Delcath Systems, Inc. (NASDAQ:DCTH) Q3 2023 Earnings Call Transcript

Delcath Systems, Inc. (NASDAQ:DCTH) Q3 2023 Earnings Call Transcript November 13, 2023

Operator: Good day, and welcome to the Delcath Systems Reports Third Quarter Fiscal Year 2023 Financial Results. All participants will be in listen-only mode. [Operator Instructions] After the today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Hoffman, General Counsel. Please go ahead, sir.

David Hoffman: Thank you. And once again, welcome to Delcath Systems 2023 third quarter earnings and business update call. With me on the call are Gerard Michel, Chief Executive Officer; Sandra Pennell, Senior Vice President of Finance; Kevin Muir, General Manager, Interventional Oncology; Vojo Vukovic, the Chief Medical Officer; and John Purpura, Chief Operating Officer. 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 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 the FDA approval of HEPZATO KIT on August 14 for patients with metastatic uveal melanoma, we have been focused on outreach potential treating sites and building our commercial team in preparation of commercial launch, which is now anticipated for January. While it’s taken slightly longer than expected to work with our CMOs to finalize or produce QC released, labeled and packaged melphalan specific to HEPZATO, we have been productively using the time between approval and launch to expand the number of treatment teams that have undergone by doctor training and attended a preceptorship, both of which required before a new treating team can perform their first proctor case.

In HEPZATO KIT FDA approval, we have been encouraged by both the medical oncologists and interventional radiology communities, motivation and stated commitment to incorporate HEPZATO KIT into their practices to treating patients with metastatic uveal melanoma. While we are fielding interest from more than 20 sites, we are primarily focused on a subset of these to ensure that we achieve our planned activation targets throughout the year. In conjunction with the local medical oncologists at each of our target sites, we have been working with the sites interventional radiologists to identify and train HEPZATO KIT treatment teams. In addition to training the treatment teams at each site, we are also working to get HEPZATO KIT approved through the various traditional hospital formulary and value analysis committees, and we have started that process in 13 hospitals.

Currently, we have three EAP sites, Moffitt Cancer Center, Duke University and the University of Tennessee, which are fully trained. They can start treating commercial patients upon the availability of commercial product. In addition, we now have a further four sites, Mayo Clinic, Thomas Jefferson, Ohio State University and Stanford University that have completed the necessary steps to conduct their first commercial treatment under the guidance of a proctor once commercial product is available and formulary and Value Analysis Committee approvals are obtained. Beyond those seven sites, another four sites, UCLA, Providence St. John’s, Mass General (ph) and Piedmont Hospital, currently have the preceptorships scheduled in November or December.

In total, we expect at least 10 sites will have completed the required training to treat a commercial case by the end of January, contingent on scheduling a proctor team for that first case and the successful completion of the various Value Analysis Committee processes. Given the need for the first case to be proctored and the required community approvals, I don’t expect all of the 11 previously mentioned sites to be actively treating patients in the first quarter. However, based on interest and progress to date, I am confident that we will achieve at least five active treatment sites sometime in the first quarter, 10 by the end of the second quarter and 15 treating centers by the end of 2024. We expect treatments per site to start out at approximately one per month and end the year at approximately two per month.

Since HEPZATO KIT is a liver-directed interventional radiology procedure and not an infused drug, we are focused on medical centers as currently mentioned that they currently offer liver-directed therapies for metastatic uveal melanoma patients and currently treat a meaningful number of patients with liver-directed therapy. Noteworthy centers include Thomas Jefferson University led by uveal melanoma oncologist thought-leader, Marlana Orloff; an interventional radiologist, David Eshman (ph), a leader in liver-directed therapy. Thomas Jefferson by far treats the largest number of metastatic uveal melanoma patients in the country. Other [indiscernible] centers include UCLA, we view the melanoma thought-leader of medical oncologist Bartosz Chmielowski and interventional radiologist Sid Padia.

Mayo Clinic with medical oncologist Roxana Dronca and Yiyi Yan, interventional oncologists, Charles Ritchie and [indiscernible]. Moffitt Cancer Center with the FOCUS trial principal investigator John Zagar and Stanford University with medical oncologist Sunil Reddy and interventional radiologists, Gloria Hwang. Since approval, Kevin Muir, Delcath’s General Manager of Interventional Oncology has been busy building the commercial organization. Kevin has made a point of bringing on team members that have deep experience in launching complex therapies require multiple stakeholders in the hospital setting. For example, our new Director of Sales, Zac MacLean, comes from Boston Scientific and has over 20 years of experience leading teams in bringing new liver-based interventional procedures to market.

Under Zach’s guidance, we have divided the U.S. into four regions. Each of which will be served by a commercial team comprised of a liver-directed therapy representative and two oncology managers. The liver-directed therapy representative will manage the hospital approval process and ensure that the HEPZATO KIT procedure team is trained and supportive while performing the procedure. The oncology managers will engage community-based medical oncologists outside of our treating centers with the goal of building referral networks to the oncologists within the treating centers. In addition, each team will be supported by a clinical specialist who will support the treatment teams in preparation for and during the treatment with the goal of ensuring patient safety and improving patient outcomes.

To ease patient access, Kevin’s team has been working with market access consultants to submit the required applications to obtain the C-code, J-Code and NTAP from CMS. Given the nature of HEPZATO KIT, we anticipate all codes and add-on payments to be granted. We are in the final stages of designing a patient access program called HEPZATO KIT Access, designed to assist patients and hospitals in numerous aspects of treatment planning, including prior authorization. We are working with a well-established hub service with significant experience in both ultra-orphan diseases and oncology designed to design and manage this program. We continue to support both internal and external efforts to add to a growing body of evidence that the PHP procedure, whether utilizing melphalan delivered by Delcath’s CHEMOSAT or the HEPZATO KIT is an important treatment option for patients with liver-dominant uveal melanoma.

We recently announced the publication of results from a retrospective comparative study of CHEMOSAT and selective internal radiation or SIRT published from the Journal of Cancers. The independent investigator study from the University Hospital Tubingen, in Germany compared two liver-directed therapies, multiple cycles of SIRT versus two treatments of percutaneous hepatic perfusion of CHEMOSAT in patients with liver-dominant metastatic uveal melanoma. Median overall survival was 301 days for the 34 patients treated with SIRT and 516 days for the 28 patients treated with CHEMOSAT. An adjusted [indiscernible] regression model, there was a significant difference between SIRT and CHEMOSAT with a hazard ratio of 0.32 and associated 95% confidence interval of 0.14 to 0.73 (ph) and a p-value of 0.006.

The overall survival results clearly demonstrate the positive impact of treating liver metastases on patient outcomes with CHEMOSAT. As a reminder, there is an ongoing investigator initiative in randomized Phase II trial in Europe which upon trial, evaluating the effect of adding immunotherapy to CHEMOSAT liver-directed therapy. The trial has enrolled 55 of the planned 76 patients and the investigators expect the trial to be fully enrolled mid-2024. The primary objective of the trial is to determine the efficacy of combination treatment of immunotherapy with ipilimumab and nivolumab with CHEMOSAT treatment versus CHEMOSAT alone, defined by progression-free survival at one year. Secondary objectives include overall survival and overall response rate.

An interim futility analysis conducted in September resulted in the independent data monitoring committee, recommending the continuation of the study without modification. As mentioned earlier, we now expect to start commercializing – to start commercial sales in January 2024. We have been utilized the time between approval and launch to increase the number of trained treating centers and initiating the formulary approval process of numerous institutions. The feedback and progress to date gives us confidence that HEPZATO KIT will become the standard of liver-directed therapy care for metastatic uveal melanoma patients quickly after launch. I will now hand the call over to Sandra to share some details on our financial position. Sandra?

Sandra Pennell: Thank you, Gerard. We ended Q3 with $40.5 million in cash. Cash used in operations was approximately $9.2 million in the third quarter and $23.1 million for the first nine months of the year. The increase in cash is due to the funding received as part of the Tranche A warrants exercise. Specifically, the Tranche A warrants were exercised for $35 million for the equivalent of $7.5 million in common stock. The $35 million should be sufficient to fund the company until another 4.1 million shares of common stock equivalents are issuable at a strike price of $6 as part of the Tranche B warrant without having to issue additional equity capital. The Tranche B warrants would result in $25 million of gross proceeds upon the company achieving $10 million in quarterly revenue.

Current shares outstanding, 22.1 million and 40.5 million on a fully diluted basis. Revenue from our sales of CHEMOSAT was $0.4 million for the three months ended September 30, 2023, compared to $0.9 million for the three months ended September 30, 2022. For the three months ended September 30 this year, R&D expenses were $4.7 million compared to $4.1 million for the three months ended September 30, 2022. The increase is due to activities related to the FDA inspection and other requests in advance of their approval of HEPZATO. For the three months ended September 30, 2023, compared to the same period in 2022, selling, general and administrative expenses have increased from $4.8 million to $6.2 million due to activities to prepare for commercial launch.

That concludes our earnings and business update. And I’d ask the operator to open the line for Q&A. Can you please check for questions?

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Bill Maughan with Canaccord Genuity. Please go ahead.

William Maughan: Hi. Good afternoon. Thank you. So I have two questions. So you talked about getting sites up and running and the last hurdles to go through being product availability and sites Value Analysis Committee approvals. On the sites Value Analysis Committee approvals, how active is Delcath in that process or is that generally an internal hospital process? And how much — how certain is the outcome of those processes. In other words, is it sort of a check-the-box operation or is there any uncertainty in that approval? Second question is, how you see this — how do you see HEPZATO being used post KIMMTRAK or are those patients simply too far along to be an addressable market? Thanks.

Gerard Michel: Yes. Let me start with the first question, Bill, good to hear from you. And I think, Kevin, you could probably add some color to this, but I think I wouldn’t go as far as to say, check the box, but I would also say and cover — add some color to this, that we have a lot of sites. There’s no place that we’re moving forward and aggressively where we aren’t confident of support. But David, Kevin can give some color there. And we certainly support the sites to some extent, but I think the days that the company going in and presenting are long gone, but you do have to support them to some extent. Kevin, can you add some color?

Kevin Muir: Yeah, Gerard. Thank you. It’s far from check-the-box. It’s a formal process within each facility. And they’re basically looking for — if we code this procedure, will we get paid, will we get reimbursed. And so we are asked to provide a limited amount of information and then a hospital makes its decision on itself. We feel confident with our hub services, Gerard mentioned earlier in the call and are — they’re assisting with the coding — kind of the coding forecast for the facilities and then it’s up to them to see if that’s beneficial for them. And the feedback that we’ve had to this point in time has been very good. So we’re confident that out of the 11 sites that Gerard mentioned, that we’ll have five of them that will perform procedures by the end of January.

Gerard Michel: And Kevin, I think it’s fair to say that we haven’t — there have been a number of these meetings already, and it’s usually not just one meeting, but a number of these meetings have started. We’ve yet to have any geez this isn’t going to happen type reactions. Is that correct?

Kevin Muir: It’s entirely correct. We’ve been overwhelmed by the response that we’ve had and the two-way communications that we’ve had with each hospital to this point in time. As Gerard mentioned, we’ve had several of these calls and presentations that we’ve made to the hospitals, and we anticipate most, if not all, of these coming back with the Value Analysis Committee in our favor.

Gerard Michel: Now Bill, in terms of your second question, are patients who are post [indiscernible], will they be too far gone, too far progressed. And I think the answer is some maybe, some may not be. I think if we take a step back, the first question really is, should you use liver-directed first. There are certainly some oncologists out there who believe that in many cases, liver-directed first makes sense. There are others that want to go to systemic first. So it’s not going to be everyone automatically going, it can be first. I think one of the points we’re going to make to oncologists is that you can tell after two treatments from us, whether or not you’re getting a benefit. With [indiscernible], they recommend treating through progression because the pseudo progression with immuno-oncology agents.

So you run the risk of going too long with [indiscernible] before you really know whether it’s working or not. So it may make sense to start with us from that rationale. The third thing I’ll say is, we have seen patients post-tebn (ph). So we’ve seen patients that are applicable for tebn (ph) coming with us first, and you’ve seen patients post-tebn. So clearly, it’s going to be a mix, but we think we have a sound argument because the liver is usually the life-limiting organ site of metastases and you can get a quicker read on whether you’re getting efficacy when you go with us first. We think we have a good argument to go with us first. But if not, I think we’ll still get a fair number of those type of tebn patients that unfortunately eventually progressed.

William Maughan: Got it. Thank you very much.

Operator: The next question comes from Scott Henry with ROTH Capital. Please go ahead.

Scott Henry: Thank you and good afternoon. Just had a couple of questions. First, as far as — I’m just thinking about the launch metrics you sort of laid out, Gerard. When we think about one per month, moving to two per month, do you think about that as an average or do you think of that as a high volume, location or just trying to get a sense because I know, obviously, some people will do more, some will do less. How are you trying to put that one to two in reference.

Gerard Michel: Yeah. I think here’s what we have. Before we really get out there and get moving, kind of averaging, maybe down, who knows. I do know, I’m confident there’ll be some sites that are doing one a week. And I think there are others as they get started and we’re building the referral networks, they might be doing one every two months. Eventually, my hope is that sites do at least one a week out some time over the horizon. And that’s what we need to do to get to peak share. But it’s definitely an average. And it’s really thinking there’s one or two sites doing most of those and the new ones that have recently come onboard, they’re building the referral networks.

Scott Henry: Okay. Great. And when we think about cycles per patient, how would you think about the average cycle — number of cycles a patient would have and how much time between cycles should we expect in utilization?

Gerard Michel: Well, we saw on the FOCUS trial. I think, as you know, it was 4.1. So we’re kind of — for our own modeling purposes, assuming four. In the FOCUS trial, we allow patients to go up to eight weeks between cycles, six was the recommended. I think what we’ve seen in other settings, Europe is that some docs, more incapacitate use setting earlier in the U.S. Some docs choose to do too quickly together at let’s say six, eight weeks apart, and then we do watchful waiting. Others follow the protocol perfectly. So I think — my guess is we’re going to have a subset to do two, eight weeks apart and then wait. Others are going to go straight through. One thing I am certain of is patients that we lost in the trial that withdrew because their blood counts have not risen to the level or is appropriate to retreat them, we won’t lose those likely in the commercial setting because the doctor will just wait a few extra weeks. So on average, I think it will be — go ahead.