Delcath Systems, Inc. (NASDAQ:DCTH) Q1 2023 Earnings Call Transcript May 12, 2023
Delcath Systems, Inc. beats earnings expectations. Reported EPS is $1, expectations were $-0.61.
Operator: Good day and welcome to the Delcath Systems Reports First Quarter Fiscal 2023 Financial Results Call. All participants will be in listen-only mode, and should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Hoffman, General Counsel. Please go ahead.
David Hoffman: 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 U.S. 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 facts, may be considered forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 and Section 21(e) 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.
Gerard Michel: Thank you everyone for joining today. Since filing the NDA resubmission on February 14 and receiving a notice on March 20 that FDA determined resubmissions constituted a complete Class 2 response, the company has been working with the agency on the review process as the August 14 PDUFA date approaches. This primarily entails the routine information requests that would be expected during an NDA review. Since 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 assume 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 is comprised of referring oncologists and treating centers, therefore a core part of that preparation is the identification of potential commercial treating sites, which are sites that are either trained and treating patients in the expanded access protocol prior to launch or committed to becoming trained within a few months after approval. As we have mentioned before, Delcath currently has three sites enrolled in the expanded access program with four more sites undergoing start-up activities. In addition, approximately five other sites have expressed their intention in becoming treating sites if the Hepzato kit is approved, so in total we believe there are over 10 sites with the potential to become treating sites in a relatively short time frame post launch.
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 referrals build from medical oncologists post launch. A second key component to a successful launch is outreach to medical oncologists. Recall that the majority of our U.S. 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 MSLs out in the field by next month. Post launch, the MSLs will continue to focus on medical education with oncologists. We have also begun recruiting for the sales force management team.
The sales force will be bifurcated with one team focused on supporting the existing treatment centers and working on opening new treatment centers, with the second team focused on calling on medical oncologists to facilitate potential referral of appropriate treatment to patients to treatment sites. Turning to ongoing clinical work, because we have spoken about the preliminary CHOPIN results extensively on past calls, I won’t 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 and anticipation for these pending interim results given the signals seen in the small Phase I study and the prevalence of immune oncology therapy in the treatment of metastatic ocular melanoma patients. As previously reported, on March 29 the company closed a private investment in public equity deal with healthcare focused institutional investors, as well as [indiscernible] investors that will provide up to $85 million in gross proceeds, including approximately $25 million upfront 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 from these high profile care-focused funds, and we believe the initial $25 million will be adequate to support the ongoing commercial launch preparations. The previously mentioned financing will trigger another $35 million in gross proceeds upon approval and then another $25 million in gross proceeds upon 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 of principal payments. Together, these two financial transactions greatly enhance our ability to appropriately fund launch preparations and should eliminate any perception of a financing overhang which often hinders share price 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?
Anthony Dias: 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 preferred stock in Delcath’s previously announced private placement that closed on March 29, 2023, and as of the quarter end March 31, 2023. Delcath’s full first quarter 2023 financial results are reflected in the quarterly report on Form 10-Q, which will be filed no later than May 22, 2023. Revenue is expected to be approximately $600,000 for the three months ended March 31, 2023 compared to $378,000 for the three months ended March 31, 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 the approximately 37% increase in unit volume.
For the three months ended March 31, 2023, research and development expense is expected to be relatively flat as compared to $4.5 million for both periods compared to the three 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 totaling $11.8 million as of December 31, 2022. The increase in cash of $12.5 million was due to proceeds from the 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?
Q&A Session
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Operator: Thank you. We will now begin the question and answer session. [Operator instructions] Our first question comes from Yale Jen from Laidlaw & Company. Please go ahead.
Operator: Our next question comes from Swayampakula Ramakanth from HC Wainwright. Please go ahead.
Operator: Again, if you have a question, please press star then one. Our next question comes from Bill Maughan from Canaccord Genuity. Please go ahead.
Operator: This concludes our question and answer session. I would like to turn the conference–
Operator: I’m sorry.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Gerard Michel for any closing remarks.
Gerard Michel: Yes, I just want to thank everyone for taking the time this morning to listen in. We have a lot of work ahead of us as we prep for our launch, but we’re going to keep our heads down and push forward. Thank you again for the support. Have a great day.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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