Delcath Systems Inc (DCTH) 2022 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Delcath first-quarter 2022 earnings call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, David Hoffman, Delcath's General Counsel. Sir, the floor is yours.

Thank you. And once again, welcome to Delcath Systems first-quarter 2022 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, Vice President of Commercial Operations; 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 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 and 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 very productive first quarter of 2022 and year to date for both HEPZATO, the company's product development candidate in the United States, and CHEMOSAT, the company's marketed product in Europe. In the US, (technical difficulty) forward towards the resubmission of a new drug application for HEPZATO. We have completed a pre-NDA meeting with FDA. And based on that interaction, we see no barriers to a resubmission of HEPZATO's NDA, which we now plan to file in the third quarter.

In addition, an update on the Phase 3 FOCUS trial results were accepted for a poster presentation at the American Society of Clinical Oncology or ASCO's annual meeting in June. Regarding CHEMOSTAT, single-center safety and efficacy data from the University Hospital Southampton in England was published in the journal of Melanoma Research. And data from patients treated at the Hannover Medical School were presented at the European Conference on Interventional Oncology, or ECIO. In addition, we achieved medical device regulation certification under our CE mark. And most notably, we resumed direct responsibility for sales, marketing, and distribution activities of CHEMOSTAT in all of Europe.

Starting with HEPZATO in the US. After the first quarter ended, we completed a pre-NDA meeting regarding HEPZATO's NDA resubmission without any meaningful new issues arising and getting additional clarity of FDA's expectations regarding certain analyses. While we wait for the final official meeting minutes from FDA, we do not believe that any additional preclinical or clinical studies will be required in order to file the NDA. Whether the FDA will convene an advisory committee is an open question. As a company, we are planning for one and would look forward to the opportunity to highlight HEPZATO's efficacy and safety.

We expect to file HEPZATO's Class II resubmission of the NDA to FDA in the third quarter. Our previous mid-year guidance regarding the timing of the NDA resubmission has shifted slightly due to a single vendor facing unforeseen delays, including work. Notably, all clinical data is in hand, [modern and] complete, and only a few queries are currently outstanding.

While we commercially manufactured product for the European market, we have undergone a third-party FDA mock audit and a review of the company's manufacturing processes. Based on the results of the review and our continued work, we believe our manufacturing system will be ready for FDA's pre-approval inspection. Over the course of the year, at various conferences, we will look to share additional data analyses from the FOCUS trial that we believe further supports clinical efficacy and safety.

Consistent with that, yesterday we announced the acceptance of a poster presentation at the upcoming ASCO 2022 annual meeting. The poster to be presented on June 6 by Dr. Jonathan Zager, globally investigator of the FOCUS study, will provide on updated results from the FOCUS 3 trial. Updated efficacy parameters will include the time-based endpoints of overall survival and duration of response, which continued to mature.

During the commercialization of HEPZATO, ocular melanoma is a niche high-value market for us with attractive attributes, including a focused set of treating physicians and a significant unmet need. Our key goal is to have 10 expanded access sites opened by the time of the expected launch and to ensure that the mix of sites are appropriately located to enable reasonable access regardless of a patient's location. By doing so, we will have an established base of treating physicians with an existing patient population.

At the moment, two sites will be in a position to start accepting patients by the end of this month, with another three having agreed to participate. Multiple other sites have expressed some level of interest in participating, and we are hopeful we can achieve 10 EAP sites prior to launch.

We are actively developing key documentation to support reimbursement, such as a value dossier as well as holding advisory boards with treating physicians to better understand the patient journey. We have initiated recruiting for key positions required for commercialization, such as training, and have engaged a hub service to assist sites with reimbursement for standard of care expenses associated with the EAP.

Turning to CHEMOSTAT in Europe. We continue to see a steady stream of single-center publications and presentations reporting on the use of CHEMOSTAT in Europe. In February, we were pleased to see results from University Hospital Southampton's retrospective study published in the journal of Melanoma Research. As we previously reported, the study evaluates the safety and efficacy of 250 CHEMOSTAT treatments in 81 patients with liver-dominant metastatic uveal melanoma between 2012 and 2020.

The office concluded that CHEMOSTAT provided excellent response rates at progression-free survival compared with other available treatments and noted that combination therapy of CHEMOSTAT with systemic agents may be viable to further advance overall survival. The study's result is consistent with numerous other publications out of Europe and add to the growing body of published research, documenting the efficacy and safety of our CHEMOSTAT system in the European commercial setting.

We expect that investigators from the Leiden University Medical Center in the Netherlands will present updated data from the CHOPIN investigator-initiated trial at ASCO. Recall that at the 2021 Cardiovascular & Interventional Radiology Society of Europe, or CIRSE Conference, they presented an abstract which included data from seven patients treated during the first phase of the trial, which investigated a combination of CHEMOSTAT with ipilimumab and nivolumab in patients with metastatic ocular melanoma.

The trials have completed dose-escalation phase and the observed responses in the seven patients were complete response in one patient and partial response in four patients for an overall response rate of 71.4%. After a median follow-up of eight months, at that time, the median duration of response was eight months. No dose-limited toxicities occurred. Given the 10 months since the last report, we eagerly await updated efficacy data, both response rates and duration of response from this first trial investigating combination immunotherapy with CHEMOSTAT.

In February, we received the medical device regulation or MDR certification for CHEMOSTAT in Europe. Achieving MDR certification entails a detailed evaluation from a designated EU Notified Body, including an audit of quality systems and a review of documentation supporting safety and performance claims for the device. MDR greatly expands upon existing MDD requirements, including the level of clinical evidence supporting claims, post-marketing surveillance, database traceability, unique device identification, and increased supply chain oversight.

Under MDR, CHEMOSTAT's designation has been changed from a Class IIb to a Class III medical device. We believe the MDR certification demonstrates our manufacturing team's ability to adapt the company's quality systems and processes as required by differing regulatory standards.

Delcath assumed direct responsibilities for sales, marketing, and distribution activities of CHEMOSTAT in all of Europe on March 1. We currently have four customer-facing employees in sales, marketing, and medical affairs, working with health care providers in the UK, Germany, and Netherlands. And anticipate hiring several more this year to further support health care providers and patients in those markets as well as expand these throughout Europe. Importantly, we anticipate our first submission for national coverage will occur by the end of the year in the United Kingdom.

Given the multiyear process to obtain national coverage approval and then to be incorporated in the NHS budget, we have also initiated efforts to obtain regional reimbursements in the UK in the interim. While it will likely take several years to obtain national coverage in most major markets, we are confident that Europe will become a meaningful revenue contributor to the business with EU revenues likely growing with our US commercial launch next year.

Finally, we continue to plan on expanding PHP platform into other indications. We are in the midst of a series of planned Advisory Board to review proposed protocols for both ICC and CRC, after which we will start formal discussions with sites and prepare any required regulatory submissions.

We will likely initiate ICC trials first and then follow up with one or more CRC trials. ICC is more than two times the market size of metastatic ocular melanoma and has some similarities and that many of these patients are treated at special centers and there's a high unmet need, especially for patients who fail first-line therapy.

Importantly, we have seen encouraging efficacy signals in ICC at a number of centers in the EU, and there is strong investigator interest. Given our first priority remains submitting the NDA and launch in the US, Delcath is primarily focused on those regulatory and commercial goals. However, these additional indications for development are still a core part of our strategy, and our markets will continue in parallel.

We continue to build our management team as we transition to a company with both the full development pipeline and commercial operations in Europe and the US. In January, we announced David Hoffman as General Counsel, Corporate Secretary, and Chief Compliance Officer. He brings over 20 years of industry experience and has considerable expertise in pharmaceutical law and regulation, business development, commercial business transactions, and compliance.

In February, we announced Anthony Dias as our new Vice President of Finance. Tony also brings over 20 years of industry experience and will oversee all financial aspects of the company, including financial planning, reporting, accounting, and control. Both hires strengthened our management team at an important time as we approach commercialization in the US.

In summary, during and since the first quarter, we've taken significant steps towards commercial readiness in the US and increased our activities in Europe. We have brought in key personnel and continued to be supported by a growing body of data.

I look forward to taking questions. But first, I will turn the call over to Tony to review the financials. Tony?

Thank you, Gerard. Product revenues for the three months ended March 31, 2022, was approximately $207,000 compared to $261,000 from the prior year quarter from sales of CHEMOSTAT in Europe as we resume direct sales during March 2022. Other income for the quarter was $171,000 compared to $127,000 in the prior year quarter.

Research and development expenses for the quarter increased to $4.2 million compared to $3.7 million in the prior year quarter, primarily due to higher professional service costs relating to our pre-NDA meeting with the FDA and preparation for NDA submission in the third quarter of 2022.

Selling, general, and administrative expenses for the quarter were approximately $3.6 million compared to $3.3 million in the prior year quarter. The increase was due to pre-launch costs relating to the commercialization of HEPZATO.

Other expenses increased from $660,000 from $20,000 due to the increase in interest expense amortization related to our debt financing. On March 31, 2022, the company had cash, cash equivalents and restricted cash totaling $20.5 million as compared to cash, cash equivalents, and restricted cash totaling $27 million on December 31, 2021. During the three months ended March 31, 2022, and March 31, 2021, we used $6.4 million and $4.6 million, respectively, of cash in operating activities.

That concludes my financial remarks. I'd like to ask the operator to open the phone lines for Q&A. Can you please check for questions?

Ladies and gentlemen, the floor is now open for questions. (Operator Instructions) Marie Thibault, BTIG.

Good morning. Thank you for taking the question. Wanted to start here with what you learned from the pre-NDA meetings with the FDA as well as any more detail you can give us on that one vendor who's had those unforeseen delays. Maybe any detail you could give along what those delays are and how they led to the slight change in the timeline.

Sure, Marie. So as you all know, pre-NDA meeting is usually there's not a lot of upside and there's potential for some downside out of those. In this particular case, there was some modest upside in that. In discussions with the FDA, they did tell us that they would prefer us to use actually our treated population as the primary efficacy analysis, not the IPT. And as you may recall, the efficacy parameters are a bit higher in the treated as would be expected.

In terms of any downside, there really was none. We got some clarification from the FDA in terms of how they wanted to look at some of the data. As an example, there was a question as to whether or not they wanted us to pull our safety data for purposes of an integrated summary of safety. And they agreed that the data, that the devices were distinct enough from the prior pivotal trial that there would be no need to do that.

So that was excellent. They told us that they are kind of, at the same mindset as we did, and that this is a step change in terms of the safety of the product and it made no sense to pull the two. So I think that was a very strong positive signal.

But overall, I mean, it was a very positive meeting. There are always some clarifications on how they want to see some of the data, but nothing dramatic one way or another. So we were very, very happy with how the meeting went. And we'd get to see the official meeting minutes. We don't expect there will be anything in there that would surprise us, but we still have to get those in hand.

Now in terms of the delay in the vendor. We have a kind of a unique product and that a lot of our components that we utilize are off-the-shelf components that we package together. Not all of which do we have quality supply agreements with the vendors because frankly, we're such a small player for them to do that. It's not worth their time.

And that means we have to redo a number of, I'll call it quality tests, whether it's stability, reachable, distractable, the whole host of things such as that kind of to revalidate these off-the-shelf components. We had most of these things done. We had one vendor that has slipped considerably by a matter of quarters, as a matter of fact.

In terms of getting this data, there was another slippage recently. I'll just say it that really what has happened is we've kind of come down hard on the vendor, to be honest. And we've gotten a firm commitment that we'll have the data in hand any day now, as a matter of fact. We've seen the draft data that is going through QC.

So once we have that data, it does take several months to kind of do the analysis of the data, write it up, then you get into the NDA and that really is the primary, primary gating item.

Okay, very good. And then I guess I'll ask on the EAP expecting to have two sites accepting patients by end of month, three more coming online pretty soon. What's needed to get those centers across the finish line here and what will they be doing in the early days of that EAP? Thanks again.

Yeah. Well, the thing we're facing with the EAP that I think a lot of other probably companies are facing is really, frankly, that the nursing shortage is impacting the ability to supply clinical coordinators in the hospitals for clinical trials. EAPs are not always the easiest thing to entice people -- to hospitals or investigators to join. They're considered not the sexiest thing, how we put it that way in terms of the trials.

I'm thrilled that -- I'm pretty sure we have two that either have been trained or had one of those pieces of training to be done so they can start enrolling patients. Three others have committed. There are quite a few, more than five others have talked to us and are kind of circling the basket. We just need to see if we can get five more over the finish line.

But it really is having them be able to allocate the resources. Can they find the resources to do it? And I think this is an industry-wide problem. I'm pushing the team very hard to get the 10. I'm not moving that goal right now internally. I think we can get there, but it really has mostly to do with the sites having adequate resources to put on trials right now.

Okay, that's well understood. Thanks a lot, Gerard.

Scott Henry, ROTH Capital.

Thank you and good morning. Just a couple of questions. I guess first, with regards to the survival data, has that data fully matured? Or is that still going to be coming in through this process?

That data will mature over the next year, so maturity in terms of duration of response and overall survival that will continue to recur over the next year. There will be an update at ASCO and probably one or two more updates until the final maturity occurs. In our protocol, we said we would follow those patients for two years post the last treatment, and that last treatment was May of last year. But OS is not the primary exploratory endpoint in the trial. So there's no need to wait for that data to mature to submit the NDA.

Okay, great. Thank you for that color. And then on the income statement, couple of questions. R&D, should we expect that to start to decline or should it maybe stay up at this level for another quarter or two? And then I guess, very small numbers, but the COGS going down. Is that a function of the new sales model in Europe? Just trying to get my arms around that. Thanks.

Yeah, in terms of R&D, I think we'll have another quarter probably of a high level as we continue to pay the typical army of consultants that gets involved when you're pulling an NDA together. And then that should drop for a period before we start wrapping up with the new indications. But there will be a pause of a couple of months in terms of that higher level.

In terms of the COGS, I will turn to Tony to see if he can answer that question. They are indeed small numbers.

Yeah, it is a small number this quarter as we only started going direct in March. So but the COGS is reflective of some of the direct sales, as a result in the direct sales we did in the month of March.

Yeah, and there was also a modest drop in the units sold. I think our past partner probably sold in a little bit into some sites, which led toward this modest drop in the units sold. So that probably had an impact as well.

Okay, great. And Gerard, perhaps a bigger picture question. Do you kind of slow things down a little bit on future indications, given the current market environment in biotechnology? Or how do you adjust kind of your compass given the backdrop we have currently? Just curious if you do at all and your thoughts on that.

And also, another balance sheet question. That restricted cash, is that usable or what are the restrictions there? Thank you.

Sure. In terms of how do we adjust the dials, given the current market situation, there isn't a lot we can do in term -- there isn't a lot we're spending at the moment on those new indications. It's primarily advisory boards, and we have already slowed that down.

We started doing that probably three months ago instead of really pushing hard. But what we're trying to do is the low-cost things in the interim, which is advisory boards to get interest with investigators, make sure we have the protocol fine-tuned. We have definitely slowed down the expansion of hiring that we otherwise would have done to support some of that. So that's a key component in terms of trying to manage the balance sheet.

It turns that restricted cash, there is a target amount of money to raise that would release it. And that would be raising another $16 million in equity financing would release the restricted cash. We can always, of course, have conversations with Avenue if the needed arose to do that sooner. They are a very constructive partner. So those are the two avenues we would have to release that cash.

Okay, great. And thank you for taking the question.

Thank you.

Swayampakula Ramakanth, H.C. Wainwright.

Thank you. Good morning, Gerard. Quite a few of my questions have been asked, but just thinking of CHEMOSAT and Europe. Now that you have taken over the responsibility of commercializing in Europe, how is that working out? Anything we can get color on in terms of the progress so far and what needs to get done so that it goes smoothly from here onwards?

Sure. So for the last several years, we've been -- haven't had a lot of visibility into kind of the commercial dynamics in the markets in Europe when we handed it over. So right now, we are reintroducing ourselves to a lot of the clinicians. Now some of which we kept tabs on because we were doing clinical development in Europe. But right now, it really is, for example, in Germany, trying to better understand the lay of the land.

But the near-term priorities in those markets other than the markets we currently exist in are the following. In the UK, if you try to increase referral patterns to the existing sites, I think we have enough sites in the country. So we're trying to increase referral patterns whether or not it's from Ireland, which has an agreement with NHS, or whether or not it's within the UK itself. Find those patients who are being surveilled and then refer them to the treating center.

The second thing in the UK is to get a submission together for national coverage. Our goal is to get that in this year. But it's a good year-and-a-half process between you and then getting budgeted in the NHS budget.

So there's also regional funded. So we've hired a consultant to help try to get regional funding in parallel. Again, we couldn't do this before we had the rights back. So we're looking for regional funding, which we think might give us some additional revenue beyond the patients who are paying out of pocket right now.

In Germany, I will likely want to open another site somewhere in Germany. But also importantly, it is again, once again, trying to get referrals of two hospitals and working more closely with the hospitals from a budgeting perspective. Because those hospitals do have the ability to get reimbursed via something called a [steady] scheme, but they have to do it every year. They have to request the funds.

Now that we have rights back, it will be a lot easier to work directly with those hospitals and make -- and assist them in terms of making those requests, giving them the data they need. And again, as I mentioned before, another important factor there will be trying to increase the referrals through the treating centers, which is really key in generating revenue here. And that's something that really was occurring in the past.

In the Netherlands, we're going to work towards doing a submission in terms of reimbursement there as well, national reimbursement. We're going to try to get started in Austria and Switzerland, primarily because it's a lot easier to get started when we had German-speaking or hire some German-speaking personnel in Germany. And it's easier to cover Austria and Switzerland with those personnel.

And then longer term, we're going to look towards expanding to Italy and other markets in Europe. So that's kind of the near term, 18-month plan I just outlined in terms of Germany, the UK, the Netherlands, expanding totally into the DACH region and trying to get those humming and then looking towards other regions in Europe.

(Operator Instructions) Okay, there appears to be no more questions. I will now hand back over to Gerard for any closing remarks.

Okay. Well, I want to thank you all again for your interest and support. We look forward to giving future updates as the year progresses. Have a great day, everyone.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.