NEW YORK ( TheStreet) --Questions about the safety of the chemotherapy drug used in Deltcath Systems' ( DCTH) liver-tumor treatment system prompted U.S. regulators to issue a rare refuse-to-file letter, Delcath's chief executive said in an interview Tuesday.

Delcath shares fell 38% to $7.01 Tuesday after the company disclosed the U.S. Food and Drug Administration's refusal to accept an approval filing for the company's "chemosaturation system."

The Delcath system is a device that isolates the liver from the body's blood supply, allowing doctors to flood the organ with high doses of the approved chemotherapy drug melphalan. Delcath is seeking approval for the system as a treatment for skin cancer patients who have tumors that spread to the liver.

Delcath CEO Eamonn Hobbs, in an interview, said FDA "didn't like" the manner in which the company characterized the safety of melphalan as used with the company's chemosaturation system.

"The safety question was the linchpin behind the refuse-to-file letter," said Hobbs. "FDA decided it wanted to see our melphalan safety data stand on its own," he added.

Melphalan is an old, FDA-approved chemotherapy drug used primarily today to treat multiple myeloma. Delcath filed for approval of its chemosaturation system using a regulatory shortcut known as a 505(b)(2) application, which allows the company to seek approval for a potential new use for melphalan by relying in part on the FDA's existing safety and efficacy findings for melphalan.

A 505(b)(2) application can save companies time and money when they're trying to gain approval for new formulations or uses of older, already approved drugs. The strategy can backfire, however, if FDA concludes that the existing safety and efficacy data is insufficient to assuage concerns raised by the drug's new intended use.

Hobbs said FDA, in its refuse-to-file letter, did not give any indication that it disagreed with Delcath's decision to seek approval for the chemosaturation system using the 505(b)(2) shortcut. The FDA also, in its refuse-to-file letter, did not ask Delcath to conduct additional clinical trials, he added.

However, FDA did request additional safety data related to melphalan and the Delcath system, which the company intends to collect and submit to the agency no later than September, Hobbs said. These updated data will come from a longer follow up of the phase III study of melanoma patients with liver metastases treated with Delcath's chemosaturation system.

Once Delcath resubmits its chemosaturation system for FDA approval, the agency will first decide if the bolstered application is acceptable for review, then regulators will begin the process of formally weighing the efficacy and safety data in order to make an approval decision. A September resubmission could lead to a March 2012 FDA approval decision.ø

Data from the phase III study were presented last June at the American Society of Clinical Oncology (ASCO) annual meeting. In that study, 61% of patients treated with melphalan via the chemosaturation system reported moderate to severe neutropenia, a condition of abnormally low white blood cells that can lead to serious infections.

Another 74% of Delcath-treated patients in the phase III study reported moderate to severe thrombocytopenia, or an abnormally low level of platelets that can result in bleeding.

The mortality rate in the phase III study attributed to treatment with Delcath's system was 7.5%. Two patients died due to neutropenic sepsis while a third patient died from liver failure, according to the ASCO data presentation.

When these safety data were presented last June, concerns were raised that perhaps the high dosages of melphalan used were leaking out of the liver and causing severe side effects and toxicity in patients. Hobbs disputes that concern, insisting Tuesday that the safety profile of melphalan as used in the chemosaturation procedure is "identical" to the safety of melphalan already approved today.

Delcath conducted the phase III study of the chemosaturation system under a Special Protocol Agreement with the FDA. Regulators have not questioned or challenged the conduct of the study, Hobbs said.

Melanoma patients with cancer in the liver treated with Delcath's system went a median of 245 days without progression of those liver tumors compared to 49 days without progression for patients treated with best alternative care. Those data satisfied the study's primary endpoint with statistical significance but a key secondary endpoint of the study -- an improvement in overall survival -- was not met.

The lack of a survival benefit demonstrated by Delcath's chemosaturation system was a point of criticism by a researcher who critiqued the phase III data at last June's ASCO meeting.

--Written by Adam Feuerstein in Boston.

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