Start Time: 08:30 January 1, 0000 9:00 AM ET
Delcath Systems, Inc. (NASDAQ:DCTH)
Q3 2022 Earnings Conference Call
November 08, 2022, 08:30 AM ET
Company Participants
Gerard Michel – CEO
Anthony Dias – VP of Finance
Johnny John – VP, Clinical Development & Medical Affairs
Kevin Muir – VP, Commercial Operations
David Hoffman – General Counsel, Corporate Secretary and Chief Compliance Officer
Conference Call Participants
Sam Eiber – BTIG
Scott Henry – ROTH Capital
Yale Jen – Laidlaw & Company
Bill Maughan – Canaccord Genuity
Operator
Good day, and welcome to the Delcath Systems Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note today’s event is being recorded.
I would now like to turn the conference over to David Hoffman, Delcath’s General Counsel. Please go ahead.
David Hoffman
Thank you. And once again welcome to Delcath Systems third 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; 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 statement described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurance that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties.
For a discussion of such risks and uncertainties which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see Risk Factors detailed in the company’s annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10-Q, as well as in other reports that the company files from time-to-time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events or circumstances.
Now, I would like to turn the call over to Gerard Michel. Gerard, please proceed.
Gerard Michel
Thank you everyone for joining today. Delcath has had a productive third quarter of 2022 for both HEPZATO KIT, the company’s product development candidate in the United States; and CHEMOSAT, the company’s marketed product in Europe.
In the U.S., we have two centers enrolled and currently treating patients under the Expanded Access Program, or EAP, with a third center enrolled and pending training. In addition, four other sites are in various stages of the startup process and these include sites that were not involved in the FOCUS trial.
We are on track to file the HEPZATO KIT through resubmission of the NDA to FDA by the end of December. We expect that within 30 days after the submission, the FDA will confirm receipt of the submission and, if they agree the resubmission is sufficiently complete to warrant review, establish a PDUFA date six months from the submission date.
As we previously reported, in the third quarter, a retrospective analysis of patients treated with CHEMOSAT at three European centers, one in the Netherlands and two in Germany between February 2014 to December 2019, was published. The analysis involved 212 PHP procedures on 101 patients.
The publication reported an overall response rate of 59.4% and a disease control rate of 89.1%. The safety analysis showed mostly grade 1/2 and self-limiting toxicity consistent with previous reports on PHP. This continues to add a path to the growing body of published research, documenting the efficacy and safety of our CHEMOSAT system in the European commercial center.
Researchers from Leiden University Medical Center in the Netherlands are making rapid progress on the randomized Phase 2 portion of the CHOPIN trial with approximately 50% of the planned 76 patients enrolled. Recall the goal of this combined Phase 1b/randomized Phase 2 trial is to study the safety and potential synergistic effects of systemic immunotherapy ipilimumab and nivolumab, or IPI+NIVO, when combined with Delcath’s proprietary liver-targeted treatment in metastatic uveal melanoma patients.
We look forward to the completion of enrollment into this trial possibly as early as late next year given the pace of recruitment, and to provide updates on the progress of the seven patients who completed the Phase 1b portion of the trial.
At ASCO earlier this year, investigators reported an OR of 85.7% and a DCR of 100%. We expect updates on the previous and reported median progression free survival of 22.4 months as the data matures. If similar results are seen in the current larger randomized Phase 2 portion of the trial and the combination continues to be well tolerated, it could represent a significant improvement over current standard of care, including PHP alone.
While the results will be important in terms of the treatment of metastatic uveal melanoma patients, they could have relevance across multiple tumor types where hepatic metastases are present and immunotherapy is an accepted treatment.
Turning to the commercial progress of CHEMOSAT in Europe, the third quarter was the second full quarter after we resumed direct responsibility for sales, marketing and distribution activities, which occurred on March 1, 2022. Excluding the Netherlands where most patients are now being treated in the CHOPIN trial, our units increased 41% over the same quarter last year and increased 26% versus the second quarter.
We will continue to operate the business on a cash flow breakeven basis for the time being. But we’ll make several key hires in Germany and engage with consultants to support submissions for national coverage. These submissions are reliant on the publication of the FOCUS trial results, which will now occur early next year. The first submission for national coverage will be in the UK.
In late October, we agreed with medac, the previous distributor of CHEMOSAT in UK and EU, on terms to settle the party’s ongoing dispute over the termination of a distribution agreement. The parties will reach a definitive settlement agreement before the end of 2022. And with this dispute behind us and the planned upcoming publication of FOCUS trial results, we are confident that Europe will become a meaningful revenue contributor to the business with EU revenues likely growing along with U.S. commercial launch of HEPZATO if approved next year.
Also in October, we successfully completed a Notified Body audit to recertify our Queensbury, New York manufacturing facility for CHEMOSAT under the European Medical Device Regulation, or MDR. While recertification even under the new MDR regulation has become routine for the company, it is important to keep in mind that our team in Queensbury has been undergoing audits for years, and I’m confident that we are well prepared for a preapproval inspection from the FDA.
Finally, we continue to lay the foundation for the planned commercialization of HEPZATO. During the third quarter, we held an advisory board in the United States with interventional radiologists and [indiscernible] to gain further insight into the way treating facilities were utilized with HEPZATO, if approved within their continuum of care.
We have solidified our market access plans and are confident that for Medicare patients, HEPZATO will primarily be reimbursed using pass-through status, initially with a miscellaneous ZE code before being assigned our unique ZE code. We are carefully watching Immunocore’s progress and noticed that in their first full quarter, they obtained a unique ZE code and booked $20 million in revenue from U.S. KIMMTRAK sales, despite being restricted to less than 50% of the patient population given their mechanism of action.
Based on publicly available information, in the U.S., KIMMTRAK is priced at a level which equates to approximately $925,000 per patient based on the average duration of therapy reported for their pivotal trial. An equivalent price for the HEPZATO KIT would be somewhere between $150,000 to $225,000 per kit, depending upon whether the price is based on a nine-month duration of therapy or six kits, or four HEPZATO treatments over six months, the mean number of treatments from the FOCUS trial.
While it is premature to finalize the price, this dynamic is important for investors to understand as we approach commercialization next year. We believe that the ultra-orphan pricing dynamic combined with a very focused set of treating centers we will support and the growing number of EAP sites will translate into rapid revenue growth, a short runway to becoming cash flow positive and very strong operating margins. Obviously, there is much to get done between now and launch, the commercial potential for this first indication, and the value it represents is clear.
I look forward to taking questions. But first, we’ll turn the call over to Tony to review the financials. Tony?
Anthony Dias
Thank you, Gerard. Product revenues for the three months ended September 30, 2022 was approximately $906,000 compared to $395,000 for the prior quarter from the sales of CHEMOSAT in Europe.
Revenues increased 129% over the same period last year, primarily because we’re now booking all European revenue after the termination of the medac distribution agreement versus a royalty and a revenue share.
Research and development expenses for the quarter increased to $4 million compared to $3 million in the prior quarter, primarily due to higher professional service costs relating to the preparation for our NDA submission by the end of this year.
Selling, general and administrative expenses for the quarter were approximately 4.5 million compared to 4 million in the prior year quarter. The increase was primarily due to recording an estimated 1.2 million for the settlement of the medac litigation, offset by lower share-based compensation expense of $800,000.
Other expenses increased $730,000 from $420,000 due to a full quarter of interest expense and amortization related to our debt financing during the third quarter of 2022. The company recorded a net loss for the three months ended September 30, 2022 of 8.5 million, $0.92 per share basic and diluted compared to a net loss of 7.1 million, $0.94 per share basic and diluted for the same period in 2021.
On September 30, 2022, the company had cash, cash equivalents and restricted cash totaling 14 million as compared to cash, cash equivalents and restricted cash totaling 27 million on December 31, 2021. During the three months ended September 30, 2022 and September 30, 2021, we used 5.2 million and 4.9 million, respectively, of cash in our operating activities.
On July 20, 2022, we closed a private placement for $5 million issuance and sale of 690,954 shares of common stock and 566,751 pre-funded warrants to purchase common stock to certain investors. Each share of common stock was sold at a price per share of $3.98 and the pre-funded warrants were sold at a price of $3.97 pre-funded warrant.
The pre-funded warrants have an exercise price of a $0.01 per share of common stock and are immediately exercisable. Delcath received gross proceeds from the Private Placement of approximately $5 million before deducting offering expenses.
That concludes my financial remarks. I’ll ask the operator to open the phone lines for Q&A. Can you please check for questions?
Question-and-Answer Session
Operator
Yes, sir. Absolutely. We will now begin the question-and-answer session. [Operator Instructions]. Today’s first question comes from Marie Thibault with BTIG. Please go ahead.
Sam Eiber
Hi. Good morning, everyone. This is Sam Eiber on for Marie. Thanks for taking the questions here. Maybe if I can ask with my first question here any updates or color on maybe what’s happening behind the scenes here at the CROs? Maybe what’s left that’s needed before getting this resubmission before the end of the year? Thanks.
Gerard Michel
Sure. The primary thing at this point is medical writing. We have about 98% of the data from our key CRO, a little bit more to get out of them. But really right now, the gating item is medical writing. And I would say we’re well down the path. It will be towards the very end of December. If it slips, it will slip slightly, a week or so. But I’m confident we’re very close to getting it filed, and I don’t see any major issues in getting it done at this point.
Sam Eiber
Okay, very good. Thanks for answering that. And then maybe on the EAP sites here, I might have missed this in the prepared remarks, but maybe how many treatments have been done or scheduled at this point so far? And maybe how are some of those early learnings there, informing maybe the referral pathway for when you potentially do get FDA approval here?
Gerard Michel
Johnny, can you answer that in terms of how many treatments we’ve done to date?
Johnny John
Sure, Gerard. So to date, we have seven treatments. There is actually a treatment occurring today at the Moffitt Cancer Center, so that would be the eighth. In terms of your question on learnings, we’re using the learnings from our European experience and the FOCUS trial in the training and the conduct of PHP. So it’s still a little bit early. We’re carefully monitoring the safety of these patients and we don’t see any concerns with the adverse events so far that have been reported.
Gerard Michel
Kevin, it might be worth you noting what you’ve noticed some really interesting referral patterns going into market I think.
Kevin Muir
Yes. We’ve seen some patients being referred to Moffitt Cancer Center and using HEPZATO as a first line treatment in the theory being that it stabilized the disease and preserve liver function before treatment with KIMMTRAK. So it’s an interesting dynamic that we’ve seen here of kind of sequencing these treatments in combination to extend, better preserve the liver function in anticipation of treating with KIMMTRAK or tebentafusp.
Gerard Michel
Sam, what’s interesting with this concept, although obvious, it’s not something that we’ve driven at this point, because obviously we’re not approved. But this seems to be — it’s one specific doctor, but he was a very active — I believe active in the trial and he is now steering his [indiscernible] too at this point, if I have it correct. But he’s steering his HLA — the patients with the appropriate HLA phenotype to Moffitt to get treated first, and then move on to KIMMTRAK. So as I’ve said before, I don’t view that KIMMTRAK as a competitor. I think it’s a win-win for patients and that they’re both out there and doctors will figure out a way to use them best in a combined fashion.
Sam Eiber
It makes sense. Thanks for taking the questions.
Operator
Thank you. And our next question today comes from Scott Henry of ROTH Capital. Please go ahead.
Scott Henry
Thank you and good morning. I guess just starting on the FDA process. First, do you think there’s any risk to it being a six-month review? It would seem likely given the indication. And any thoughts on whether they’d be a panel as well as do you have any planned meetings prior to the filing? Thank you.
Gerard Michel
Yes. In terms of risk of it being a six-month review, we’re trying to make sure the package is as complete as possible. And quite frankly, we’ve been focused on making it very easy to navigate. If you take everything given to you as some of the writers, especially the non-clinical writers give it to you it can be a barrier to navigate. So we’re trying to make it — and there is a fair amount you can do as easy as possible to navigate and review. The second thing in our favor is that’s not a particularly large filing. The drug has a long history behind it admittedly, but it’s not a very large filing being a single trial that we’re submitting. But the FDA, we all know they are overworked and they have kicked some things down the road. So we’re hopeful and we’re doing everything we can on our end to avoid that. In terms of any meetings scheduled with them, none at this particular time. And in terms of advisory, I think it’s probably as likely as not, but we will, of course, be prepping for it as if we have 100% certainty that it will happen. Obviously, there’ll never be enough time to prepare if you wait for the notes.
Scott Henry
Okay, great. And then with regards to the European revenue trends, it’s certainly good sequential growth from 2Q to 3Q. Should we expect continued sequential growth or will it be kind of lumpy?
Gerard Michel
Yes. These are still fairly small numbers, so by definition when you have small numbers, it can be very lumpy at times. Most of this revenue is coming from Germany and the UK. In the UK, we have a rep. We hired one little bit before getting the product back, actually converted an MSL to a rep. And in Germany actually, it’s all referrals on their own. Basically the product’s been on autopilot for years. I think some of that growth is definitely due to our efforts. I think lumpiness is probably in order. I think what will really drive revenue in the short term is us hiring a rep in Germany to help improve referral patterns. As I mentioned a second ago, it’s all kind of on autopilot. And then longer term, what will really drive revenue will be UK reimbursements. We’ll probably focus on France at some point as the next market, given that the burden of disease when the CHOPIN trial winds down, we’ll get that back online. But I think the focus for us is the last dynamic. When that gets published, I think that will help a tremendous amount. But as is always the case, it’s a matter of getting reimbursement in each individual market. That will take a number of years, so steady growth but we need to get those reimbursement submissions in.
Scott Henry
Okay, great. And final question just with regards to the EAP sites, eight procedures seems like a pretty good number. I guess how should we think about the volume per se? Is this like a once a week type procedure? I guess, one, does it go — I imagine it goes up, volume goes up significantly once the product is approved. But just in general, how do you think about — and obviously they’re higher volume and lower volume — but on average, how do you think about volume per site as far as number of patients post approval based on what you’ve learned so far? Just any color there would be helpful. Thank you.
Gerard Michel
Yes, that’s a great question and we’ve been obviously focused on that ourselves. And I think it will vary, not surprisingly, dramatically by sites. I think an average of one a week per site is probably a reasonable effort after some period after launch. In terms of getting the sites to that level prior to launch, the EAP, we have to make an effort with our MSL. We have one right now to drive patients, inform clinicians about the sites and referral patterns in a compliant manner, of course. Could we get it up to one week prior to that? That probably would be a reach, given our current resources. But I think the demand is certainly there. We’re able to communicate it. But again, we’re being very careful as to how hard we hit the accelerator. I think I’ve said this before, just trying to harbinger our resources at the moment. But I think post launch, I think one a week is feasible. And I think we probably could get up to maybe as high as 20 sites over time within perhaps two years post launch. But we’re hopeful that we’ll have seven sites up and running at launch and probably well under one a week at that point, but moving towards that.
Scott Henry
Okay, great. That’s helpful. Thank you for taking the questions.
Operator
Thank you. And our next question today comes from Yale Jen with Laidlaw & Company. Please go ahead.
Yale Jen
Good morning and thanks for taking the questions. I remember that there’s a — for the FOCUS study in terms of the final survival data, that potentially could be available I believe by May of next year. If that’s the case, would you need to further submit that data to the agency for the approval or that’s not relevant for that process?
Gerard Michel
The primary endpoint of the trial is objective response rate. So there won’t be any need to update the data. But the data we’re submitting to the FDA is a slight update since the last update we’ve given publicly. And in regular filings if there’s an abstract or something that we publish with a further update that will go into the FDA, so they would be informed. But it wouldn’t be a significant update. So short answer is no. It’s not necessary — it’s not part of the process. But they will be kept informed.
Yale Jen
Okay, great. That’s very helpful. Just two more quick ones. First, housekeeping questions that based on the operating expenses, should we anticipate that going down further sequentially compared to the third quarter or the fourth quarter, how should we think about that?
Gerard Michel
I think you just assume they’re about on a steady state for the next two quarters.
Yale Jen
Okay, great. And maybe the last question here is that once the FDA accepts the application I assume a month after it was submitted, could you tell us the procedure or the process in terms of the FDA facility inspection and possible timeline of that, so that’s probably the last piece for the agency in the process to complete their work?
Gerard Michel
There’s no formal cut and dry. It’s always X. But I would expect four to six weeks prior to the PDUFA date, then scheduling a preapproval inspection.
Yale Jen
Okay, great. That’s very helpful and congrats on all the progress, and look forward you guys filing the things before end of the year.
Gerard Michel
Thank you.
Operator
Thank you. Our next question today comes from Bill Maughan with Canaccord Genuity. Please go ahead.
Bill Maughan
Hi. Good morning. Thanks for taking the question. So after a recent FDA advisory committee for another oncology product in a small orphan population, there’s a little bit more of a renewed focus on what the FDA is expecting to prove efficacy in a single arm trial in a small population. So I was just hoping you could kind of hit the highlights again. I know you’ve gone through it before, but in terms of what the FDA expected or required of your pivotal data, specifically as you can, what they needed to see to prove efficacy? And to the extent that you were able to compare that to results outside of your trial, the suitability of that comparison and how satisfied the FDA will be that HEPZATO is achieving the level of response needed for approval?
Gerard Michel
Sure. I think the first thing, it is a single arm trial and what the FDA stated to us when we were discussing with them turning this into a single arm trial is they wanted to see a clinically meaningful objective response, right, that had a clinically meaningful duration of response. Picking up that second one, duration response, because that’s the simplest, they asked us to do a follow up for at least six months to demonstrate that the duration of the response was meaningful. And what we actually had was 14-month duration and that is frankly hitting the ball out of the park in terms of durations. So we know we’re on very, very solid ground there. In terms of objective response rate, that’s a little harder to point to something specific, the FDA has said to us. Now we did tell them that we were powering the trial to show a meaningful improvement based on the meta-analysis of immuno-oncology agents. And we had — our lower bound needed to beat 8.3% on that. Our lower bound was 26.4%. So obviously, we’re well over that hurdle. Now the FDA might decide that that in itself isn’t adequate. And we, of course, will input in terms of evidence, in terms of a comparison. So we have other things we can pull upon, which some are quite obvious. I think the most compelling one is to look at OS. Our OS is fairly similar to what the [indiscernible] showed, and we had sicker patients in terms of we had first, second, third line patients. We have writing parameters that we can compare to and will, based on their published data that demonstrates that our patients were further along in the disease process, yet we came in within spitting distance of their overall OS. And then if we look at one year OS, they were I believe 77% — we were at 77%, excuse me, survival for a year. They were at 73%. So we have a number of things we can point to. We look at our older survival data, pre-KIMMTRAK, HEPZATO publication, we’re well, well over. Usually it’s not over. It’s well under a year in terms of survival. So that’s well in our favor as well. So I think with our overall OS, we said 19.25 last time we gave an update, but that was versus the BAC that [indiscernible] now we have 14.5 months. We have that delta. That OS continues to mature. So it’s definitely not the final number and it compares reasonably favorably with KIMMTRAK. We have the meta-analysis in terms of ORR, objective response rate, and our response rates are head to shoulders above anything else out there. Most response rates are single digit, and then the duration 14 months. So taken in totality, I think we’re in great shape. I think the last thing I would mention is although we haven’t published this, I have stated qualitatively our response rates or category of response rates, whether or not you are complete responder, a partial response or progressive disease, that all correlates with survival quite cleanly. So therefore, we can show that the response rate, the ORR is meaningful in terms of relapse, which isn’t always the case for all classes of therapy. So that’s an important component as well. I’ve thrown a lot at you. But I think we have a lot at our disposal. So I just want to make sure I was complete with that.
Bill Maughan
Absolutely. I appreciate the thorough answer. Thank you.
Operator
Thank you. And ladies and gentlemen, this concludes our question-and-answer session and today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.
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