Delcath Systems, Inc. (DCTH) Earnings Call Transcript & Summary

Good day, and welcome to the Delcath Systems Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to David Hoffman, Delcath's General Counsel. Please go ahead.

Thank you. And once again, welcome to Delcath Systems' Third Quarter 202 Earnings Call. With me on the call are Gerard Michel, the Chief Executive Officer; Dr. Johnny John, Senior Vice President of Medical Affairs and Clinical Development; Kevin Muir, Vice President of Commercial Operations; and Anthony Dias, Vice President of Finance. I'd like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurance that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements. Please see risk factors detailed in the company's annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10-Q as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. Now I would like to turn the call over to Gerard Michel.

Gerard, please proceed. Thank you, everyone, for joining today. Delcath has had a productive third quarter of 2022 for both [indiscernible], the company's product development [indiscernible] in the United States and the CHEMOSAT company's market product in Europe. In the U.S., we have 2 centers enrolled and currently treated patients under the expanded access program, or EAP, with a third center enrolled in pending training. In addition, 4 other sites are in various stages of the start-up process and these include sites that were not involved in the [indiscernible]. We are on track to file the Sato Class 2 resubmission of the NDA to FDA by the end of December. We expect that within 30 days after the submission, the FDA will confirm receipt of the submission and if they agree the resubmission is sufficiently complete to more view, establish a PDUFA date 6 months from the submission date. As we previously reported, in the third quarter of the retrospective analysis of patients treated with CHEMOSAT in 3 European centers, 1 in the Netherlands and 2 in Germany, between February 2014 and December 2019 was published. The analysis involved 212 PP procedures on 101 patients.  The publication reported an overall response rate of 59.4% and a disease control rate of 89.1%. The safety analysis showed mostly Grade 1, 2, and self-limiting toxicity, consistent with previous reports on PHP. This continues to add to the growing body of published research documenting the efficacy and safety of our CHEMOSAT system in the European commercial setting. Researchers from Liven University Medical Center in the Netherlands are making rapid progress on the randomized Phase II portion of the [indiscernible] trial, with approximately 50% of the planned 76 patients enrolled. Recall the goal of this combined Phase Ib randomized Phase II trial is to study the safety and potential synergistic effects of systemic immunotherapy, ipilimumab, and nivolumab or [indiscernible] when combined with Delcath's proprietary liver target treatment and metastatic uveal melanoma patients. We look forward to the completion of enrollment into this trial, possibly as early as late next year, given the base of recruitment, and to provide updates on the progress of the 7 patients who completed the Phase Ib course of the trial. At ASCO earlier this year, the investigators reported an ORR of 85.7% and a DCR of 100%. We expect updates on the previously reported median progression-free survivals of 22.4 months as the data matures. If similar results are seen in the current larger randomized Phase II portion of the trial and the combination continues to be well tolerated, it could represent a significant improvement over the current standard of care, including [ THPLM ]. While the results will be important in terms of the treatment of metastatic uveal melanoma patients, they could have relevance across multiple tumor cups, where hepatic metastases are present and immunotherapy is an accepted treatment. Turning to the commercial progress of [indiscernible] Europe. The third quarter was the second, and fourth quarter after we resumed direct responsibility for sales, marketing, and distribution activities, which occurred on March 1, 2022. Excluding the Netherlands, where most patients are now being treated in the COPAN trial, our units increased 41% over the same quarter last year and increased 26% versus the second quarter. We will continue to operate the business on a cash flow breakeven basis for the time being, but we'll make several key hires in Germany and engage with consultants to support submissions for national coverage. These additions are relying on the publication of the FOCUS trial results, which will now occur early next year. The first submission for national coverage will be in the U.K. In late October, we agreed with medac, the previous distributor of CHEMOSAT in U.K. and EU, on terms to settle the party's ongoing dispute over the termination of the distribution agreement. The parties will reach a definitive settlement agreement before the end of 2022. And with this dispute behind us and the planned upcoming publication of focused on results, we are confident that Europe will become a meaningful revenue contributor to the business, with the new revenues slightly growing along with U.S. commercial launch of Hepzato if approved next year.  Also in October, we successfully completed a notified body audits to recertify our Queensbury, New York manufacturing facility for CHEMOSAT under the European Medical Device Regulation, or EMDR. While recertification, even under the new MDR regulation, has become routine for the company, it is important to keep in mind that our team at Queensberry has been undergoing audits for years, and I'm confident that we are well prepared for a pre-approval inspection from the FDA. Finally, we continue to lay the foundation for the planned commercialization of Hepzato. During the third quarter, we held an advisory board in the United States with interventional radiologists and anesthesiologists to gain further insight into the way treating facilities will utilize Hepzato grouped within their continuum of care. We have solidified our market access plans and are confident that for Medicare patients, Hepzato will primarily be reimbursed using pass-through status, initially with the miscellaneous C code before being assigned our unique C-code. We are carefully watching the [indiscernible] progress and noticed that in their first full quarter, we obtained a unique C-code and booked $20 million in revenue from U.S. Cintra sales despite being restricted to less than 50% of the patient population given their mechanism of action.  Based on publicly available information, the U.S. contract is priced at a level which equates to approximately $925,000 per patient based on the average duration of therapy reported for their pivotal trial. An equivalent price for that out of it will be somewhere between 150,000 to $225,000 per kit depending upon whether the price is based on a 9-month duration of therapy or 6 kits or 4 hipster treatments over 6 months, the mean number of treatments from the focus from. While it is premature to finalize the price, this dynamic is important for investors to understand as we approach commercialization next year. We believe that the ultra-orphan pricing dynamic, combined with a very focused set of treating centers that will support and the growing number of EAP sites, will translate into rapid revenue growth, a short runway of becoming cash flow positive, and very strong operating margins. Obviously, there is much to get done between now and the launch with the commercial potential for this first indication, and the value it represents is clear. I look forward to taking questions. But first, we'll turn the call over to Tony to review the financials. Tony?

Thank you, Gerard. Product revenues for the 3 months ended September 30, 2022, was approximately $906,000 compared to $395,000 for the prior year quarter from the sales of CHEMOSAT in Europe. Revenues increased 12% over the same period last year, primarily because we're not booking all European revenue after the termination of the medac distribution agreement versus a royalty in a revenue share. Research and development expenses for the quarter increased to $4 million compared to $3 million in the prior year quarter, primarily due to higher professional service costs relating to the preparation for our NDA submission by the end of this year. Selling, general and administrative expenses for the quarter were approximately $4.5 million compared to $4 million in the prior year quarter. The increase was primarily due to recording an estimate of $1.2 million for the settlement of the medac litigation, offset by a lower share-based compensation expense of $800,000. Other expenses increased $730,000 from $420,000 due to a full quarter of interest expense and amortization related to our debt financing during the third quarter of 2022.  The company recorded a net loss for the 3 months ended September 30, 2022, of $8.5 million, $0.92 per share basic and diluted, compared to a net loss of $7.1 million, $0.94 per share basic and diluted for the same period in 2021. On September 30, 2022, the cash company had cash equivalents and restricted cash totaling $14 million. As compared to cash equivalents and restricted cash to $27 million on December 31, 2021. During the 3 months ended September 30, 2022, on September 30, 2021, we used $5.2 million and $4.9 million, respectively, of cash in our operating activities. On July 20, 2022, we closed a private placement for a $5 million issuance and sale of 690,954 shares of common stock and 566,751 pre-funded warrants to purchase common stock to certain investors. Each year of common stock was sold at a price per share of $3.98, and the prefund warrants was sold at a price of $3.97 pre-fund warrant. The pre-funded warrants have an exercise price of $0.01 per share of common stock and are immediately exercisable. Delcath received gross proceeds from the private placement of approximately $5 million before deducting offering expenses. That concludes my financial remarks. I'll ask the operator to open the phone lines for Q&A. Can you please check for questions?

[Operator Instructions] Today's first question comes from Marie Thibault with BTIG.

This is Sam Lieber on for Marie. Maybe I can ask with my first question here. Any updates or color on maybe what's happening behind the scenes here at the CROs? Maybe what flat that's needed before getting this resubmission before the end of the year?

Sure. The primary thing at this point is medical writing. We have about 98% of the data from our key CRO, a little bit more to get out of them. But really right now, the gating item is medical writing. And I would say we're well down the path. It will be towards the very end of December, if it slips, it will slip slightly for a week or so. But I'm confident we're very close to getting it filed, and I don't see any major issues in getting it done at this point.

And then maybe on the EAP sites here. I might have missed this in the prepared remarks, but maybe how many treatments have been done or scheduled at this point so far? And maybe how are some of those early learnings there informing maybe the referral pathway for when you potentially do get FDA approval here?

Jon, can you answer that in terms of how many treatments we've done to date?

Sure, Gerard. So to date, we have 7 treatments. There is actually a treatment occurring today at Moffitt Cancer Center. So that would be the eighth. In terms of your question on learnings, we're using the learnings from our European experience and the FOCUS trial in the training and the conduct of the EAP. So it's still a little bit early. We're carefully monitoring the safety of these patients, and we don't see any concerns with the adverse events so far that have been reported.

And Kevin, it might be worth you noting what you've noticed some interesting referral patterns going into the market, I think.

Yes. We've seen some patients deemed referred to Moffit Cancer Center then using HEP Auto as a first-line treatment, the theory being that it stabilizes the disease and preserved liver function before treatment with KIMMTRAK. So it's an interesting dynamic that we see here of kind of sequencing these treatments in combination to extend better preserve the liver and deliver function in anticipation of treating with KIMMTRAK or [indiscernible].

Dan, what's interesting is this concept is a little obvious is not something that we've driven at this point because obviously, we're not approved. But this seems to be -- it's one specific doctor, but he was a very active, I believe, active in the trial, and he is now steering his -- it's only -- I think an equal to at this point, if I have it correct, but he's steering his HLA, the patients with the appropriate HLA genotype [indiscernible] to get treated first and then move on to KIMMTRAK. So as I've said before, I don't view KIMMTRAK as a competitor. I think it's a win-win for patients and that they're both out there, and doctors will figure out a way to use the best in a combined fashion.

And our next question today comes from Scott Henry at ROTH Capital.

I guess just starting on the FDA process. First, do you think there's any risk to it being in a 6-month review? It would seem likely given the indication. And any thoughts on whether there'd be a panel as well as do you have any planned meetings prior to the filing?

Yes. In terms of risk of it being lower in a 6-month review, we're trying to make sure that the package is as complete as possible. And quite frankly, we've been focused on making it very easy to navigate. If you take everything given to you as some of the writers, so especially the nonclinical writers, we give it to you, it can be a bar and navigate. So we're trying to make it, and there is a fair amount we can do as easy as possible to navigate and review. The second thing in our favor is that it's not a particularly large filling. The drug has a long history behind mindedly, but it's not a very large filing being a single trial that we're submitting. But the FDA, we all know they are overworked, and they have kicked some things down the road. So we're hopeful not, and we're doing everything we can on our end to avoid that. In terms of any meeting schedule with them, none at this particular time. And in terms of advisory, I think it's probably as likely as not, but we will, of course, be prepping forward as if we have 100% certainty that it will happen because, obviously, there'll never be enough time to prepare if you wait for the notice.

And then, with regards to the European revenue trends, certainly good sequential growth from 2Q to 3Q. Should we expect continued sequential growth? Or will it be kind of lumpy?

Yes. These are still fairly small numbers. So by definition, when you have small numbers, it can be very lumpy at times. Most of this revenue is coming from Germany and the U.K. In the U.K., we have a rep. We hired one a little bit before getting the product back and actually converted an MSL to a rep. And in Germany, actually, it's just it's all referrals on their own. Basically, the product has been on autopilot for years. We are -- I think some of that growth was definitely due to our efforts. I think lumpiness is probably in order. I think what will really drive revenue in the short term is us hiring a rep in Germany to help improve referral patterns, as I mentioned a second ago, it's all kind of on autopilot. And then longer term, what will really drive revenue will be U.K. reimbursement. We'll probably focus on France at some point in the next market, given the burden of disease, when the shop trial winds down, we'll get that back online. But I think the focus for AL Data is the last dynamic when that gets published, I think that will help a tremendous amount. But as is always the case, it's a matter of getting reimbursement in each individual market that will take a number of years. So steady growth, but we need to get those reimbursement submissions in.

And final question, just with regards to the EAP sites, 8 procedures seems like a pretty good number. I guess how should we think about the volume per site? Is this like a once-a-week type procedure? I guess, one, does it go -- I imagine it goes up, the volume goes up significantly once the product is approved. But I'm just, in general, how do you think about -- and obviously, there are higher volume and lower volume. But on average, how do you think about volume per site as far as the number of patient’s post-approval based on what you've learned so far? Just any color there would be helpful.

Yes, that's a great question. And we've been obviously focused on that ourselves. And I think it will vary not surprisingly dramatically by the site. I think an average of 1 a week per site is probably a reasonable effort after some period after launch. In terms of getting the sites to that level prior to launch via the EAP, we have to make an effort with our MSLs. We have one right now to drive patients in form clinicians about the sites and the referral patterns in a compliant manner, of course. Could we get it up to 1 a week prior to that? That probably would be a reach given our current resources. But I think the demand is certainly there. We're able to communicate it. But again, we're being very careful as to how hard we hit the accelerator. I think I've said this before, just trying to harbinger our resources at the moment. But I think post-launch, I think one a week is feasible. And I think we probably could get up to maybe as high as 20 sites over time within perhaps 2 years post-launch. But we're hopeful that we'll have 7 sites up and running at launch. And probably well under 1 week at that point, but moving towards that.

And our next question today comes from I-Eh Jen with Laidlaw & Company.

Do I remember that there is -- for the focus study in terms of the final survival data, that potentially could be available, I believe, by May of next year -- if that's the case, would you need to further submit the data to the agency for approval, or that's not relevant in that -- for that process?

The primary endpoint of the trial is the objective response rate. So there won't be any need to update the data. The data we're submitting to the FDA is a slight update since the last update we've given publicly and in regular filings. If there's an abstract or something that we published with a further update, that will go into the FDA. So they would be informed, but it wouldn't be a significant update. So the short answer is no. It's not necessary. It's not part of the process, but they will be kept in on.

Just 2 more quick ones. First, housekeeping questions, based on the expenses, operating expenses, should we anticipate that going down further sequentially compared to the third quarter for the fourth quarter? Or how should we think about that?

I think you just assume they're about on a steady state for the next 2 quarters.

And maybe the last question here is that once the FDA accepts the application, I assume a month after it was submitted. Could you tell us the procedure or the process in terms of the FDA facility inspection and the possible timeline of that? So that's probably the last piece for the agency in the process to complete their work.

Yes. There's no formal cut and dry, it's always x, but I would expect 4 to 6 weeks prior to the PDUFA date, then scheduling the pre-approval inspection.

And our next question today comes from Bill Maughan with Canaccord Genuity.

So after a recent FDA advisory committee for another oncology product in a small orphan population, there's a little bit more of a renewed focus on what the FDA is expecting to prove efficacy in a single-arm trial in a small population. So I was just hoping you could kind of hit the highlights again. I know you've gone through it before, but in terms of what the FDA expected or required of your pivotal data, specifically as you can, what they needed to see to prove efficacy and any -- to the extent that you were able to compare that to results outside of your trial, the suitability of that comparison and how satisfied the FDA will be that Hepzato is achieving the level of response needed for approval.

Sure. Well, I think the first thing is a single-arm trial with the FDA stated to us when we were discussing with them turning this into a single trial is they wanted to see a clinically meaningful objective response rate that had a clinically meaningful duration of response. Picking up that second one, duration of response, because that's the simplest. And they asked us to do a follow-up for at least 6 months to demonstrate that the duration of the response was meaningful. And what we actually had was a 14-month duration, and that is frankly hitting the ball out of the park in terms of durations. So we know we're on very, very solid ground there. In terms of objective response rate, that's a little bit harder to point to something specific the FDA has said to us. Now we did tell them that we were powering the trouble trial to show a meaningful improvement based on a meta-analysis of immuno-oncology agents. And we had our lower bond needed to be to 8.3% on that. Our lower bound was 26.4%.  So obviously, we're well over that hurt. Now the FDA might decide that that in itself is inadequate. And we, of course, will, in terms of evidence, in terms of a comparison. So we have other things we can pull upon, which are some are quite obvious. I think the most compelling one is to look at OS. Our OS is fairly similar to what [indiscernible]. And we had sicker patients in terms of we had first, second, and third line patients. We have a variety of parameters that we can compare it to and will, based on their published data, it demonstrates that our patients were further on in the disease process, yet we came in with a spitting distance of their overall OS. And then, if we look at 1-year OS, we were at 77%, excuse me, survived for a year. They were at 73%. So we have a number of things we can point to. If we look at more older survival data [indiscernible] publication. We're well over -- usually, start over is well under a year in terms of survival. So that's well in our favor as well. So I think with our overall OS, we said 19.25% last time we gave an update, but that was versus the DAC, that little stuff comparison, and we have 14.5 months. We have that delta. Meadows continues to mature, so that's definitely not the final number, and it compares reasonably favorably with KIMMTRAK. We have the meta-analysis in terms of ORR, and objective response rate. And our response rates -- our head and shoulders above anything else out there. Most response rates are single digit. So -- and then the duration for 2 months. So taking in totality, I think we're in great shape. I think the last thing I would mention is, although we haven't published is, we have stated qualitatively our response rates or category of response rates, whether or not UR. Complete responder, a partial parcel response, or progressive disease that all correlate with survival quite cleanly. So therefore, we can show that the response rate, the ORR is meaningful in terms of OS, which is always the case for all faxes of therapy. So that's an important component as well. So I've thrown a lot at yet, but I think we have a lot at our disposal. Sorry, I just want to make sure it was complete with that.

And ladies and gentlemen, this concludes our question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.