Delcath Systems Inc (DCTH) 2024 Q1 法說會逐字稿

Good day, and welcome to the Delcath Systems first-quarter fiscal year 2024 financial results conference call. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to David Hoffman, Delcath General Counsel. Please go ahead.

Thank you. And once again, welcome to Delcath Systems 2024 first-quarter earnings and business highlights 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, Chief Medical Officer; and Martha Rook, 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 expected 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.

Thank you, everyone, for joining today. This is the first quarter Delcath is reporting US revenue, a significant milestone for the company. In the first quarter, revenue from our sales of HEPZATO was $2 million and for CHEMOSAT, $1.1 million. Given the March start for three of the four US centers active in the first quarter and the temporary use of product sampling for some of the initial proctored cases, the $2 million in US revenue was predominantly generated by treatments at Moffitt with the balance of the other three centers activated in the first quarter starting to generate consistent revenue in the second quarter.

As we have discussed in prior calls, the pace of revenue growth in the short to medium term will be determined by the rate at which we can train and activate new treating centers. Since our launch in January and in the seven weeks since our recent fourth-quarter call, we have made steady progress in expanding the number of centers we are engaged with and actively training.

We ended the first quarter with four active sites: Moffitt Cancer Center, Stanford University Cancer Center, Thomas Jefferson University, and the University of Wisconsin. As of today, there are six active treating centers with the University of Tennessee and the UCLA Cancer Center having recently conducted their first commercial treatments. A further five centers have completed the necessary steps to conduct their first commercial treatment under the guidance of a proctor once hospital formulary committee approvals is obtained and are in the process of identifying and scheduling the first patients for treatment with HEPZATO.

In total, there are 11 centers, an increase of 2 from our last call, currently accepting patient referrals and listed on our health care setting locator. Beyond those 11 centers, another 7 centers currently have preceptorships scheduled or partway through the preceptorship training.

To date, we have had over 100 perfusionists, anesthesiologists, and interventional radiologists attend preceptorships representing over 20 institutions in the US, with some institutions sending multiple healthcare providers for the same specialty. As a reminder, the entire process from initially scheduling a preceptorship through activation can take approximately three months. Given the significant level of commitment required from health care providers to become fully trained and certified under the REMS program, we believe all the health care providers and the cancer centers involved to date intend to incorporate HEPZATO as a core part of their treatment regime for metastatic uveal melanoma patients.

We continue to expand the number of centers with which we are engaging. With over 30 centers now somewhere in the process from preliminary discussions regarding the steps required to become a treating center to actively treating patients. There has been a definite increase in interest, partially due to physicians to treating centers sharing their experience with physicians at other centers, which are not yet involved. There's certainly a component of what I might characterize as informal and independent peer-to-peer engagement occurring.

In addition, increased interest can also be attributed to our permanent and product-specific J-Code becoming effective on April 1. While we are aware that hospitals have successfully been reimbursed for the treatment using miscellaneous C-Code prior to April 1, the establishment of the permanent J-Code has definitely simplify the reimbursement process and the willingness of formulary committees to approve the use of HEPZATO.

We believe we are on track to have 20 active centers by the end of 2024. The approximate anticipated pacing of center activation remains at 10 active centers by the end of the second quarter, 15 by the end of the third quarter, and 22 treating centers by year-end. Our projected average treatments per center remains at approximately one per month, ramping to our run rate of approximately 1.5 treatments per month by mid-year and then reaching a run rate of two treatments per month late in the fourth quarter.

It is important to note that given our expected ramp for both treatment per center volume and center activation, we should achieve $10 million in US quarterly revenue in 2024, which will likely result in $25 million of cash proceeds from the exercise of the final tranche of warrants issued as part of our March 2023 financing. Sandra will share additional details on our financials in a moment, but I want to highlight that our effective gross margin in the first quarter was approximately 60% despite the modest initial volume.

In addition to the significant commercial effort activity, we continue to support both internal and external efforts to add to the growing body of evidence that the PHP procedure is an important treatment options for patients with liver-dominant uveal melanoma as well as potentially other liver-dominant cancers. Recently, we announced the publication of results from the pivotal Phase 3 FOCUS study of HEPZATO in patients with unresectable metastatic uveal melanoma and the journals, Annals of Surgical Oncology.

As previously disclosed at ASCO, the publication reported a statistically significantly higher overall response rate of 36.3% for HEPZATO versus 5.5% from a meta-analysis of historical controls. Other efficacy endpoints include a 7% complete response rate with a 73.6% disease control rate.

In addition, results from the early randomized stage of the FOCUS trial, which was initiated as a randomized two-armed trial but completed as a single-arm study, will be presented at a poster session at the upcoming ASCO Annual Meeting in Chicago. Later in the year, we expect also to have published an expanded analysis of various patient subpopulations in a peer-reviewed journal.

Liver dominant metastatic disease is a significant therapeutic challenge in the area of high unmet medical need for many solid tumor types. To support additional clinical development in some of these areas, it is important for the company to build a strong commercial foundation in metastatic uveal melanoma in the US, both for purposes of funding trials as well as creating a network of training centers. We are well on our way to accomplishing this.

While the interest level from -- (multiple speakers). You're unable to hear me?

Yeah, you're audible. Please go ahead. Yes, we can hear you now.

Can you hear me now? Hello?

Yeah.

Yes, Gerard, we can hear you. You can go ahead.

And when did I drop off? Will you tell me when I dropped off?

We couldn't hear you for about twenty seconds.

Hey, Sandra, do you know where I dropped off?

I heard you the whole time, but if you want to start back around the ASCO in Chicago, perhaps.

Okay. So you've heard me the whole time, all right.

I did.

Always some technical difficulties somewhere. So let me rewind here and apologies to the listening audience here. All right, I'm just going to pick up with, later in the year, we expect expanded analyses of various patient subpopulations, our little FOCUS study, to be published in a peer-reviewed journal.

Liver-dominant metastatic disease is a significant therapeutic challenge and an area of high unmet medical need for many solid tumor types. To support additional clinical development in some of these areas, it is important for the company to build a strong commercial foundation in metastatic uveal melanoma in the US, both for purposes of funding trials as well as creating a network of treating centers. We are well on our way to accomplishing this.

While the interest level for interventional radiologists and investigating the use of HEPZATO and CHEMOSAT to treat other liver-dominant cancers has been high for many years, this has not necessarily been the case for oncologists outside of metastatic uveal melanoma. The launch of HEPZATO in major cancer centers is increasing the level of interest from a broader set of oncologists to study HEPZATO use in treating other cancers such as colorectal, intrahepatic cholangiocarcinoma, and breast cancer.

As mentioned in the previous quarterly update call, we plan to initiate one or more clinical trials in HEPZATO and other tumor types within approximately a year, and we'll provide further updates on those activities later this year. The CHOPIN trial, which is evaluating the effect of sequencing immunotherapy with CHEMOSAT liver-directed therapy is expected to be fully enrolled by the end of 2024.

As CHOPIN is an investigator-initiated trial, we do not control the timing of data release. However, our understanding is that the study results, including the primary endpoint, are still planned to be presented at a major oncology conference in the second quarter of 2025.

In summary, the company continues to activate centers consistent with our center activation guidance. In addition, while the treatment of metastatic uveal melanoma patients will support significant growth for the foreseeable future, we are planning to pursue additional indications given the tremendous unmet need for patients suffering from cancer of the liver. I will now hand the call over to Sandra to share some details on our financial position. Sandra.

Thank you, Gerard. We ended Q1 with $27.2 million in cash and investments and cash used in operations were approximately $9.6 million in the first quarter. The change in cash from year end as to the use of cash required primarily for launch and center activation, offset by the 2024 private placement financing of $7 million.

It is important to note that this financing was supported entirely by Delcath Senior Executive Board members and existing institutional investors. We believe that our current financial resources are adequate to fund operations until the company achieves $10 million in US quarterly revenue, which would likely trigger a warrant exercise resulting in $25 million in proceeds. This $25 million should be sufficient to fund the company until we become cash flow-positive.

As Gerard previously mentioned, we remain confident we will achieve $10 million in quarterly revenue in the US no later than the fourth quarter of this year. Revenue from our sales of HEPZATO were $2 million and CHEMOSAT was $1.1 million for the three months ended March 31, 2024, compared to $0.6 million for CHEMOSAT during the same period in 2023.

Gross margins were 71% in the first quarter of launch. Cost of goods sold did include a positive adjustment for standard cost revaluation, a non-recurring item. Without the adjustment, gross margins would have been approximately 60%.

For the three months ended March 31, 2024, research and development expenses were $3.7 million compared to $4.7 million for the three months ended and at March 31, 2023. The changing R&D expense is primarily due to a decrease in clinical trial activities offset by an increase in personnel-related expenses.

For the three months ended March 31, 2024, compared to the same period in 2023, selling, general, and administrative expenses increased to $8.8 million from $4.2 million. The increase is due to activities to prepare for commercial launch, including marketing-related expenses and additional personnel in the commercial team. Thank you. Back to you.

Moderator, can we now look to questions?

(Operator Instructions) Bill Maughan, Canaccord Genuity.

Good morning and congrats on the strong early launch. I have three quick questions for you. So first one, looking -- just thinking through realized revenue per kit, I know you've said before that you're selling direct, so you expect there to not be a gross margin. So just quickly looking at the math here, does your revenue for first quarter reflect 11 kits sold? Is it that simple math?

Second question is on your EU revenue. Obviously, in absolute terms, it was a modest tick-up. But in percentage terms, it was a very noticeable tick-up in first quarter. So is that sustainable growth we're seeing or just some quarter-to-quarter variability? And then finally, at scale, what do you expect gross margins to approach? Thank you.

All right, let's kick those off one at a time. 11 kits that your math -- yeah, you're pretty good at math. There is -- we're shipping direct so it's a fairly simple analysis given our pricing is at $182,500.

Second question, in terms of Europe, we actually finally got a rep in Germany established, so that's -- and she's been out there for about a year and change, which is really finally getting some traction. Germany is the only market in Europe where there is really a consistent form of reimbursement. It does that e-scheme where the hospital has to actually budget for the project -- for the use of the product and estimate how much were used in the prior year. So it's taken this rep a good year to get things built, get in front of the hospital and say, hey, you need to budget for this. So I think we'll continue to see a fair amount of growth out of Germany, given, I think, probably, at best, we have maybe 15% penetration. So I think there's a way to go -- ways to go there as well.

And lastly, in terms of gross margins, I think that at peak revenue, I would expect we should be closing in on perhaps close to 90% gross margins. It'll take us a good year and change probably get to that point. But I think that'll probably be peak in terms of gross margins.

Okay. And quick follow-up as I was thinking through that answer, the $10 million in the quarter that triggers the next tranche, is that just US upside or is that worldwide revenue?

Just US.

Okay, thank you.

Marie Thibault, BTIG.

Hi, good morning, Gerard and Sandra, and congrats on a really strong start to your commercialization here. Wanted to ask a little bit about the patient profile of treated patients you're seeing so far. How are they doing? Are they coming back for additional cycles? Are you seeing any first-line treatments? Just any characterization of the first 11 treatments, if you can.

Yeah, I think, since, again, it's fairly low, it will be hard to give specific trends, but, Kevin, why don't you comment on the variety that we've been seeing?

Sure, Gerard, thank you. Marie, we've seen -- we've kind of seen them all to this point with 11 treatments. We do have first-line treatments as first-line patients as well as patients that have received other treatments.

When you launch a cancer drug, they just don't stop -- the patients just don't stop the current treatments. They go through their current line of treatment. And then, when they progress off that, they go to the next one. And so we're seeing a combination right now of first-line and second-, third-line patients.

And I would add right now we're seeing patients who are coming off of tebe, coming off IPI+NIVO. And then yes, we are getting recurrent patients. They are -- we have seen no trend of patients dropping off early in terms of not coming back for retreatment. However, early days, so can't quite take that to the bank, but encouraging in that patients are coming back for retreatment.

Yeah, encouraging indeed. Okay. And then I wanted to ask about reimbursement. Are you seeing any pushback or any hurdles to getting those payments? It doesn't look like it so far. We just want to hear how that's trending. And then, with the J-Code and TPT status going into effect in April, what you've noticed so far here in your second quarter is customers are having success with that J-Code as everything's going smoothly. Thanks for taking the questions.

Yeah, obviously, we're not sitting there submitting for reimbursement. The hospitals are -- we know stuff anecdotally, and I'll ask Kevin to comment on that for a moment. I will say, though, the hospitals are paying us. We are getting checks from them. So that's encouraging from our end. But, Kevin, why don't you talk a little bit about the change you've seen in front of the various formulary and finance committees since the J-Code has been in place?

I'll echo Gerard's view from his statement. We are aware that the codes are the claims from the first quarter, which we're using temporary codes or miscellaneous codes, were accepted and were paid. That's great news.

And when you look at the J-Code, it has just simplified matters for the hospital, for their claim. So for the hospitals that are open and have patients that are treating, the claims have been much easier.

And I think the biggest thing for us through this launch has been the formulary process. It's a much easier process and much more predictable for the hospitals that we are attempting to open right now. So the formulary process has been much smoother.

J-Code, and the HCPCS approval, as well as the pass-through approval has streamlined things and it's just made the process for the hospitals much more predictable. There's a fee schedule, they can look at it, they can understand -- all of those things -- and they can make their financial decisions in the revenue. Predictability in the future, much easier and it's really helping us as we go through our hospital activation.

Thank you, Kevin.

You're welcome.

Sudan Loganathan, Stephens.

Yes, thank you, Gerard and Sandra for taking our questions. Just a real quick first question, curious if the physicians are seeing patients that have been treated on KIMMTRAK or coming on first line, and then even how the physicians are viewing the treatment landscape now that HEPZATO KIT is available and launching at this point and as the treatments get -- also develops in the coming years.

And then secondly, whenever you are looking at future developments in R&D, is that something that will be funded through the outcomes of the revenues of HEPZATO KIT or is there -- just wanted to see your views on that for future R&D development and how you support that?

Sure. First off, Sudan, welcome to the fold. Appreciate the coverage.

Thank you.

In terms of are we seeing patients post-KIMMTRAK? I think the answer is yes. I can't tell you how many, but we saw patients post-KIMMTRAK in the clinical trial. And we've seen patients post-KIMMTRAK in the commercial setting.

Given HIPAA, et cetera, we can't say, hey, what's this patient been on? But we do have someone from the company in every treatment and they -- occasionally, the physician will share with the rep or the clinical support specialist the history of the patient. So the answer is yes on that.

In terms of how the treatment regime and how people view the landscape, how that's changing. I think that varies by doc. Some of them are trying to figure out, do they use liver-directed first with us approved now, with a specific product approved, or do they go with systemic first, and I think there's a variety of opinions out there. So I think it varies dramatically.

But these patients, unfortunately for the patients, all progress. It's very rare you get somebody who has a complete response that only lasts for a decade or so. And unfortunately, for the patients, companies such as us and Immunocore, for their subset of patients, probably will have a shot at most patients in terms of line of treatment.

That's great. And then secondly, just in terms of your R&D, future plan, yeah. (technical difficulty)

Oh, yeah. How are we going to fund that is the question, huh.

Yeah.

The hope and plan is to fund it off the P&L. I don't want to be a serial fundraiser. I think most people who have spoken to me, no, I'm sensitive to dilution as any investor. Now, if the stock works dramatically and there's tremendous opportunity in other indications, yeah, we'll never say never. But our preference is not to have to raise a lot of equity capital to fund this, to do it off the P&L.

And we think that's feasible. It really depends on how much share penetration we get in this indication. But if we get a meaningful penetration into it, I think the capital should be there to fund a robust development program.

Got you. Thank you and again, congrats on the great launch here.

Thank you.

Yale Jen, Laidlaw & Company.

Good morning, and thanks for taking the question, and my congrats on the ground launch as well. Just quick few -- three questions here. First one is that given the first-quarter revenue of treatment mostly, predominantly from Moffitt and the sale -- 11 cases, should we consider Moffitt still be a dominant -- possibly, so dominantly going forward for the remaining of the year? And -- okay, so that's first question.

Yeah, I think, Moffitt, probably going to be something in the run-rate basis if they continued as they are to date, something 40 plus a year; again, if they continue as they have to date. There will be other centers that, although we hope for more, may only do one every four or five weeks. And that's kind of where the average comes from that I've given in terms of guidance. But yeah, Moffitt's probably going to be one of a handful of players that are doing, regularly doing one a week if we fast forward in the year.

Okay, great. That's very helpful. And the second question is that just -- follow up the first one, I just wanted to know that in terms of European revenue, would that be -- I mean, this quarter's revenue, would that be something we should sort of base upon -- base moving forward or, again, maybe just a fracture or just a preparation for the other (multiple speakers)?

Yeah, no, I think we'll continue to see some -- I don't want to say growth at that level because even though it's a small number, that type of growth could compound rather quickly. But I think we'll -- you'll see growth primarily driven by Germany.

But I think this level that we're seeing now is more of a realistic level than we had in the past. For reasons it doesn't really matter to get into, the territories are fairly empty. And right now, we only have one rep in all of Europe and she's in Germany, hiring somebody to start in the UK shortly with the mindset reimbursement might be coming there in the next year or change. But yeah, I think this is a good baseline to work from, Yale.

Okay, great. Maybe the last question is that one of the important piece of your growth is getting more general oncologists, the referral and approaching them. So any update in terms of the current status and what you anticipate over the next 12 months in terms of these endeavors? And thanks.

Yeah, if I kind of cleared the commercial efforts, it would be, first, let's get these sites open. And then, let's talk to the oncologists at those sites and make sure they're referring their own patients to the -- for treatment. And that's probably a larger part of the activity of our oncology reps, the reps who are meant to call on oncologists and try to get referrals going. It's probably been focused, to a large extent, on the sites that were opened or pending opening and they've been trained.

We have been successful in getting referrals. We've gotten patients referred to Moffitt's one, for example, but we've gotten patients referred to other sites. I think 6 to 12 months from now, getting referrals going will become increasingly core -- critical and probably the primary driver of growth. But it's early days right now because our focus more is on opening the centers and then, secondarily, let's get the patients at those centers treated.

Okay, great. Thanks a lot again and congrats on the progress.

Thank you.

Sean Lee, H.C. Wainwright.

Yeah, good morning, guys. Congrats on a solid quarter and thanks for taking my questions. I just have two quick ones. Firstly, you mentioned 55 is your initial goal. I was wondering whether it's -- how easy is it to increase the rate that you are getting these sites active? And also, what percentage of the US patient base do you expect these 50 sites will be able to cover?

Okay, how many sites did you say? I'm sorry, did you say 50 sites?

I believe you said you're -- you previously said that your initial goal was the 50 sites in the US but --

Yeah, I think -- yeah, the number is probably going to be 25 to 35 is our current kind of window that we're thinking about. And of course, claiming full license can change that significantly if we believe it's worthwhile to go beyond that number.

The 25 to 35 treating centers, if you looked at just the patients being treated there, it's probably half or maybe a bit under half, but most -- a lot of patients get a single consult or two consults at one of those sites and then go and have their local oncologist kind of manage their treatment based on what they've learned in the consult. We will need to do get a bite at -- the full market, we will need to be able to generate referral patterns. But again, I think that's quite doable given that with payer data nowadays, you know who has these patients. So we'll be very focused on that.

And as I mentioned before, that importance of that growth driver will really come to the fore probably sometime next year. Right now, let's get the sites open and get the patient treated. They're already being seen by the oncologist at that site.

I see. That's so very helpful, thanks. My second question is on reimbursement. I was wondering, would you be needing to seek additional reimbursement from private payers or is that not a big portion of the overall patient population?

No, it's a significant portion of the patient population. I think probably a little bit over half based on our research. But what happens -- you generally don't get medical policy developed for an ultra, ultra-orphan product such as this. For the payers, depending on the size of the payer and it's highly fragmented, some of them might not see a claim for every two years. Another one might see one, two a year. But it's not going to be the volume or the level that it's going to take to need to develop medical policy.

And generally, we have not seen any pushback from any commercial payers. And based on my own experience, I don't expect to see that for this ultra-orphan indication. It's on label. There really -- there's very little options for these patients. The only other option for a subset of these patients, and they're not necessarily competitive, is tebentafusp and we're essentially in the same ballpark as they are in terms of pricing.

Well, thanks for that. And that's all the questions I have.

Thank you.

Okay, I guess that's it for the question --

Mr. Michel --

Go ahead. So I'll just close up here. So thank you, everybody, for your time today. I look forward to giving another update in August. And until then, enjoy your summer. Take care.

Thank you. The conference call has now concluded. Thank you for attending today's presentation.