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

Good day and welcome to the Delcath Systems Reports First Quarter Fiscal 2023 Financial Results Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Hoffman of General Counsel. Please go ahead.

Thank you and once again welcome to Delcath Systems 2023 first quarter earnings call. With me on the call are Gerard Michel, Chief Executive Officer; Dr. Johnny John, Senior Vice President of Medical Affairs and Clinical Development; Kevin Muir, General Manager of US Interventional Oncology; John Purpura, Chief Operating Officer 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 fact 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 risk and uncertainties. For a discussion of such risk 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, event or circumstances. Now, I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you everyone for joining today. Since filing the NDA resubmission on February 14th, I'm assuming I noticed on March 20th that FDA determined resubmission constitute a complete Class 2 response. The company has been working with the agency on the review process as the August 14th PDUFA date approaches. This primarily entails the routine information request that would be expected during an NDA review. I know the question will be asked, at this time we have received no indication about whether the agency will schedule an Advisory Committee meeting. Of course, until we hear otherwise, we will continue to see one will be scheduled. Given the recent financing and the approaching PDUFA date, we are accelerating our preparation for the commercial launch of HEPZATO if approved. Our commercial model will be comprised of referring oncologist and treating centers. Therefore, core part of that preparation is the identification of potential commercial treating sites, would you say -- clearly trained and treating patients in the Expanded Access Protocol prior to the launch or committed to becoming training within a few months after approval. As we have mentioned before, Delcath roughly has 3 sites enrolled in the Expanded Access program with 4 more sites undergoing start-up activities. In addition, approximately 5 other sites have expressed their intention in becoming treatment sites if HEPZATO gets approved. So in total, we believe there are over 10 sites with the potential to becoming treating sites in a relatively short-time frame post lunch. While we will continue to seek additional treating sites, we believe this number of identified sites will ensure that we do not have treatment bottlenecks as we further build from medical oncologist post-launch. A second key component to successful launch is outreach to medical oncologists. Recall that the majority of our US investigators in the FOCUS trial were surgical oncologists. While we have a number of very supportive metastatic ocular melanoma KOLs, we need a broader set of medical oncologists familiar with our data. Thus, we have started to build the medical affairs team and we will have MSL in field by next month. Post-launch, the MSLs will continue to focus on medical education with oncologist. We have also begun recruiting for the salesforce management team. The sales force will be bifurcated with one team focused on supporting the existing treatment centers and working out opening new treatment centers, with the second team focused on calling medical oncologist to facilitate potential referral of appropriate treatment patients to treatment sites. Turning down to on clinical work, because we have spoken about the preliminary CHOPIN result extensively on past 4 calls, I will review those results yet again. However, I will note that the independent investigators conducting that study have informed us that they are on-track to publish a pre-planned interim analysis by the end of this year. The analysis will include 40 of the planned 76 randomized patients comparing percutaneous hepatic perfusion with CHEMOSAT alone, with percutaneous Hepatic perfusion with CHEMOSAT plus ipilimumab and nivolumab. Based on conversations with treating medical oncologists, we know there is strong interest in anticipation for these pending interim results given the signal seen in a small phase I study and the prevalence of immune-oncology therapy in the treatment of metastatic ocular melanoma patients. As previously reported, on March 29th, the company closed a private investment in public equity deal with healthcare focused institutional investors, as well as invest in existing investors that will provide up to $85 million in gross proceeds, including approximately $25 million of float funding. The financing was led by Vivo Capital with participation from Logos Capital, BVF Partners, Stonepine and Serrado Capital, as well as existing investors, including Rosalind Advisors. We are delighted to have the financial backing of these high-profile healthcare focused funds and we believe the initial $25 million will be adequate to support the ongoing commercial launch preparations. The previous mentioned financing will trigger another $35 million of gross proceeds upon approval and then another $25 million in gross proceeds of achieving $10 million in quarterly revenue. In addition, we announced that we had reached an agreement with Avenue Capital to resume the interest only period on the Avenue loan from March 31, 2023 to September 30, 2023, deferring approximately $4.3 million in principal payments. Together, these 2 financial transactions greatly enhance our ability to appropriately fund launch preparations and should eliminate any perception of a financing overhang, which often hinders Delcath's appreciation upon product approvals. I look forward to taking questions in a moment, but first, we'll turn the call over to Tony to review the financials. Tony?

Thank you, Gerard. As stated in our earnings release, we're in the process of completing our customary year-end close and review procedures, including certain valuation work associated with the issuance of the warrants and stock -- preferred stock in Delcath's previously announced private placement that closed on March 29th, 2023 and as of and for the quarter end March 31st, 2023. Delcath's full first quarter 2023 financial results will be reflected in the quarterly report on Form 10-Q, which we filed no later than May 22nd, 2023. Revenue is expected to be approximately $600,000 for the 3 months ended March 31st, 2023, compared to $378,000 for the 3 months ended March 31st, 2022. The estimated increase in product revenue was due to the transition to direct sales in Europe, which occurred in March 2022, as well as an approximately 37% increase in unit volume. For the 3 months ended March 31st, 2023, research and development expenses is expected to be relatively flat as compared to $4.5 million for both periods compared to the 3 months ended March 31, 2022. As of March 31, 2023, the company had cash, cash equivalents and restricted cash totaling $24.3 million as compared to cash, cash equivalents and restricted cash between $11.8 million as of December 31, 2022. The increase in cash of $12.5 million was due to proceeds from private placement, which closed on March 29, 2023, offset by the use of $4.3 million of cash in operating activities and $6.3 million of principal payments towards the company's existing loan with Avenue. 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] Our first question comes from Yale Jen from Laidlaw & Co.

I've got 2 here. One is that given you guys already have -- will have more cash, any thoughts or any plans in the pipeline development? And then I have follow-up questions.

Yes, Yale, we're going to restrict our pipeline activities to probably advisory committee meetings for the time being. I think our primary focus is a successful launch. With that said, there will be activity in parallel going on pair, but I won't see any significant actual clinical dosing patients probably until sometime next year. Now with that said, we are prepared to support investigator initiated trials as they are put in front of us by interested oncologists and we're hopeful that we'll have a number of those starting probably later this year, whether it's additional combination trials with immuno-oncology agents or trials in other indications. But next year, without a doubt, we will be running trials in other indications, both other tumor types and likely other indications combined with immuno-oncology agents.

And then maybe one more question here, which is one of the competitors I think recently reported that their studies in the ocular melanoma both in the first line, as well in broad line. Any thoughts, any comments on whether -- what type of possible sort of competition may happen or not happen? Any color would in fact...

I think we're referring to IDEA'S data, which I thought look quite good myself, their ORR and duration of response looks more like in the realm of what we're seeing with our product. I think what's important to note is 2 things. One, patients, most patients go through more than one line of therapy. The second thing is, most medical oncologists treat this disease, believe patients should get both a systemic therapy, as well as local regional therapies. The latter, of course, is what we are. So I don't see additional systemic therapies coming out as being a direct competitor with us. I think the question is, what goes first, systemic or local regional therapy? I think more data needs to be generated internally really what's best for the patient. I would note that most of these patients when they do succumb to the disease it's usually due to liver failure from liver met. So I know there'll be a place for us at some point for most of these patients.

Our next question comes from Swayampakula Ramakanth from H.C. Wainwright.

This is RK from H.C. Wainwright. A couple of quick questions from me too. In terms of the EAP program that's being run, could you give us an idea of how many patients have been treated so far or are being treated under this program? And also any commentary on the experience so far from both physicians and the patients?

Yes, so right now, well over -- I think they had 40 patients at the start of this year, so they're probably well past before you, we don't have a precise number. I had to guess based on the pace and is an estimate for me is probably somewhere in the range of 50 patients out of the 76 that need to be treated. It is a randomized trial or is the primary and/or above objective response rate is what we reported in the interim data. And they're not sharing those results with us as time goes on it. Of course, as is appropriate, I should not share that with us. All I can say is we're very hopeful that the data -- the signal that was seen in the small number of patients, 7 patients early on will continue to hold, but we'll have to wait. If we turn to the 7 patients, they tolerated the sequential treatments quite well. I don't think there are any toxicities that the physicians think they can handle or that would be undue for the patients. So that was a very important issue to start with. And then again like I talked about before very, very high response rates, 100% disease control, 86% I think response rate and 2.5 years roughly of duration of response and PFS or excuse me PFS at the last data cut. So, fingers crossed that, that level of response and duration can be held with the larger and to get the interim data later this year.

And then it's encouraging that you're getting more centers signing up for getting ready to adopt when HEPZATO becomes approved. So at this point, what do you think is the market in terms of like number of centers who regularly do liver-directed therapies and which can be -- I don't know if you're kind of dividing the market into different tiers as like early adopters and adopters that you have to work on to gain -- to gain their confidence and start using HEPZATO.

In terms of the number of centers that do liver direct therapy, I don't know the precise number it will be in hundreds. If we think about PACE and Y-90, which are the -- another 2 primary liver directed therapies. For this particular indication, we have no need nor would it be prudent to try to get into any meaningful percentage of that. I think if we had 10 centers up and running within 3 to 6 months or within 3 months, let's say, of launch that would be fantastic. I can't see us ever going past and this number might flex that or up, but I can't see it going much past 20 centers, maybe 25 at peak. The reason for that is, we want to keep close tabs of these treating centers. And again, recall that it is only about -- well, it's hard to say, but we're saying -- some people say we're conservative, but we're saying translating our patients. I don't want to have a center doing one of these every 3 months. I'd like to see centers doing at least 2 a month just to make sure they're well trained, the team is up to speed. So again, I think 25 at the most peak, very happy with 10, one to 2 quarters post launch, if we accomplish that, that will be the phenomenal launch if we have the referrals up the pipeline to support those centers.

[Operator Instructions] And our next question comes from Bill Maughan from Canaccord Genuity.

So of the initial dozen or so sites that are either currently online or have expressed interest, do you have a sense of how many patients they represent? And then second question, are you at the point yet where you can have even preliminary discussions with payers? Do you have any sense of how they'll onboard a payment for HEPZATO as it launches or any sort of time line on that?