HEPZATO Launch And European Expansion Will Expand Treatment Access

Key Takeaways

• Expansion in U.S. treatment centers and commercial teams is expected to drive significant revenue growth and improve operational efficiencies.
  
• European market strategy and new R&D initiatives could lead to strategic revenue growth and future innovations.
  
• Delcath faces challenges from potential unmet forecasts, limited revenue from Europe, resource strain from expansion, increased expenses, and competitive pressures in metastatic cancer trials.

Catalysts

An interventional oncology company, focuses on the treatment of primary and metastatic liver cancers in the United States and Europe.

• The U.S. launch of HEPZATO has driven revenue with $32.3 million in 2024, and the company plans to expand active U.S. treatment centers from 16 to 30 by year-end 2025, which could increase future revenue significantly.
  
• Expansion and restructuring of the commercial team from 4 to 6 regions will support broader adoption and increase procedural rates, likely enhancing revenue and net margins as operational efficiencies improve.
  
• Activation of additional treatment centers, especially renowned academic centers, is expected to enhance procedural volumes, supporting higher revenue and better fixed-cost absorption, thus improving margins and earnings.
  
• The European growth strategy, with expansion into France, Italy, and Spain, enhancing CHEMOSAT volumes, could provide strategic revenue growth and help maintain a breakeven strategy in that region.
  
• New R&D initiatives targeting other liver-dominant cancers and enhancing treatment strategies could lead to future innovations and potential increase in revenue through new drug indications and partnerships.

Delcath Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delcath Systems's revenue will grow by 60.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -70.9% today to 32.0% in 3 years time.
• Analysts expect earnings to reach $48.8 million (and earnings per share of $1.4) by about May 2028, up from $-26.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $78.2 million in earnings, and the most bearish expecting $35.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, up from -15.3x today. This future PE is lower than the current PE for the US Medical Equipment industry at 31.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Delcath Systems Future Earnings Per Share Growth

Risks

• The company faces uncertainty due to forward-looking statements that may not materialize as expected, and this could lead to unforeseen impacts on future revenue and earnings.
  
• Incremental revenue from Europe remains modest, which could limit the company's ability to significantly increase overall revenue and improve net margins.
  
• Delcath's expansion into new treatment centers could strain resources, and the reliance on leading academic centers may not rapidly translate into increased earnings.
  
• The significant planned increase in R&D and SG&A expenses might challenge the company’s ability to achieve profitability, impacting net margins and cash flow.
  
• Potential competitive pressures from upcoming trials in metastatic cancers may impact Delcath's market share and revenue growth if these treatments prove superior in efficacy.

Valuation

• The analysts have a consensus price target of $22.5 for Delcath Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $152.5 million, earnings will come to $48.8 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $12.08, the analyst price target of $22.5 is 46.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.