Delcath Systems Inc (DCTH) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Delcath Systems Inc. second quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to James Carbonara. Thank you. Please go ahead.

Thank you. And once again, welcome to Delcath Systems second quarter 2020 earnings call. With me on the call are John Purpura, Interim Chief Executive Officer; Christine Padula, Principal Accounting Officer; Dr. Johnny John, VP of Medical Affairs; and Dr. Gil Aharon, Director.

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 assurances 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 John Purpura. John, please proceed.

Thank you, James, and thanks, everyone, for joining us today. We will arrange our comments by providing a strategic overview, highlights of our second quarter performance, an operational update, and our financial results before having our Q&A.

So first up, a strategic overview. This second quarter has been truly transformational for Delcath and the culmination of a 12-month process of restructuring, recapitalization, and refocusing the company. This included, among other things, management as well as board transitions.

Delcath is now fully restructured with a clean balance sheet and cap table, fully recapitalized with $51.5 million raised over the past 12-months through Q2 led by fundamental healthcare focused funds to allow us to complete our Phase 3 registration of FOCUS trial of our therapeutic treatment platform, Melphalan/HDS, in liver-dominant metastatic ocular melanoma for which we have an orphan drug designation, and we file our new drug application with FDA by mid-2021.

I can truly say that working towards the possibility of making Melphalan/HDS available as the only labeled metastatic ocular melanoma specific product for U.S. patients who currently have limited therapeutic options is our organization's top focus and priority.

During the second quarter, we completed a $22 million capital raise in conjunction with an uplisting to NASDAQ. Our current cash resources, in addition to expected cash milestones in the coming quarters from our European commercialization partner, medac, provide us with a runway through multiple value inflection points expected by mid-year 2021.

With Melphalan/HDS set to potentially be FDA approved by the second half of 2021 as the only metastatic ocular melanoma specific therapy in the US, Delcath has begun pre-commercialization activities, which we intend to accelerate in coming quarters. These include initial market sizing; physician, hospital and payer surveys.

While Melphalan/HDS is a platform technology with a potential broad applicability across multiple liver-dominant metastatic cancers, let alone other potential organs, we look at metastatic ocular melanoma, which in over 90% of cases is liver-dominant, as our initial commercial indication on which to build upon.

Our initial medical oncologist surveys have highlighted their views of the high-unmet medical need for this patient population, the lack of effective therapies, the desire for novel, effective therapeutic approaches, and if it were to be approved, the potential frontline positioning of Melphalan/HDS in this patient population.

Our initial hospital and payer surveys confirm the expectation of attractive ultra-orphan oncology pricing dynamics for our therapy in line with the relatively low incidence of this patient population and the high-unmet medical need.

Delcath estimates that there are currently about 1,500 annual new cases of liver-dominant metastatic ocular melanoma in the US. Assuming parity pricing with other ultra-orphan oncology therapies, we believe that the US metastatic ocular melanoma market opportunity is indeed in the hundreds of millions of dollars and represents a compelling commercial opportunity for a relatively small organization to capitalize upon.

As mentioned before, Melphalan/HDS is a platform interventional oncology technology with broad potential applicability in multiple liver-dominant as well as other organ metastasis. Interventional oncology, in recent years, has rapidly become an integrated specialty component of comprehensive oncology care. It is fully accepted and demanded by knowledgeable oncologists, where it has become an integral part of the treatment referral pattern.

From a business standpoint, we have seen the interventional oncology market expand rapidly in recent years with the consolidation of strategic assets among a number of key players. We believe that Melphalan/HDS represents an exciting new technology in the interventional oncology armamentarium, which is mechanistically unique, clinically differentiated, and of high value commercially.

While we believe that metastatic ocular melanoma is a commercially sizable market on which substantial value can be built, we intend to work towards expanding the US opportunity well beyond this initial indication.

During the quarter, we received feedback from FDA in relation to potential protocol modifications to our ALIGN Phase 3 study in intrahepatic cholangiocarcinoma, ICC, offering the company both guidance and suggestions on a path forward.

At the same time, as part of the recent strategic restructuring and refocusing of the company, we have initiated a comprehensive review of all available clinical and commercial data to guide us on the optimal pipeline projects to strategically pursue as we look to spend our precious R&D dollars in the coming quarters.

Specifically, with over 1,000 commercial procedures performed in the EU in 13 different tumor types using our technology in recent years, where our product is approved by the brand name CHEMOSAT under a CE Mark, we have ample data to help guide us.

Some of these potential programs, in addition to ICC, include metastatic or endocrine tumors, liver-dominant breast cancer, and metastatic colorectal cancer. As part of this initial evaluation, we have worked during the quarter to better define the US patient incidence numbers for each of these potential settings.

Further, we are in the process of engaging with our clinical advisers to review data generated in recent years in these settings with the goal of reaching the best risk-reward conclusions on our pipeline projects. We look forward to updating you in coming months on our strategic decisions as we look to initiate new trials.

Now, turning to our operational update. Early this year, as with other global trials, our Phase 3 registration FOCUS study in liver-dominant metastatic melanoma has been impacted by COVID-19. The pandemic did cause the closure of clinical sites to data monitoring as hospitals restricted access to non-essential staff members and visitors.

Importantly, however, throughout these months, trial protocol has remained intact, and we have managed to keep ongoing trial patients who were being treated at the beginning of the pandemic on protocol. Faced with potential data timeline reporting uncertainty, we have taken steps to ensure progress on our new drug application key deliverables during this pandemic.

Those included, among other things, required non-clinical studies; chemistry, manufacturing, controls or CMC work, to ensure that any potential delays will not affect our timelines to NDA submission by mid-2021. At the same time, we are pleased to report that the majority of our clinical study sites are on a trajectory of reopening to data monitoring visits starting in Europe, and more recently, in the US.

In addition, we have implemented a number of steps to increase data monitoring efforts in light of the impact of the pandemic. Based on the current trajectory of sites reopening, our goal is to report our Phase 3 top-line data by the end of 2020 or early 2021 with a refiling of our NDA with FDA by mid-year 2021.

Lastly, as mentioned before, Melphalan/HDS is approved in Europe under a CE Mark with the brand name CHEMOSAT. In late 2018, we signed a royalty-bearing partnership agreement with medac, a leading private German pharmaceutical company, to become our commercialization partner in the EU.

While over 1,000 commercial procedures have been done using CHEMOSAT in Europe, overall market penetration is still low, partly due to the lack of product reimbursement in the majority of countries. A prerequisite for enhanced reimbursement will depend on the FOCUS study results, which our partner awaits.

Further as part of our recent restructuring, we have taken steps during the current quarter to review medac's performance proactively to ensure optimal execution and growth trajectory by -- country by country with an emphasis on tactical execution. We expect these interactions to continue more frequently with our goal of ensuring that the European opportunity expands significantly in accordance with its real potential.

To conclude, we believe Melphalan/HDS is a unique, differentiated, high-value, interventional oncology asset, representing an exciting opportunity for the treatment of metastatic cancers of high-unmet medical need. In the last 12 months, Delcath has emerged as a late-stage interventional oncology company with a series of potential near-term transformative value inflection points.

We are focused on pursuing the initial approval of our platform technology, Melphalan/HDS, in liver-dominant metastatic ocular melanoma, which we believe would represent a US commercial opportunity in the hundreds of millions of dollars.

We are further strategically focused on follow-on indications for which our technology is applicable. Our goal is for this technology to become available as part of the armamentarium of integrated cancer care for patients who have limited treatment options. We are excited at the opportunities ahead and look forward to updating you on the progress in months to come.

At this point, I'll now turn it over to Christine for a more in-depth view of our financials.

Thank you, John, and good afternoon to everyone. I'd like to provide everybody a summary of our second quarter 2020 financial results. Our product revenue for the first three months ended June 30, 2020, was approximately $262,000 as compared to the $221,000 for the prior year results of sales of our CHEMOSAT procedures in Europe.

Our selling, general and administrative expenses were approximately $2.3 million compared to $2.7 million in the prior year quarter. Research and development expenses for the second quarter were $2.2 million compared to $1.7 million in the prior year quarter.

Our total operating expenses for second quarter were $4.5 million compared with $4.4 million in the prior year quarter.

We recorded a net loss for the three months ended June 30, 2020, of $4.3 million compared to the net loss of $6.0 million in the same period in 2019.

A highlight on our balance sheet. At June 30, 2020, we had cash, cash equivalents and restricted cash totaling $16.2 million as compared to cash, cash equivalents and restricted cash totaling $10.2 million at December 31, 2019 and $1.4 million at June 30, 2019.

During the three months ended June 30, 2020, and June 30, 2019, we used $7.9 million and $3.2 million, respectively, of our cash in operating activities.

In Q2 2020, we made a number of one-time cash payments that are not indicative of our usual cash usage trend totaling approximately $3.3 million. This included compensation payables subsequent to the resignation of executives and a director, and several past-due payables. At this point, we believe our cash resources and anticipated milestones payments to be received are adequate to fund our operating activities into mid-2021.

That concludes my financial remarks. I will now ask the operator to open the lines for Q&A.

(Operator Instructions) Your first question in queue comes from Scott Henrywith Roth Capital.

Thank you, and good afternoon. A couple of questions. First, there's mention of the expected cash milestones from medac, have you given a sense of magnitude of what range those would be in?

Hi, Scott, this is John Purpura. How are you? Good to hear you. Those milestones are not very substantial, but they're substantial enough to allow us to declare that we have enough cash runway through NDA filing.

Okay. Thank you. That's helpful. And with regards to the ongoing trial in COVID-19, did you lose any patients to follow up, or were there any dropouts as a result of what's going on? I doubt it would, but --

So the effort -- there has been herculean effort to keep patients on protocol and throughout the comings and goings of the waves of the pandemic. To actually keep the patients within the treatment window has been a herculean effort, but we've managed to do that.

Dr. John, who is also on the line, can give you some further details with respect to that. Dr. John?

Yes, thank you, John. So we have managed to keep all ongoing patients to continue on the protocol and have treatment based on the window prescribed by the protocol. So all treatment patients that were ongoing at the time the pandemic hit, which would be mid-March and these past few months, have continued and have been treated on protocol stipulated timelines for treatment. So we're very fortunate to have continued that.

Okay, great. Thank you for that color. And then with pre-commercialization going on right now, can you give me a sense of how I should think about spending for the next couple quarters? Should it -- maybe just a slight upward trend? And also, how should we think about spending during perhaps, the first year of launch? Any sort of parameters or color you can give would be great.

So we're maintaining our current spend on a quarterly basis, Scott, of about $4.5 million to $5 million per quarter. And as expenses come and go, we'll have certain expenses go down due to the ending of the FOCUS trial and other expenses go up. So our guidance is roughly $5 million a quarter.

Okay. That's helpful. And then when we do get to product launch, have you put any parameters in terms of what source of -- what magnitude of resources you would utilize there?

So the company has, as you know, a former Chief Commercialization Officer, John Sylvester, on our Board. And John's unique presence giving us commercialization guidance is a significant addition to the restructured board, but also in terms of how we're moving forward in this pre-commercialization phase.

So as all these commercialization pieces are coming together, we're taking guidance from various sources. And as we proceed through the coming months, that will become clearer, and we'll be able to update you on future calls.

Okay. I look forward to that. Final question. Just when we think about expanded indications and the timing of that, would that be something you would wait to pursue until after the filing, or would you even wait till approval? Just trying to think about when we might get updates there.

So there's the strategic assessment of exactly which indication to pursue, which, given the number of treatments in the European commercial experience which is over 1,000 plus our clinical work in the US and KOL and other medical advisory board discussions, we have to decide which is the best way to spend our R&D dollars.

So the timing of that, of course, cannot interfere with the NDA submission and the roll-up of the FOCUS trial data. So we have sort of a parallel path -- these activities. But will one happen sequentially after the other, it's unknown at this point in time. We're trying to parallel path multiple strategic events, whether or not that starts after the NDA is submitted or approves, has yet to be seen.

Okay, great. Thank you for taking the questions.

(Operator Instructions) Your next question is from Yale Jenwith Laidlaw & Company.

Good afternoon, and thanks for taking the questions. You have been (multiple speakers)

Hello, Yale, how are you?

I'm fine. How are you doing?

Very well. Thanks.

And in the prepared remarks, you mentioned about you have spoken with FDA, get some feedback from their comment on the intrahepatic cholangiocarcinoma, and any details specific you can reveal?

So yes, we did receive feedback from FDA regarding our Phase 3 ICC program. That gives us the path forward, should we so choose to decide. Now that said, as part of our strategic review, comprehensive strategic review which has already started even prior to FDA feedback, we focused on better defining the potential end market opportunities for which we have interest in pursuing for additional clinical development.

As it turns out, and this is highlighted in our corporate deck, relevant ICC incidence rate, the annual incidence for the US is somewhat smaller than we originally perceived. So at the same time, by the way, the annual incidence for liver-dominant metastatic ocular melanoma was somewhat larger than we originally perceived.

So in light of these data, as well as additional clinical evidence emerging in the EU from various centers and the 1,000 treatments we've conducted there, management is considering its options in relation to the clinical trial initiations to be able to understand and pursue the most attractive clinically and commercially follow-on indication. So this is a strategic reassessment that we're looking forward to executing in the coming months.

Okay. Great. That's very helpful. And another question here is that if us -- eventually going to file assuming the positive data, are you guys in rolling submission pathway, or that's not the case?

So the rolling submission pathways for an original NDA filing, this is categorized as a resubmission pursuant to our receipt of a complete response letter way back when. So we have the review clock, a PDUFA assigned review clock, on a resubmission of six months. And within that six-month window, there will also be, we expect to be potential for us to be in front of advisory committee, an ODAC.

So that six months window could potentially put the approval of our resubmission towards the end of 2021. But there's no plan at this point to go with a rolling submission -- a rolling resubmission to FDA.

And you mentioned that you were potentially anticipating a ODAC meeting or AdCom meeting, is that the assumption at this moment?

So we anticipate that, there has been absolutely no confirmation from FDA that that will be the case. But we always will -- we anticipate it, and we'll be prepared for it.

Okay. And maybe the last --

That would probably occur by the way. I'm sorry to interrupt. That would occur probably at the month four or five of the review.

Okay, great. And then maybe the last question here is that, as you guys go into the assessment of different indications to be explored, just in theory, I understand different tumor is different. But once they are metastatic to the liver, are they overall similar to some extent that as well as the Melphalan or other chemo agents is effective you can just treat them in the same manner? In other words, I don't know whether that would be, as you'd mentioned, the CRC colorectal cancer or even breast cancer? Or are there any other [answers] to that organ?

That's a great question, Yale. So this therapy, Melphalan/HDS, is a treatment of the liver. So we have actually had Delcath R&D department, several years ago, release a published paper on the [apoptotic] effects of Melphalan on liver hepatocytes. So it's actually quite an effective compound in many, many different cancers of the liver.

What is interesting in relation to the various disease states is the effect of potentially extrahepatic disease and the control of the disease in the liver, which is usually the life limiter. So while there are other agents out there that one might envision, so for example, one might say oxaliplatin because it's colorectal, but remember, our disease -- the diseased organ that we're focusing on is the liver and we believe Melphalan to be the best compound of choice for disease in the liver.

While there may be other organs and other compounds to address those, we believe melphalan hydrochloride to be the best compound for addressing cancers of the liver.

Okay, great. That's very insightful. I appreciate that. And again, congrats on the progress and looking forward to speaking with you guys soon.

Absolutely, Yale. Anytime.

That concludes the Q&A session and this earnings call. Thank you, everyone, for joining. You may now disconnect your lines.

Thank you.

Thank you.