This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Greater Fools Love Delcath, Zalicus On Orphan Drug Derpitude

NEW YORK (TheStreet) -- The trading in Delcath Systems (DCTH) Wednesday is a fantastic example of the greater fool theory at work in the biotech sector. Last week, it was Zalicus (ZLCS).

Delcath shares are up an unbelievable 112% to 66 cents on word that the FDA granted orphan drug designation for use of the company's ChemoSat procedure to treat primary liver cancer.

News alert: FDA grants orphan drug designation based on the number of patients diagnosed with the disease, not on the efficacy or safety of a drug.

Any drug designed to treat a disease affecting fewer than 200,000 patients in the U.S. can be granted orphan disease status. Primary liver cancer is diagnosed in about 26,000 people in the U.S. each year, according to the American Cancer Society.

26,000 is less than 200,000, therefore ChemoSat qualifies as a orphan drug.

Here's the problem for Delcath, from the FDA regulations:

The granting of an orphan designation request does not alter the standard regulatory requirements and process for obtaining marketing approval. Safety and effectiveness of a drug must be established through adequate and well-controlled studies.

Uh oh.

If you're a momentum trader who doesn't know Delcath from Del Monte but is simply hoping to flip your stock to the next guy waiting in line, you should know that FDA already rejected ChemoSat for use in treating liver tumors. It just happened last month.

You see, orphan drug designation sounds awesome, but it hasn't prevented Delcath from blowing up already and it won't help resurrect the company or its product in the future.

Cue the ugly looking stock chart, caused by ChemoSat's many troubles: DCTH ChartDCTH data by YCharts

Hurry up, flip those Delcath shares before your "greater fool" reads this article.

I mentioned Zalicus above. Same thing happened on Sept. 27, when the company issued a press release announced FDA granting orphan drug designation for the experimental drug Z160 for the treatment of shingles-related pain.

Check out the chart: ZLCS ChartZLCS data by YCharts

What's most interesting about Zalicus is that there are some legit reasons for investors to be paying attention to Z160. The company announced on Sept. 3 the completion of patient enrollment in two phase II studies, with results expected in the fourth quarter.

Take another look at the Zalicus chart. The stock didn't react at all to the Sept. 3 announcement. It only started moving on the relatively meaningless orphan drug announcement.

Greater fools.

-- Reported by Adam Feuerstein in Boston.

Stock quotes in this article: DCTH, ZLCS 
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,490.26 -24.11 -0.15%
S&P 500 1,875.77 -3.78 -0.20%
NASDAQ 4,128.9440 -32.5140 -0.78%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs