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Biotech Stock Mailbag: ASCO

BOSTON ( TheStreet) -- The American Society of Clinical Oncology (ASCO) annual meeting ended Tuesday with nearly all of the biotech and drug companies that presented at the big cancer drug confab trading off sharply. Good data or bad, stocks were down on a surge of post-ASCO selling.

For those new to investing in so-called "ASCO stocks," the breadth of the selling probably came as a shock. Veterans to this game know better. Post-ASCO selling is the norm, not an exception.

One of the biggest post-ASCO losers was Delcath Systems (DCTH - Get Report), whose shares have dropped 37% this week. Delcath, maker of a drug/device that clears tumors from the liver, was also at the center of the ASCO confab's biggest kerfuffle. Bulls and bears argued over the clinical data presented by the company Saturday and the commercial prospects for its device.

I've been in the bear camp on Delcath mainly because I believed the stock, which was at $15-16 a share heading into the ASCO meeting, was over-valued.
More on ASCO
The ASCO Weekend Live Blog Recap

Nothing I saw from Delcath's presentation Saturday or heard from melanoma experts at ASCO altered my view. Expressing that opinion on my ASCO blogs over the weekend caused the Hostile React-o-Meter to spin out of control!

Via Twitter, @stt2318 asks, so where is it [Delcath] undervalued?

I peg fair value for Delcath today in the $5-7 range. That's lower than what I wrote in the May 14 Biotech Stock Mailbag when I expressed more comfort with the stock around $10.

A realistic revenue projection for Delcath from its Delcath Chemosaturation System (CS) is probably in the $40-50 million range.

Independent melanoma experts I spoke with at ASCO, including Dr. Eric Whitman of the Atlantic Melanoma Center in Morristown, N.J., said between 1,000 and 1,500 ocular melanoma patients in the U.S. have metastases confined to the liver.

At a cost of $20,000 per CS procedure and each patient undergoing 2.5 CS procedures on average (those are Delcath's numbers), Delcath's potential market ranges from $50 million to $75 million.

I'll assume, generously, that Delcath can achieve a 50% market share amongst ocular melanoma patients with liver-only metastatic disease.
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