for pipeline expansion. This highlights a key vulnerability: the need to scale operations efficiently to translate high gross margins into overall profitability comparable to its larger, more established rivals.

Delcath's technological advantage – the ability to deliver high-dose therapy directly to the liver with reduced systemic exposure – serves as its primary competitive moat against systemic therapies. This differentiation is crucial in liver-dominant diseases where controlling hepatic tumor burden is paramount. However, the procedure-based nature of HEPZATO requires specialized training and infrastructure at treatment centers, creating operational hurdles that systemic therapies do not face. Indirect competitors include other liver-directed therapies like surgical resection, radiation therapies, and potentially emerging technologies, which could offer alternative treatment modalities.

The company's strategy to expand its commercial team and focus on activating a network of high-quality academic and regional centers is a direct response to the need to build the necessary infrastructure for its procedure-based therapy and drive adoption in a market dominated by systemic approaches. The implementation of the HEPZATO KIT Access 360 platform also aims to address potential patient access challenges, a critical factor when competing with more widely available systemic treatments.

Commercial Momentum and Operational Execution

The U.S. commercial launch of the HEPZATO KIT has been the primary driver of Delcath's recent financial performance. Total revenue for the three months ended March 31, 2025, surged to $19.8 million, a dramatic increase from $3.1 million in the same period of 2024. This growth was fueled by the expansion of the treating center network. As of March 31, 2025, 17 facilities were treating patients, up from just 4 in Q1 2024. Since the quarter ended, an additional two centers have become active, bringing the total to 19.

Management is confident in its operational plan to continue this expansion, targeting 30 active centers by the end of 2025. This involves expanding the commercial team from four to six territories, each staffed with a liver directed therapy manager, an oncology manager, and a clinical specialist. While the process of activating centers is complex and involves multiple stakeholders, the company is refining its approach to anticipate and mitigate potential delays.

The average treatment rate per active center was approximately two treatments per month in Q1 2025. Management expects this rate to remain just under two for the remainder of the year, acknowledging that while established centers may achieve higher volumes, the addition of new centers starting at lower utilization rates will temper the overall average. This operational metric is key to understanding the revenue trajectory, as it reflects the utilization of the growing installed base of treatment sites.

The European market, where CHEMOSAT is sold as a device, contributed $1.8 million in revenue in Q1 2025, a 29% increase over the prior quarter. While this market is not expected to be a major revenue driver in the short term due to pricing and reimbursement challenges (with reimbursement currently limited primarily to Germany), it serves a critical strategic purpose. European sites, some with over a decade of experience, provide valuable clinical data and publications across a range of liver cancers, supporting the broader platform potential and potentially influencing adoption in other markets, including the U.S. The company continues measured expansion efforts in Europe, planning to enter France, Italy, and Spain.

Financial Strength and Funding the Future

Delcath's recent commercial success has significantly strengthened its financial position. As of March 31, 2025, the company held $12.8 million in cash and cash equivalents and $46.1 million in short-term investments, totaling $58.9 million in liquid assets. This compares favorably to $32.4 million in cash and $20.8 million in investments ($53.2 million total) at December 31, 2024.

Crucially, the company generated $2.2 million in cash from operating activities during Q1 2025, a significant turnaround from the $9.6 million used in operations during the same period in 2024. This positive operating cash flow, combined with proceeds from warrant exercises ($16.2 million received in 2025 from Series F warrants that expired in May 2025), has allowed the company to pay off all outstanding debt obligations. As of the Q1 2025 earnings call date, Delcath was debt-free and had no outstanding warrants.

This financial health is foundational to Delcath's strategy. Management believes its current liquidity is sufficient to support operations for at least the next 12 months. More importantly, the positive cash flow and strong balance sheet enable the company to fund significant investments in research and development aimed at expanding the potential applications of its hepatic delivery system.

R&D expenses are expected to increase substantially, projected to rise around 150% in 2025 compared to 2024 levels, as the company initiates two Phase 2 randomized clinical trials. SG&A expenses are also expected to increase, around 60% in 2025, reflecting the continued build-out of the commercial team and infrastructure. Despite these planned increases in operating expenses, management expects the company to remain EBITDA positive in 2025, demonstrating the leverage inherent in the commercial model as revenue grows.

While profitability is a key objective, management has indicated a willingness to prioritize investment in high-potential R&D opportunities, suggesting that maintaining positive cash flow at all times is not a constraint if compelling opportunities arise to advance the platform into larger indications. This strategic flexibility, underpinned by the current financial strength, is a critical aspect of the investment thesis.

Expanding the Horizon: A Platform for Larger Opportunities

Building on the foundation established in metastatic uveal melanoma, Delcath is strategically directing its R&D efforts towards larger, liver-dominant cancer populations with significant unmet needs. The company has received FDA clearance for Investigational New Drug (IND) applications for two Phase 2 randomized clinical trials: one in liver-dominant metastatic colorectal cancer (mCRC) and another in liver-dominant HER2-negative metastatic breast cancer (mBC).

These trials are designed to evaluate the safety and efficacy of the HEPZATO KIT in combination with standard of care therapies versus standard of care alone. The mCRC trial will enroll approximately 90 patients receiving third-line treatment, with enrollment expected to begin in the second half of 2025. The mBC trial will also enroll around 90 patients receiving second- or third-line therapy, with enrollment anticipated in the fourth quarter of 2025. Both studies will be conducted at over 20 sites across the U.S. and Europe, with hepatic progression-free survival (hPFS) as the primary endpoint. Results for the mCRC trial hPFS are expected by late 2027 or early 2028, and for the mBC trial by late 2028 or early 2029.

The strategic rationale is compelling. Delcath estimates the annual addressable market in the U.S. for liver-dominant mCRC receiving third-line treatment to be between 6,000 and 10,000 patients, and for liver-dominant HER2-negative mBC eligible for second- or third-line therapy to be approximately 7,000 patients. These markets are estimated to be roughly seven times larger than the mUM population. Success in these indications could dramatically expand Delcath's market opportunity and revenue potential. The decision to pursue these indications is supported by historical data from surgical intrahepatic perfusion procedures in CRC and anecdotal evidence from CHEMOSAT use in BC in Europe, suggesting the hepatic delivery approach may be effective.

Beyond these sponsored trials, Delcath is also supporting investigator-initiated trials (IITs), such as the SCANDIUM 3 and CHOPIN trials in Europe, which are exploring sequencing or combining the hepatic delivery system with immunotherapies in mUM. These studies contribute to the growing body of evidence and explore potential synergies between localized chemotherapy and systemic immunotherapy, which could further broaden the platform's applicability.

Risks and Considerations

Despite the recent positive momentum, Delcath faces inherent risks common to the biopharmaceutical and medical device industries. Regulatory risks persist, particularly as the company pursues new indications requiring additional clinical trials and potential regulatory submissions. The success of the planned Phase 2 trials is not guaranteed, and failure to meet endpoints or demonstrate a favorable risk-benefit profile would significantly impact the investment thesis.

Commercial adoption, while currently showing strong growth, remains subject to challenges. The complex site activation process, while improving, can still face unpredictable delays. Physician and patient acceptance of a procedure-based therapy in markets accustomed to systemic treatments requires ongoing education and market development efforts. Competition from established systemic therapies and other liver-directed modalities is significant, and competitors' pipeline advancements or pricing strategies could impact market share.

Financial risks include the need for substantial R&D investment, which, while currently funded by existing resources and operating cash flow, could necessitate future financing if trial costs exceed expectations or commercial growth slows. Supply chain disruptions, although mitigated by inventory and multiple suppliers, could impact manufacturing and product availability. External macroeconomic factors, such as inflation and interest rate volatility, and broader geopolitical events also pose potential risks. The ongoing settlement obligations related to the medac matter represent a known, albeit structured, financial commitment.

Conclusion

Delcath Systems is at a pivotal point in its history, successfully transitioning from a development-stage company to a commercial entity with a profitable lead product. The Q1 2025 results demonstrate strong commercial momentum for the HEPZATO KIT in the U.S., driven by effective operational execution in activating treatment centers and increasing product utilization. This success has significantly strengthened the company's financial position, providing the resources and flexibility to pursue ambitious pipeline expansion.

The core hepatic delivery system technology provides a unique, differentiated approach in the treatment of liver-dominant cancers, offering the potential for enhanced efficacy and reduced systemic toxicity compared to traditional systemic therapies. By leveraging this platform and investing in clinical trials for larger indications like metastatic colorectal and breast cancer, Delcath is targeting substantial market opportunities that could drive significant long-term growth.

While navigating a competitive landscape dominated by large pharmaceutical players and managing the operational complexities inherent in launching a procedure-based therapy, Delcath's focused strategy, technological differentiation, and improving financial health position it favorably. The investment thesis hinges on the company's ability to maintain commercial momentum in mUM, successfully execute its expanded clinical programs, and ultimately translate the platform's potential into approved therapies for larger patient populations. Investors should closely monitor the pace of center activation, treatment rates, progress and data readouts from the Phase 2 trials, and the company's ability to manage operating expenses while funding its growth initiatives.