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Biotech Stock Mailbag: ASCO

Many of these patients will be too sick to tolerate the CS procedure. That was underscored in the Delcath clinical trial where only 7 of the 93 patients enrolled had an ECOG performance status of 1 on a physical evaluation scale that ranges from 0-4. The rest of the patients in the study were ECOG status 0, or the "healthiest" of cancer patients.

Cutaneous melanoma is more commonly diagnosed but cases where metastatic disease is confined to the liver are exceedingly rare. Again, the Delcath study proves that, with only 12% of the patients enrolled fitting this category. (The rest of the patients had ocular melanoma.) It took years for Delcath to find the 11 cutaneous melanoma patients to enroll in the study.

Throw it all together and Delcath is looking at peak ocular melanoma sales of the CS system in the range of $25 million to $38 million. Throw in another $10 million in cutaneous melanoma sales for good measure and round up with a heavy thumb on the scale: $50 million.

Discount those $50 million in sales back a couple of years at a price-to-sales multiple of six and Delcath is worth $5-7 a share. Included in that estimate is partial credit for expanding CS into neuroendocrine and/or primary liver tumors.

Let me put the valuation question another way: In order to justify Delcath at $10, the CS procedure would have to net about $130 million in sales. To justify Delcath's recent high of $16, CS peak sales would need to reach about $225 million.

Delcath executives say the total melanoma market opportunity is almost $800 million with a long-term market opportunity growing to almost $7 billion.

To me, those numbers are just nuts. Delcath has plans on international sales, but without survival data, regulators in Europe are going to give CS a rough time. Pricing and reimbursement issues are also more complicated in Europe and Asia.


Lisa K. asks, "Who were your winner and losers at ASCO this year?"

Two easily identifiable winners: Bristol-Myers Squibb (BMY) and Celgene (CELG). The former grabbed the biggest headlines for the melanoma drug ipilimumab; the latter scored big with data establishing a new standard of care for multiple myeloma patients treated long-term with Revlimid as maintenance therapy.

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