Biotechnology

Emerging Company Research

Delcath Systems Outperform (1)
December 10, 2012
Analysts

NDA Focus IS Unresectable Metastatic Ocular Melanoma; PDUFA Date Unaffected

Summary: Last week, Delcath hosted a webinar to report on the recent changes to the label indication for CHEMOSTAT. Company also reported on the committed equity financing facility of up to $35MM in registered common stock. As the company nears its PDUFA date of June 15, 2013, which remains unchanged, coupled with financing that will carry the company well beyond the PDUFA date, we remain bullish on Delcath and re-iterate our Outperform rating.

Edward Nash (646) 562-1385 edward.nash@cowen.com Yun Zhong, Ph.D. (646) 562-1387 yun.zhong@cowen.com

CHEMOSTAT data is strong for both metastatic ocular and cutaneous melanoma. However, as 90% of the trial patient base consists of those with metastatic ocular melanoma and as newly approved treatments for cutaneous melanoma are now available, the company is planning for the approval of CHEMOSTAT by focusing on unresectable metastatic ocular melanoma of the liver as the sole initial indication. Physicians will decide based on data, not necessarily on label. Delcath's management is confident that the strong data for cutaneous melanoma will be albe to convince physicians of the efficacy of CHEMOSTAT for metastatic cutaneous melanoma. Delcath will pursue label expansion for CHEMOSTAT as early as 2H13 for HCC and neuroendocrine tumor (NET). CHEMOSTAT in Europe well on track. Physicians in Europe continue to treat patients with liver dominant metastases from a variety of tumors and there are now seven centers trained to use CHEMOSTAT. A strong financial position will carry the company through and well beyond upcoming PDUFA date. Recently announced CEFF of up to $35MM combined with $21.5MM remaining from the ATM and $20MM in cash as of 9/12 brings the total to nearly $80MM. It will be sufficient to carry the company through the upcoming milestones.

DCTH (12/07) Mkt cap Dil shares out Avg daily vol 52-wk range Dividend Dividend yield BV/sh Net cash/sh Debt/cap ROA (LTM) 5-yr fwd EPS growth (Norm)

$1.39 93.4MM 67.2MM 389.6K $1.0-4.7 Nil Nil NA $0.42 NA NA NA

FY Dec Q1 Q2 Q3 Q4 Year CY EV/S

Revenue $MM

2011 Actual 0.0 0.0 0.0 0.0 0.0

2012E Prior Current 0.0A 0.1A 0.0A 0.3 0.5 154.4x

2013E Prior Current 0.8 1.2 1.5 4.6 3.0 8.1 6.5 11.9x

2014E Current 28.0 2.8x

2015E Current 105.9 0.7x

EPS* $

S&P 500

1418.1

FY 2011 2012E Dec Actual Prior Current Q1 (0.04) (0.31)A Q2 (0.13) (0.26)A Q3 (0.18) (0.18)A Q4 (0.32) (0.19) 0.68 (0.91) Year CY P/E * Excludes one-time items

2013E Prior Current (0.20) (0.20) (0.23) (0.20) (0.22) (0.83) (0.85)

2014E Current (0.54)

2015E Current 0.20 7.0x

Please see addendum of this report for important disclosures.

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Delcath Systems

Lack Of A Specific Labeled Indication Wont Deter The Docs The managements decision to change the labeled indication comes after a meeting with the FDA and is based on the ocular melanoma predominant patient base in the Phase III trial (90%) as well as the availability of newly approved treatments for metastatic cutaneous melanomas. However, when it comes to terminal conditions such as unresectable metastatic cutaneous melanomas to the liver, management is confident that the physicians will choose a treatment based on data and experience and not just on the label. We believe the lack of a specific labeled indication for unresectable metastatic cutaneous melanoma to the liver wont deter clinicians from using CHEMOSTAT off-label. Management is confident that CHEMOSTAT will be approved with a newly focused indication on metastatic ocular melanoma. Once approved, management plans to aggressively pursue a broader indication for CHEMOSTAT by focusing initially on HCC and NET. Both HCC and NET represent unmet medical needs with significant commercial opportunities. The estimated ocular melanoma patient population suitable for CHEMOSTAT is estimated to be approximately 1,700 and these patients will require an average of 2.5 procedures for treatment. This figure however, represents only a fraction of the CHEMOSTAT procedures being carried out currently in Europe. CHEMOSTAT Well On Track In Europe With CHEMOSTAT procedure performed in Germany recently, there are now seven centers approved in Europe to use CHEMOSTAT. CHEMOSTAT is approved for a wide range of metastatic cancers to the liver. Additional centers are expected to come online in the next few weeks driven by a variety of cancers endogenous or metastatic to the liver. The disease is the same whether they occur in Europe or in the U.S. and we believe that as in Europe, there will be meaningful off-label uptake of CHEMOSTAT for indications such as metastatic cutaneous melanomas to the liver in addition to the labeled indication of ocular melanomas in the U.S.

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Delcath Systems

Delcath Systems Quarterly P&L

License Fee and Milestone Payments Chemosaturation Total Revenues COGS Research and Development Sales, General and Administrative Total Operating Expenses: Income from Operations Derivative instrument income Change in fair value of warrant liability Interest income Other income Interest expense Pretax income Provision for income taxes Tax rate Income Tax Net Income (loss) Other conprehensive income GAAP EPS, Diluted Weighted average number of basic and diluted common shares outstanding 2010A 0.0 0.0 0.0 0.0 17.6 13.2 30.8 (30.8) (16.0) 0.0 0.0 0.0 0.0 (46.8) 0.0 0% 0.0 (46.8) 0.0 ($1.20) 38.9 2011A 0.0 0.0 0.0 0.0 25.2 21.3 46.5 (46.5) 0.0 15.6 0.0 0.0 0.0 (30.9) 0.0 0% 0.0 (30.9) 0.0 ($0.68) 45.2 Q1:12A 0.0 0.0 0.0 0.0 7.1 7.4 14.6 (14.6) (0.3) 0.0 0.0 0.0 0.0 (14.9) 0.0 0% 0.0 (14.9) 0.0 ($0.31) 48.3 Q2:12A 0.0 0.1 0.1 0.0 8.2 7.2 15.4 (15.3) 0.0 0.9 0.0 0.0 (0.1) (14.5) 0.0 0% 0.0 (14.5) 0.0 ($0.26) 54.8 Q3:12A 0.0 0.0 0.0 0.0 5.3 7.0 12.2 (12.2) 0.0 0.4 0.0 0.0 (0.1) (11.8) 0.0 0% 0.0 (11.8) 0.0 ($0.18) 67.2 Q4:12E 0.0 0.3 0.3 0.0 5.9 7.4 13.3 (13.0) 0.3 (0.4) 0.0 0.0 (0.1) (13.1) 0.0 0% 0.0 (13.1) 0.0 ($0.19) 67.3 2012E 0.0 0.5 0.5 0.0 26.5 29.0 55.5 (55.0) 0.0 1.0 0.1 0.0 (0.3) (54.3) 0.0 0% 0.0 (54.3) 0.0 ($0.91) 59.4 Q1:13E 0.0 0.8 0.8 0.2 6.5 7.5 14.2 (13.4) 0.0 0.1 0.0 0.0 0.0 (13.3) 0.0 0% 0.0 (13.3) 0.0 ($0.20) 67.5 Q2:13E 0.0 1.2 1.2 0.2 6.9 7.5 14.6 (13.4) 0.0 0.1 0.0 0.0 (0.1) (13.4) 0.0 0% 0.0 (13.4) 0.0 ($0.20) 67.9 Q3:13E 0.0 1.5 1.5 0.3 7.1 10.0 17.4 (15.9) 0.0 0.1 0.0 0.0 0.0 (15.8) 0.0 0% 0.0 (15.8) 0.0 ($0.23) 68.2 Q4:13E 0.0 3.0 3.0 0.5 7.5 10.5 18.5 (15.5) 0.0 0.2 0.1 0.0 0.0 (15.2) 0.0 0% 0.0 (15.2) 0.0 ($0.22) 68.5 2013E 0.0 6.5 6.5 1.2 28.0 35.5 64.7 (58.2) 0.0 0.5 0.1 0.0 (0.1) (57.7) 0.0 0% 0.0 (57.7) 0.0 ($0.85) 68.0

Source: Company reports, Cowen and Company estimates

Delcath Systems Annual P&L

License Fee and Milestone Payments Chemosaturation Total Revenues COGS Research and Development Sales, General and Administrative Total Operating Expenses: Income from Operations Derivative instrument income Change in fair value of warrant liability Interest income Other income Interest expense Pretax income Provision for income taxes Tax rate Income Tax Net Income (loss) Other conprehensive income GAAP EPS, Diluted Weighted average number of basic and diluted common shares outstanding 2010A 0.0 0.0 0.0 0.0 17.6 13.2 30.8 (30.8) (16.0) 0.0 0.0 0.0 0.0 (46.8) 0.0 0% 0.0 (46.8) 0.0 ($1.20) 38.9 2011A 0.0 0.0 0.0 0.0 25.2 21.3 46.5 (46.5) 0.0 15.6 0.0 0.0 0.0 (30.9) 0.0 0% 0.0 (30.9) 0.0 ($0.68) 45.2 2012E 0.0 0.5 0.5 0.0 26.5 29.0 55.5 (55.0) 0.0 1.0 0.1 0.0 (0.3) (54.3) 0.0 0% 0.0 (54.3) 0.0 ($0.91) 59.4 2013E 0.0 6.5 6.5 1.2 28.0 35.5 64.7 (58.2) 0.0 0.5 0.1 0.0 (0.1) (57.7) 0.0 0% 0.0 (57.7) 0.0 ($0.85) 68.0 2014E 0.0 28.0 28.0 5.0 28.0 41.0 74.0 (46.1) 0.0 0.0 1.5 0.0 0.0 (44.6) 0.0 0% 0.0 (44.6) 0.0 ($0.54) 82.0 2015E 0.0 105.9 105.9 18.0 28.0 45.0 91.0 14.9 0.0 0.0 1.8 0.0 0.0 16.7 0.0 0% 0.0 16.7 0.0 $0.20 84.0 2016E 0.0 310.0 310.0 49.6 30.0 48.0 127.6 182.4 0.0 0.0 1.8 0.0 0.0 184.2 0.0 0% 0.0 184.2 0.0 $2.17 85.0 2017E 0.0 513.7 513.7 77.1 32.0 53.0 162.1 351.7 0.0 0.0 2.0 0.0 0.0 353.7 0.0 5% 17.7 336.0 0.0 $3.86 87.0 2018E 0.0 680.4 680.4 102.1 35.0 55.0 192.1 488.4 0.0 0.0 2.3 0.0 0.0 490.7 0.0 8% 39.3 451.4 0.0 $5.13 88.0 2019E 0.0 811.3 811.3 121.7 37.0 57.0 215.7 595.6 0.0 0.0 2.5 0.0 0.0 598.1 0.0 12% 71.8 526.3 0.0 $5.85 90.0 2020E 0.0 857.7 857.7 128.6 40.0 60.0 228.6 629.0 0.0 0.0 3.0 0.0 0.0 632.0 0.0 18% 113.8 518.2 0.0 $5.63 92.0

Source: Company reports, Cowen and Company estimates

December 10, 2012

Delcath Systems

Positives
1. Orphaned all the way. Delcath has been granted Orphan Drug Status by the FDA for four oncology indications for the CHEMOSAT system. We believe Orphan Drug Status builds a natural barrier to entry for the competition and also ensures strong revenue flow and the ability to focus on market penetration in the early years, which is key to overall adoption. 2. Technology. Delcath has developed a technology that delivers hope to a group of oncology patients that would otherwise have few effective treatment options. We believe this translates into fast adoption rates for the companys technology. Given that incidence is approximately equal to prevalence in liver cancer, any options are welcomed and PHP offers one such effective option. 3. Multiple cancers affecting the liver. Delcaths CHEMOSAT delivery system is applicable to multiple metastatic cancers that affect the liver. This gives the company multiple shots on goal to expand its technology and grow revenue by focusing on the oncology community. 4. Valuation. Given the recent EU approval of Delcaths CHEMOSAT system and what we believe will be a positive outcome from the U.S. re-submission, we believe Delcaths current share price does not reflect these important milestones, which provides a good buying opportunity for investors

Negatives
1. Clinical trial risk. Delcaths future profitability depends on the timely and successful completion of clinical trials in the subsequent oncology indications. If they were to fail, our estimates would be negatively impacted. 2. Sales force infrastructure. Delcath looks to market its system in both the U.S. and EU without a partner. Setting up a sales force can be an onerous task both logistically and financially. Delcath has not had a sales force to manage previously and this could create an undue burden on internal capabilities. 3. Regulatory approval. As with all other drugs/devices in development in the U.S., Delcaths CHEMOSAT system is subject to FDA scrutiny. The company has already received an RTF letter from the FDA and there is no guarantee that the recent successful re-submission will lead to an approval. 4. It takes money to make money. Like most emerging biotech companies, Delcath is not cash flow positive and continues to burn cash to develop its pipeline. If it were unable to raise additional funds to finance this development, it would have a detrimental impact on the companys share price

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Addendum
STOCKS MENTIONED IN IMPORTANT DISCLOSURES
Ticker DCTH Company Name Delcath Systems

ANALYST CERTIFICATION Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report. IMPORTANT DISCLOSURES Cowen and Company, LLC and or its affiliates make a market in the stock of DCTH securities. Cowen and Company, LLC and/or its affiliates managed or co-managed a public offering of DCTH within the past twelve months. Cowen and Company, LLC and/or its affiliates received in the past 12 months compensation for investment banking services from DCTH. DCTH is or was in the past 12 months a client of Cowen and Company, LLC; during the past 12 months, Cowen and Company, LLC provided IB services. DCTH has been client(s) of Cowen and Company, LLC in the past 12 months. Cowen and Company, LLC and/or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next 3 months from DCTH. Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's investor clients. Individual compensation determinations for research analysts, including the author(s) of this report, are based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources, including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based on specific investment banking transactions. DISCLAIMER This research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printed form. Research distributed electronically is available simultaneously to all Cowen and Company, LLC clients. All published research, including required disclosures, can be obtained on the Firms client website, www.cowenresearch.com. Further information on any of the above securities may be obtained from our offices. This report is published solely for information purposes, and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company, LLC, the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. Notice to UK Investors: This publication is produced by Cowen and Company, LLC, which is regulated in the United States by FINRA and is disseminated in the United Kingdom by Cowen International Limited ("CIL"). In the United Kingdom, Cowen and Company is a Trading Name of CIL. It is communicated only to persons of a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other person without the consent of CIL. Copyright, User Agreement and other general information related to this report

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Delcath Systems

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COWEN AND COMPANY RATING DEFINITIONS (a)

Rating Outperform (1) Neutral (2) Underperform (3)
(a) Assumptions: Time horizon is 12 months; S&P 500 is flat over forecast period.

Definition Stock expected to outperform the S&P 500 Stock expected to perform in line with the S&P 500 Stock expected to underperform the S&P 500

COWEN AND COMPANY RATING ALLOCATION (a)

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(a) As of 09/30/2012. (b) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's rating definitions (see above). (c) Corresponds to "Neutral" as defined in Cowen and Company, LLC's ratings definitions (see above). (d) Corresponds to "Underperform" as defined in Cowen and Company, LLC's ratings definitions (see above). Note: "Buy," "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms are used illustratively to comply with NASD and NYSE regulations.

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December 10, 2012