Executive Summary / Key Takeaways

• Delcath Systems is transitioning from a development-stage company to a commercially viable interventional oncology firm, driven by the successful U.S. launch of its HEPZATO KIT for metastatic uveal melanoma (mUM) and a strong financial position with no debt and significant cash reserves.
• The company's proprietary hepatic delivery system, which precisely delivers high-dose chemotherapy directly to the liver, represents a significant technological differentiator, as evidenced by compelling clinical data from the CHOPIN trial showing superior progression-free and overall survival rates in combination therapy.
• Strategic expansion into larger indications like liver-dominant metastatic colorectal cancer (mCRC) and metastatic breast cancer (mBC), markets estimated to be seven times larger than mUM, positions Delcath for substantial long-term revenue growth, supported by ongoing Phase 2 clinical trials.
• Despite facing operational complexities in hospital site activation and competitive pressures from systemic therapies and other clinical trials, Delcath's focused commercial strategy and the unique benefits of its liver-directed approach are expected to drive continued adoption and market penetration.
• Key factors for investors to monitor include the pace of new U.S. treatment center activations, the impact of the 340B drug pricing program on average revenue per kit, and the successful execution and data readouts from its expanded R&D pipeline.

The Liver-Directed Oncology Specialist: A New Chapter for Delcath

Delcath Systems, Inc. is an interventional oncology company dedicated to treating primary and metastatic liver cancers. Founded in 1987, the company has a long history of developing specialized solutions for this challenging disease area. Its core strategy revolves around leveraging its proprietary hepatic delivery system to administer high-dose chemotherapy directly to the liver, thereby maximizing local efficacy while minimizing systemic side effects. This targeted approach addresses a critical unmet need for patients whose lives are often threatened by liver-dominant disease.

The company's journey saw an early presence in Europe with the CHEMOSAT Hepatic Delivery System for Melphalan, a stand-alone medical device that gained Medical Device Regulation (MDR) certification in February 2022. CHEMOSAT has been instrumental in generating extensive clinical data across a range of liver cancers, providing a foundational understanding of the technology's potential. A pivotal moment arrived with the U.S. Food and Drug Administration (FDA) approval of the HEPZATO KIT (melphalan for Injection/Hepatic Delivery System) on August 14, 2023. This drug-device combination product is indicated for adult patients with uveal melanoma with unresectable hepatic metastases. The first commercial use of HEPZATO KIT in January 2024 marked a transformative year, shifting Delcath into a new era of commercialization and growth.

Technological Edge: Precision in Hepatic Delivery

Delcath's core differentiated technology lies in its hepatic delivery system, which enables Percutaneous Hepatic Perfusion (PHP) with melphalan. This innovative system allows interventional radiologists to isolate the liver's circulatory system, perfuse it with a high concentration of melphalan, and then filter the blood before it returns to systemic circulation. This method ensures that the liver receives a potent dose of chemotherapy, directly targeting tumors, while significantly reducing the systemic exposure to the drug. The tangible benefit for patients is a localized treatment that can achieve high response rates in the liver, potentially extending survival, with a more manageable side effect profile compared to systemic chemotherapy alone.

The clinical efficacy of this approach was powerfully demonstrated in the investigator-initiated CHOPIN clinical trial, with results announced on October 18, 2025. This randomized Phase 2 study compared CHEMOSAT with melphalan for PHP alone versus when combined with systemic immune checkpoint inhibitors (ICI) ipilimumab and nivolumab. The trial met its primary endpoint, showing a significantly higher one-year progression-free survival rate of 54.7% in the combination group compared to 15.8% in the PHP-alone group. Furthermore, the combination therapy significantly improved median overall survival to 23.1 months versus 19.6 months and achieved an impressive overall response rate (ORR) of 76.3% compared to 39.5% in the PHP-alone arm. These results are critical, as management noted, "no other prospective trial in metastatic uveal myeloma has shown a higher response rate, longer PF or OS." This data underscores the potential of PHP, especially in combination with immunotherapy, to deliver superior patient outcomes.

Beyond mUM, Delcath is actively investing in research and development to expand the application of its hepatic delivery system. The company is conducting two company-sponsored Phase 2 clinical trials for HEPZATO in liver-dominant metastatic colorectal cancer (mCRC) and liver-dominant metastatic breast cancer (mBC). The mCRC trial, which received FDA clearance in December 2024, began patient dosing in August 2025 and is evaluating HEPZATO in combination with trifluridine-tipiracil and bevacizumab. Its primary endpoint, hepatic progression-free survival (hPFS), is anticipated to read out by mid-2028, with overall survival data expected in 2029. Similarly, the mBC trial, cleared by the FDA in April 2025, is set to begin patient enrollment in the first quarter of 2026, targeting hPFS readout by mid-2029 and overall survival in 2030. These initiatives are strategically vital, as the estimated annual addressable markets for third-line liver-dominant mCRC (6,000 to 10,000 patients) and HER2-negative mBC (approximately 7,000 patients) in the U.S. are "approximately 7 times larger than the metastatic uveal melanoma patient population." This expansion into larger indications, leveraging the same core technology, forms a crucial part of Delcath's long-term growth strategy and competitive moat, promising to unlock significant revenue potential and improve patient care in areas of high unmet need.

Competitive Landscape: A Niche Innovator Against Giants

Delcath Systems occupies a specialized niche within the broader interventional oncology market. While its hepatic delivery system offers a unique, liver-directed approach, it competes with a diverse array of treatments and larger, more diversified pharmaceutical and medical device companies. Direct competitors include major players like Boston Scientific (BSX), Pfizer (PFE), Merck (MRK), and Novartis (NVS), which offer systemic therapies, embolization devices, or ablation systems.

Delcath's core competitive advantage lies in its proprietary hepatic delivery technology, which allows for precise, high-dose chemotherapy directly to the liver while controlling systemic exposure. This offers a distinct benefit over broader systemic therapies from companies like Pfizer, Merck, and Novartis, which, while effective for widespread metastatic disease, may not achieve the same localized drug concentration or minimize systemic toxicity to the same extent. Against medical device companies such as Boston Scientific, which offers a range of interventional oncology tools, Delcath's system provides a specialized drug-device combination that is specifically designed for melphalan perfusion, potentially offering superior outcomes in targeted liver treatments.

However, Delcath faces significant competitive disadvantages due to its smaller scale and focused product portfolio. Larger competitors benefit from extensive R&D budgets, global distribution networks, and diversified revenue streams, which can lead to more consistent growth and financial robustness. Delcath's operational efficiency and market reach are inherently more constrained compared to these giants. The company also faces direct competition for patients in clinical trials, with Gerard Michel noting an increase in such competition from trials sponsored by Replimune (RP2) and Thomas Jefferson's single-center studies, particularly in the mUM space. Thomas Jefferson, for instance, has enrolled 109 patients in its current single-center trials.

Delcath's strategic response to this competitive environment involves a focused commercial expansion, building robust referral networks, and leveraging compelling clinical data. The positive results from the CHOPIN trial are expected to "lessen the competitive impact from trials" by providing physicians with strong evidence for the combination therapy, potentially accelerating uptake and addressing reluctance to use liver-directed therapy in patients with extrahepatic disease. The company's expansion of its U.S. sales force to nine regions by the second quarter of 2026 is designed to prioritize building these referral networks and maintain a steady pace of site activation. While the addressable market for mUM is relatively small, the expansion into mCRC and mBC targets significantly larger patient populations, where the unique benefits of liver-directed therapy could carve out a substantial market share. Barriers to entry in oncology, such as stringent regulations and high R&D requirements, provide a degree of protection for Delcath's specialized technology, though these also favor larger, well-capitalized competitors.

Financial Performance: From Burn to Profitability

Delcath's financial performance in 2024 and the first three quarters of 2025 reflects a significant inflection point, transitioning from a period of substantial cash burn to consistent profitability and positive cash flow. For the nine months ended September 30, 2025, total revenue reached $64.50 million, a substantial increase from $22.11 million in the same period of 2024. This growth was primarily driven by HEPZATO KIT sales in the U.S., which surged to $59.78 million for the nine months ended September 30, 2025, from $18.62 million in the prior year period, representing a 221.12% increase. CHEMOSAT sales in Europe also contributed, growing to $4.73 million from $3.49 million over the same nine-month period.

The company achieved impressive gross margins of 87% in the third quarter of 2025, up from 85% in the third quarter of 2024. Management forecasts 2025 gross margins to be between 85% and 87%, with potential to reach 90% by the end of 2025, driven by cost efficiencies and leveraging existing manufacturing capacity. This strong top-line growth and margin expansion have translated into significant improvements in profitability. Delcath reported a net income of $0.8 million in Q3 2025, $2.7 million in Q2 2025, and $1.1 million in Q1 2025. Notably, the company achieved positive non-GAAP adjusted EBITDA of $4.6 million in Q4 2024, marking "a first for the company," and continued this trend with $7.6 million in Q1 2025, $9.8 million in Q2 2025, and $5.3 million in Q3 2025.

Liquidity and capital resources are robust. As of September 30, 2025, Delcath held $41.80 million in cash and cash equivalents and $47.10 million in short-term investments, totaling approximately $89 million.

The company has "no outstanding debt obligations and no outstanding warrants," a significant improvement from previous periods, bolstered by over $41 million in proceeds from warrant exercises in 2024.

Net cash provided by operating activities for the nine months ended September 30, 2025, was $14.27 million, a substantial turnaround from a net cash outflow of $17.68 million in the prior year period. Management believes current cash and investments will be sufficient to support operations for at least 12 months from the November 4, 2025, 10-Q filing date. This financial strength provides Delcath with the flexibility to fund its ambitious R&D pipeline without immediate reliance on external capital, as Gerard Michel stated, "I just don't see any need to raise capital just to get to the bottom line of the issue."

Operational Execution and Strategic Initiatives

Delcath's operational strategy is centered on expanding the commercial footprint of HEPZATO in the U.S. and advancing its clinical pipeline. As of October 2025, the company had 25 REMS-certified treatment sites, an increase from 11 in the nine months ended September 30, 2024. The goal is to reach 26 to 28 active centers by the end of 2025 and 40 by the end of 2026. To support this expansion, the U.S. sales force has been expanded from four to six regions, with plans to further grow to nine regions by Q2 2026. This expansion aims to build referral networks and maintain a steady pace of site activation, although the process of activating new sites in large academic centers remains complex and can be impacted by factors like securing perfusion services. Average treatments per month per center were approximately two in Q1 2025, expected to be slightly under two for the remainder of 2025 as new centers ramp up.

A significant operational development was the company's entry into a National Drug Rebate Agreement (NDRA) in May 2025, which led to participation in the 340B drug pricing program effective July 1, 2025. This resulted in an approximate 13% reduction in average revenue per kit sold in Q3 2025, with about 50% of kits sold at the discounted 340B price. While this impacts average revenue, management believes it will increase market access and align with Medicaid and Medicare coverage requirements, potentially offsetting the price reduction with increased volume over time.

In Europe, CHEMOSAT continues to generate modest revenue, with Q3 2025 sales of $1.31 million. The strategic value of the European presence is primarily in generating clinical data and publications, leveraging CHEMOSAT's pan-solid tumor device label and the extensive experience of European sites. Delcath plans to expand into France, Italy, and Spain in 2025, with clinical trials for new indications in Europe expected to facilitate site openings and eventually support CHEMOSAT sales.

The R&D pipeline is a key growth driver. Beyond mUM, Delcath is pursuing company-sponsored Phase 2 trials for HEPZATO in liver-dominant mCRC and mBC. These trials, enrolling approximately 90 patients each across over 20 sites in the U.S. and Europe, target patient populations significantly larger than mUM. The mCRC trial began patient dosing in August 2025, and the mBC trial is expected to start enrollment in Q1 2026. Management anticipates interim data from the mCRC trial by Q2 2027 and from the mBC trial by Q4 2027. The company is also evaluating other potential indications, including intrahepatic cholangiocarcinoma, cutaneous metastatic melanoma, and non-small cell lung cancer, particularly in combination with immune checkpoint inhibitors, informed by the compelling CHOPIN trial results.

Risks and Challenges: Navigating a Complex Landscape

Despite its promising trajectory, Delcath Systems faces several inherent risks and challenges common to the biopharmaceutical industry. Regulatory compliance, particularly with complex governmental pricing programs like the Medicaid Drug Rebate Program and the 340B program, poses a significant risk. Failure to comply with reporting and payment obligations could lead to "additional reimbursement requirements, penalties, sanctions and fines," materially impacting financial performance. The complexity of pricing and rebate calculations, subject to interpretation and change, adds to this regulatory burden.

Changes in healthcare law and policy also present a material risk. Recent legislation, such as the "One Big Beautiful Bill (OBBB)" signed on July 4, 2025, and the Inflation Reduction Act (IRA), could impact Medicaid spending, ACA marketplace access, and drug pricing, potentially reducing the number of insured Americans and imposing price negotiations or rebates. The overturning of the Chevron doctrine by the Loper Bright Supreme Court decision "could result in additional legal challenges to current regulations and guidance issued by federal agencies," creating further uncertainty.

Operationally, the process of activating new treatment centers for HEPZATO is complex and can be slow. Management has acknowledged a "slowdown in the pace of site activation from June to August" and the "torturous process" of getting new sites up and running, often encountering hurdles like securing perfusion services. This complexity can impact the pace of commercial expansion and revenue growth. Seasonality in new patient starts, as observed in late summer 2025, also introduces variability.

Competitive pressures are another significant factor. Delcath faces competition for patients from other clinical trials, such as Replimune's RP2 trial, and from established systemic therapies. While the CHOPIN data is expected to help, some physicians remain "reluctant to use liver-directed therapy in patients with extrahepatic disease," despite clinical evidence. Supply chain disruptions due to geopolitical events, health outbreaks, or raw material shortages could lead to manufacturing difficulties, increased costs, and product shortages. Lastly, changes in tax laws, such as those introduced by the OBBB, could affect the company's tax provision, although the restoration of R&D expensing is a positive development.

Conclusion

Delcath Systems stands at a pivotal juncture, having successfully launched its HEPZATO KIT in the U.S. and demonstrating a clear path to profitability and positive cash flow. The company's core investment thesis is firmly rooted in its differentiated hepatic delivery system, a technology that offers precise, high-dose chemotherapy directly to the liver, providing a critical treatment option for patients with liver-dominant cancers. The compelling results from the CHOPIN trial underscore the significant clinical benefits of this approach, particularly in combination with immunotherapy, and are expected to drive broader adoption and address physician concerns.

Looking ahead, Delcath's strategic expansion into larger indications like metastatic colorectal and breast cancers represents a substantial growth opportunity, leveraging its existing technological platform and commercial infrastructure. While the company must adeptly manage regulatory complexities, operational challenges in site activation, and an evolving competitive landscape, its strong financial position, robust R&D pipeline, and commitment to addressing unmet medical needs position it for sustained growth. Investors should closely monitor the pace of commercial site activations, the long-term impact of the 340B program, and the continued progress and data readouts from its expanded clinical trials as key indicators of Delcath's ability to unlock the full potential of its liver-directed therapy platform.