The race is on for new sources of growth in the biopharmaceutical industry, as blockbuster drugs lose patent protection and competitors join forces to cut costs. It spells outsized growth for the right biotech company, especially one that’s about to benefit from imminent events and technical factors that could send its shares soaring.

Does this bullish description apply to Delcath Systems (OTC: DCTH)? This tiny biotech and medical device maker (market cap: $3.2 million) is the object of keen investor interest, as it develops innovative treatments for the worsening scourge of liver cancer.

Is Delcath a “biotech rocket” poised to blast off? Or is it a risky penny stock destined to crash and burn?

In this edition of Mind Over Markets we will discover:

• What makes Delcath a compelling biotech stock?
• Should you buy DCTH?
• Should you sell DCTH?
• Overall forecast and outlook for DCTH.

Let’s roll up our sleeves and do the numbers.

Who Is Delcath?

Delcath, based in New York City, develops interventional oncology treatments, emphasizing primary and metastatic liver cancers.

Delcath’s treatments entail the targeted administration, via Hepatic Artery Infusion, or HAI, of high-dose chemotherapeutic agents to specific organs or regions of the body. The company boasts an intellectual property portfolio consisting of 28 patents worldwide.

Delcath has received Fast Track and a Special Protocol Assessment from the U.S. Food and Drug Administration (FDA) for use of the drug melphalan in treating liver tumors that have resisted other treatments.

A leading-edge drug, melphalan derives its efficacy by chemically altering DNA nucleotides. Delcath has launched a global Phase II clinical trial in Europe and the U.S. to investigate its melphalan delivery system for the treatment of primary liver cancer.

In addition, Delcath’s Percutaneous Hepatic Perfusion (PHP) treatment is undergoing Phase II and Phase III trials with the FDA against tumors in the liver.

Delcath already has several successfully completed clinical trials under its belt. The company also holds a Cooperative Research and Development Agreement with the National Cancer Institute.

It’s all complicated stuff, involving a lot of jargon. This video shows in plain language how Delcath’s targeted cancer treatment systems actually work:

How Has Delcath Stock Performed?

Over the past 12 months, Delcath has lost 99.9% versus a 5.4% gain for the S&P 500. Over the past two years, Delcath fell nearly 100% vs. a 24.9% gain for the S&P 500. Over the past five years, Delcath again fell nearly 100% vs. a 51% gain for the S&P 500.

How Has Delcath Performed In 2017/2018?

In 2017, Delcath lost 97.5% whereas the S&P 500 gained 19.4%. Year-to-date in 2018, Delcath has lost 98.6% compared to a gain of 1.1% for the S&P 500.

Keep in mind, Delcath has undergone two stock splits. The first split occurred April 9, 2014. This was a 1-for-16 reverse split, meaning for each 16 shares of DCTH owned pre-split, the shareholder now owned 1 share.

The second split took place July 21, 2016. This was a 1-for-16 reverse split, meaning for each 16 shares of DCTH owned pre-split, the shareholder now owned 1 share.

Read Also: Apple Stock Prediction

Who Are Delcath’s Rivals?

In targeting liver cancer, Delcath has picked a specific, deadly disease that’s also a vast growth opportunity for drug firms.

The following chart, compiled with 2017 data from the World Health Organization (WHO), shows that liver cancer is one of the most prevalent types of cancer in the world:

Liver cancer is growing in prevalence and the competition to treat the disease is intense. Big Pharma is jumping into the act, posing a serious threat to small-cap Delcath.

Here are the three blue-chip biopharmaceutical firms that pose the greatest competitive challenges to tiny Delcath:

Bristol-Myers Squibb (NYSE: BMY)

This drug giant makes anti-cancer drug Taxol that’s under study for reducing tumor growth via HAI.

Taxol is a cancer chemotherapy medication that interferes with the growth of cancer cells and slows their growth and spread in the body.

Johnson & Johnson (NYSE: JNJ)

Johnson & Johnson is a vast, diversified colossus that’s practically a mutual fund of the health services industry.

Through its Janssen Pharmaceuticals subsidiary, JNJ is testing a treatment that combines radiofrequency ablation with chemotherapy agent Doxil to reduce tumor growth in the liver.

Bayer (OTC: BAYRY)

Bayer and its partner Onyx Pharmaceuticals (NSDQ: ONXX) co-produce and co-market Nexavar, a highly effective liver cancer treatment. Nexavar is projected to rack up 2018 sales of $1.463 billion.

Nexavar doesn’t target toxins to specific organs, as does HAI, but to date this drug remains the liver cancer treatment of choice for health care professionals.

Will Delcath Go Up In 2019 (Should You Buy)?

Delcath enjoys several tailwinds. According to the American Cancer Society, nearly 40% of all men and women in the U.S. will be diagnosed with some form of cancer at some point during their lifetime.

In 2018, there will be an estimated 1.7 million new cancer cases diagnosed and 609,640 cancer deaths in the United States.

What’s more, the WHO forecasts an increase of 70% for all new cases of cancer during the next 20 years.

You can turbocharge the already outsized potential of biotech by focusing on the disruptors, like Delcath, that are working on breakthrough treatments.

Biotechnology companies live or die by the strength of their innovation. As patents expire on highly profitable medicines, they must replace the lost income by inventing new drugs or acquiring companies that already possess breakthrough therapies.

This dynamic favors small-cap biotechs such as Delcath, which can richly reward (or punish) early investors.

Biotech companies as a whole are benefiting from increasing drug approvals, new product launches, and muted disruption so far from Obamacare.

Meanwhile, political risk for biotech has waned considerably. Wall Street has come to the conclusion that political grandstanding about controlling drug prices will come to nothing, especially in a Trump administration that’s fiercely anti-regulatory.

Demographic trends also favor Delcath. Biotech companies will benefit from the growing ranks of retiring baby boomers in developed countries that will need more drug treatments to support their increasing life spans. Greater demand for health care services from rising middle classes in developing countries is boosting drug industry growth as well.

Will Delcath Go Down In 2019 (Should You Sell)?

We just made the bull case for Delcath. Now, let’s examine the bear case.

Delcath suffers from several fundamental financial weaknesses.

For starters, quarterly operating results consistently show a net earnings loss. The 12-month trailing (TTM) operating margin comes in at -778.3% and return of assets comes in at -119.1%. Total cash on hand amounts to a paltry $1.2 million.

Biotech is an inherently risky business; an unfavorable FDA ruling can send a stock crashing to earth. A biotech worthy of investment should have sufficient financial wherewithal to withstand these dangers.

Investors betting on a small biotech can forgive temporary net losses as long as revenue is growing and the balance sheet is stable. Delcath has not demonstrated any of these mitigating factors.

Overall Delcath Forecast And Prediction For 2019

The big question about Delcath in 2019 is, will it get acquired?

Delcath is a logical takeover candidate, a “catalyst event” that would probably trigger a sharp rise in the share price.

Any one of the aforementioned meg-cap drug firms could gobble up Delcath, which would prove a windfall for existing investors. So far there are no rumors to that effect, but in the fiercely competitive cancer treatment space, a buyout can’t be ruled out.

What’s more, the tax overhaul package signed by President Trump in December 2017 allows companies with huge cash hoards stored overseas to repatriate the money to the U.S at a lower domestic tax rate.

Large technology and drug firms are parking vast sums of cash outside of these shores; the injection of tax-favored money already is fueling mergers and acquisitions in the tech and health services sector. Delcath and its portfolio of patents are a juicy target for this cash.

But for investors, the buyout scenario comes with a prohibitive caveat.

Waiting for a suitor to show up and acquire Delcath is a slim reed on which to hang investor hopes. You might wait a long time or it might not happen at all. That’s especially true, as the broader stock market continues its prolonged phase of volatility and uncertainty.

In the meantime, this biotech stock is likely to continue falling. The company’s balance sheet is weak and awash in red ink. There are better (and certainly safer) places for your money.

John Persinos is the managing editor of Investing Daily.