Delcath Systems (DCTH) 8 Nov 242024 Q3 Earnings call transcript

Greetings, and welcome to the Delcath Systems' Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Hoffman, Delcath's General Counsel. Thank you.

You may begin.

Thank you. And once again, welcome to Delcath Systems' Third Quarter 2024 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 expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10-Q, as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances.

Our press release with our third quarter 2024 results is available on our website under the Investors section and includes additional details about our financial results.

Our website also has our latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website.

Now I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you, everyone, for joining us. This past quarter's results continued the strong growth we have seen since the launch of HEPZATO KIT this past January. I'm very encouraged by our progress with both center activations and treatment rates. In the third quarter, we reported $11.2 million in total revenue, including $10 million in U.S. revenue from HEPZATO and $1.2 million in European revenue from CHEMOSAT.

As we have previously reported, the $10 million in quarterly HEPZATO revenue was a critical milestone, triggering an approximately $25 million financing from warrant exercises. The key drivers of our revenue ramp in the U.S. are center activation and the average number of treatments per center.

In terms of center activation, we finished the quarter with 11 active centers with an additional center becoming active in October. And as of today, we have 12 active centers. In the third quarter, we activated Massachusetts General Hospital, Ohio State, HonorHealth, and University of California, San Diego. In early October, we activated Duke, and we have another center scheduled to treat their first patient in the next 2 weeks. There are a further 5 centers, which recently fully completed preceptorships and have started screening for their first patient. We should exit the year with at least 15 treating centers and sometime in the first quarter have 20 treating centers.

Our 2025 goal is 30 centers by the end of the year.

Importantly, and to reiterate from prior calls, we haven't seen any center in the activation process halt the process. I'm very proud of our progress with center activations, and I appreciate our investors' patience and understanding regarding the complexity of the process and the inherent variability in the time required to activate a center.

Now I'd like to delve into a second important metric, average treatments per center.

Our average treatment rate per month post activation averaged just under 2 treatments per month in the third quarter.

Given the pattern of many of the new centers having low volumes for the first few months, we expect this average treatment rate to stay flat for the foreseeable future as we continue to add new centers. The one exception may be this coming quarter, the first holiday season since the launch of HEPZATO KIT. Based on conversations with centers, we expect that due to hospital schedules and patient preferences, there will be effectively 1.5 to 2 weeks fewer treatment days in the fourth quarter, leading to a lower treatment average over the entire quarter. We shouldn't lose treatments, but the time frame between treatments will likely be extended for a subset of the patients. I'd like now to turn to our CHEMOSAT sales in Europe.

While revenue was roughly flat versus the prior quarter, it did increase over 100% over the same time period last year.

Going forward, we expect modest but consistent year-on-year growth.

As previously mentioned, given the relatively low price point in Europe, we have chosen to manage the EU market on a roughly breakeven basis. Recall that we believe that the near to midterm value of our efforts in Europe is to identify and utilize sites for clinical trials and as a continuing source of publications, both in metastatic uveal melanoma and other tumor types, both of which will support EU and U.S. adoption. CHEMOSAT has a broader pan-solid tumor device label and some of our European centers have over a decade's worth of experience with CHEMOSAT.

We are early in the process of identifying and opening commercial and trial centers in France, Italy, and Spain, expanding beyond our current major treating centers in the U.K., Germany, and The Netherlands. We believe it is important to have multiple treating sites in all major European markets.

In addition to the significant commercial activity, we continue to support both internal and external efforts to add to a growing body of evidence that the percutaneous hepatic perfusion procedure enabled by our hepatic delivery system, whether utilizing melphalan delivered by Delcath CHEMOSAT or the HEPZATO KIT is an important treatment option for patients with liver-dominant uveal melanoma as well as potentially other liver-dominant cancers.

As detailed in today's release, in the third quarter, there were numerous presentations and publications based on both the FOCUS study and a number of retrospective studies from a variety of independent investigators. A subgroup analysis from the FOCUS trial presented at ESMO 2024 demonstrated similar outcomes in overall survival, overall response rate, and progression-free survival between patients with and without extrahepatic lesions, or based on prior therapy.

In addition, tumor responses were observed throughout the entire treatment period, supporting the strategy to continue treatment until best response is achieved. These are very important factors in both choice of therapy and duration of treatment. A 30-patient study was published in the Annals of Surgical Oncology by researchers at Moffitt Cancer Center in Tampa, Florida. This study reported that HEPZATO used in first or second-line therapy for metastatic uveal melanoma provided better disease control in the liver and improved progression-free survival compared to both immunotherapy and other liver-directed therapies. A 167-patient study published in the Journal of Therapeutic Advances in Medical Oncology by investigators from the University of Tubingen in Germany reported that first-line, liver-directing therapies, including CHEMOSAT, significantly improved the melanoma-specific survival in patients with liver metastases from uveal melanoma compared to first-line systemic therapies. We believe that this is an important finding because in cancers where the liver is the life-limiting organ, specifically metastatic uveal melanoma, liver-directed therapy may be a more appropriate option than systemic therapy.

Finally, a 33-patient study was published in the ESMO Journal of Gastrointestinal Oncology by researchers from the University Hospital of Leipzig. The study, which included previously treated patients with unresectable intrahepatic metastases from 7 different cancer types, reported a hepatic disease control rate of 91% with 6 patients, or over 18%, achieving complete response in the liver. Median hepatic progression-free survival was 52 weeks across all patients. This is another strong signal that our hepatic delivery system platform, whether CHEMOSAT or HEPZATO, may have a role in treating other cancers.

We continue to engage medical oncologists in the U.S. and EU to discuss integration of HEPZATO into treatment algorithms in combinations or sequencing with available treatment options in metastatic uveal melanoma. In the third quarter, a new investigator-initiated trial, the SCANDIUM III trial, started screening patients in Sweden. This 40-patient trial is comparing randomized treatment with 2 cycles of CHEMOSAT 6 weeks apart, followed by treatments with ipilimumab and nivolumab with the control arm being ipilimumab and nivolumab alone, which is one of the global standards for care for metastatic uveal melanoma. This trial is distinct from the CHOPIN trial being run in Leiden University in The Netherlands, which starts with ipilimumab and nivolumab and sequences in to CHEMOSAT treatments. At this time, the CHOPIN trial is fully enrolled with 76 patients, and we are anticipating analysis of the primary endpoint, progression-free survival at 1 year to occur in mid-2025.

We expect presentation of the results in the second half of 2025.

During the past quarter, Delcath has engaged in discussions with a number of internationally recognized medical oncologists at leading cancer centers, with the objective of identifying the next HEPZATO clinical development targets. Liver-dominant metastatic colorectal cancer and metastatic breast cancer were identified and endorsed by experts as potential new indications for HEPZATO. Delcath is planning to initiate 2 Phase II randomized clinical trials to compare safety and efficacy of HEPZATO plus standard of care versus standard of care alone in these 2 indications. The metastatic colorectal clinical trial is designed to enroll approximately 90 patients and will be conducted at more than 20 study sites in the U.S. and Europe. The protocol is complete and the lead investigator for the colorectal cancer clinical trial has been identified. Patient enrollment and treatment is expected to begin in the second half of 2025. The Phase II trial in patients with liver-dominant metastatic breast cancer will start somewhat later, likely in the fourth quarter of 2025. From a financial perspective, the company is in a strong position.

Our third quarter operating cash burn was only $3.6 million. And given our revenue ramp, we are on the cusp of being cash flow-breakeven.

We have more than adequate resources to fund further expansion of both our commercial and our clinical development activities. The future of the company is extraordinarily promising given our expected revenue growth, strong balance sheet, and the ability to further develop our hepatic delivery system platform across additional diseases. I will now hand the call over to Sandra to share further details on our financial position.

Thank you, Gerard. Revenue from our sales of HEPZATO was $10 million and CHEMOSAT was $1.2 million for the 3 months ended September 30, 2024, compared to $0.4 million for CHEMOSAT during the same period in 2023. Revenue grew 44% over the second quarter of 2024. Gross margins were 85% in the third quarter.

For the 3 months ended September 30, 2024, research and development expenses were $3.9 million compared to $4.6 million for the 3 months ended September 30, 2023. The change in research and development expenses is primarily due to lower costs associated with the Expanded Access Program incurred in previous periods, offset by an increase in medical affairs and regulatory costs associated with an improved product.

For the 3 months ended September 30, 2024, compared to the same period in 2023, selling, general and administrative expenses increased to $7 million from $6.2 million. The increase is due to activities for commercial launch, including marketing-related expenses and additional personnel in the commercial team. We ended Q3 with $14 million in cash and investments, and cash used in operations was approximately $3.6 million in the third quarter compared to $4.5 million in the previous quarter. On August 1, the loan with Avenue fully matured, and on October 30, the loan with Rosalind fully matured, and final payment was made on both.

As of today, we have no outstanding debt obligations. All Tranche B Warrants from the March 29, 2023 PIPE were exercised by the November 6, 2024 expiration date, resulting in approximately $25 million in proceeds. We do expect our cash from operations and the cash received from the recent warrant exercises to sustain operations through profitability and begin to fund trials into additional indications. That concludes our prepared remarks, and I'd ask the operator to open the phone lines for Q&A.

[Operator Instructions] Our first question comes from Marie Thibault with BTIG.

Hello. Can you hear me?

Yes, we can hear you.

This is [ Alex ] on for Marie. I just wanted to ask a question of clarification since you mentioned that Q4 is coming quarter due to the dynamics of the holiday season, we expect to see some fewer treatment days.

So is this like a cadence that we can expect moving forward? Like is this going to be a seasonality? Do you expect this to be the case as we move forward with the launch in like 2025 and beyond?

Yes.

So we've -- starting several weeks back, we started querying both the interventional radiologists and the medical oncologists about what they thought the pace would be over the holidays.

For typical infused chemotherapy, you probably don't see much seasonality. This is a procedure in the clinical trial. There was a certain amount of flexibility of timing between treatments, there's a max of 6. And I think what patients are doing, not all, but some patients are choosing to spend the holidays with their families and push a treatment off into January perhaps.

So we don't think we're going to lose any business.

So 1.5 to 2 weeks is our best guess for the fewer number of treatment days in the fourth quarter. It is at this time an estimate. I do think there will be seasonality. The degree of seasonality, and you've got my best guess right now of what it will be. But I want to emphasize that these are not -- this is not lost business. This is business that gets stretched out into the following year.

Great. And I just had a follow-up since you guys mentioned that you guys are going to start 2 Phase II RCTs in colorectal and breast cancer next year.

So how should we think about the increase in R&D spend with these RCTs?

Yes. Q4 R&D expenses should be relatively flat from Q3, but the new indication expense is more relevant in 2025. At this point, the full year R&D should probably range anywhere from $35 million to $40 million. At this time, that includes base R&D as well as new indications.

The next question comes from John Newman with Canaccord.

Next question comes from Sudan Loganathan with Stephens.

Congrats on the great quarter on the execution side.

So my question is kind of picking off again the seasonality or what to expect with the fourth quarter. Does that also mean the preceptorship and kind of onboarding of sites are kind of -- will be done before kind of the holiday season? Or during some of these weeks, will there be kind of a break in kind of completing that process for some of the ones coming on board?

Yes, definitely.

I think just as with preceptors are done at treatments, proctorships are done at treatments.

So yes, there will, by definition, be a slowdown there. I'd highlight we have a good 5-plus out there actively now seeking patients.

So we do have a good pipeline of sites ready to go. I don't think it will slow down. I don't think that would have a material effect on our overall progress in terms of projections, in terms of site activation.

Got you.

Okay. And then my follow-up is just on kind of the -- on the financial side, the $3.6 million warrants, the $10 exercise price you have expiring in December 2024, I believe, and some in May 2025. Is these funds also kind of earmarked or expected to kind of hit and also really help with the launch of these trials next year? Or just how are you viewing the cash inflow, not just from the business, but also from these other -- from the warrants that you have also still outstanding?

I'll hand this off to Sandra so she can reply.

Yes. Right now, we are not including that additional $36 million in our cash forecast in terms of what we need to fund additional indications in the business. We believe that our cash on hand and the $25 million that came in from the Tranche B warrants as well as cash earned from revenue and operations should fund these indications.

The next question comes from Swayampakula Ramakanth with H.C. Wainwright.

Just trying to understand some of the metrics around the number of treatments some of these physicians are performing. Is the interval between treatments similar to what you had seen in the FOCUS trial? And also compared to what physicians experienced during the trial, how is the real-world experience looking? If you have any anecdotal information, that would be helpful.

Sure.

So I think most of the treatments are still occurring between 6 to 8 weeks.

Some might stretch out a little longer. And I suspect what we'll find is that patients who had a treatment sometime early mid -- early fourth quarter will likely have longer than 6 to 8 weeks because, again, they may postpone it to be with their family for the holidays. But in general, we're seeing 6 to 8 weeks in normal course.

In terms of anecdotes, let me hand it off to Kevin because he's got a wealth of anecdotes.

So Kevin, why don't you [Indiscernible] that are helpful.

Yes.

Okay.

Our field sales team attends all of the PHP procedures. And thus far, the treating physicians and the medical oncologists have been generally positive with the outcomes that they're achieving with HEPZATO KIT. When you go to the number of procedures, the treatment centers, which opened up in Q1 and Q2, so the beginning of this year, they're just now completing their fourth and fifth treatments.

So the medical community as well as we are, we're very excited about the outcomes that we'll see, and we'll have more information when the patients complete their cycles.

Perfect.

And I would add, I mean, the message we're getting back from the medical oncologists and the IRs, and it's anecdotal, but they generally believe the response rates they're seeing are far greater than what we see in the FOCUS trial.

Now whether or not that's absolutely true or not, it's hard to say. It may have to do with patient selection. We may have gotten, unfortunately, the worst of the worst in the FOCUS trial.

I think we're getting patients earlier on now. And there's -- again, anecdotally, they're all claiming they see much better response rates. To the point, they're saying, well, what did you do differently? We haven't done anything differently.

I think in general, they're very, very pleased with the results they're seeing.

Perfect. Then, Kevin, I have a couple more questions. Maybe it's you, Gerard, on the SCANDIUM and the CHOPIN trials.

So do you think these studies, by themselves, are enough to get in front of the FDA for indication expansion? Or once you get data from these 2 studies, you may be -- you may have to do another study in the U.S. as well to get in front of the FDA?

There's nothing that prohibits physicians now from sequencing these products.

So I don't believe an indication expansion would really be necessary. And I don't think we really necessarily have to push for that at all.

I think that the important thing is it opens the door for kind of theoretically maybe even a basket trial for patients have been on IO therapy across a number of different cancer types and start failing once they have liver mets, which is a very, very common dilemma for patients.

I think that opens up the opportunity for us looking across cancer types to do a trial for patients who are failing on IO. But in terms of metastatic uveal melanoma, I think the data will be -- the data and the doctors will have -- will act appropriately, and we don't -- I don't think we need to seek any type of regulatory adjustment or label expansion.

The next question comes from John Newman with Canaccord.

I'm curious what types of data we might expect to see from the CHOPIN trial next year? And then also just timing on the CRC and breast cancer trials that you're expected to start next year, just curious as to how you're thinking about enrollment there.

Sure. I'm going to ask Vojo to answer those questions.

John, this is Vojo Vukovic. Thanks for your questions.

I think your first one was regarding the CHOPIN trial data.

As Gerard mentioned earlier during the prepared remarks, the enrollment of this 76-patient large randomized Phase II trial is complete. That's our understanding. The patients are undergoing treatment. And based on the information that we have, the investigators are expecting a data readout mid next year, which would put them in a position to present the data in the second half of next year. It's a randomized trial. It's a blinded trial. We do not have data insights, so we cannot share any information beyond what we just said. And the second question was really, I think, regarding recruitment of patients into the upcoming colorectal and breast cancer trial. Is that correct?

Yes.

Okay.

So we plan to start operational activities, including patient enrollment on both trials, in the course of next year. We've initiated activities on both trials, and we expect recruitment to start mid '25 for colorectal and towards the end of '25 for the breast cancer trials. These trials are randomized trials, 90 patients each, and we expect that the enrollment will take approximately 2 years.

[Operator Instructions] Our next question comes from Yale Jen with Laidlaw.

My first one is that given the ramp-up is very well -- is doing very well, are you guys already started approaching the medical oncologists and getting more referral and getting a greater awareness of them? Or that's something that you would do maybe starting next year?

Right now, we are -- yes, Kevin's team is definitely approaching medical oncologists at centers where we're not treating. It happens we're getting a fair number of referrals right now to active sites.

Now admittedly, most of those referrals, not all of them, but many of those referrals are coming from centers that are going through the preceptorship and training program. They want to treat patients. They're not up and running yet either because of training or sometimes it's just committee reviews and sometimes they are just structurally every 6 months or something.

So we're getting referrals from those.

We are -- have gotten referrals from centers we're not targeting.

One of our sites is all referrals. They had no -- essentially no uveal melanoma business to speak of.

So they're all referrals. And what we have to do is partner with the oncologists. The way Kevin has set this up is we talk to the oncologists, and we say, "Hey, are you interested in getting referrals?" We tell them, they generally say yes. We ask them where are your patients coming from now. In our teams, I'll remind you that every one of our 4 regions has a clinical support specialist who's in every procedure and makes sure things go smoothly.

We have a liver-directed manager who -- their job is to open the centers and kind of manage them. And then the third component is an oncology manager in each region we have. And their job is to develop those referral networks. It's still early days for us to be successful. We're going to have to -- I think we're going to have to really lean heavily into referrals next year and the year thereafter to be successful. But yes, we're well on our way. We're learning how to do it. It's a very fragmented market. But we'll get there. And yes, we're having success with referrals. But we got to do better, and we will do better.

Okay. Great. That's very helpful. Maybe another question here is that you anticipate to start a CRC -- the trial in CRC and other in breast.

Just curious what sort of clinical data or clinical information you had so far to support these 2 indications to pursue.

Yes, sure.

So the first set of data we're going to have is from -- for colorectal, is primarily from a surgical procedure called intrahepatic perfusion. This -- the concept of the hepatic delivery system, CHEMOSAT, HEPZATO, really came from a surgical procedure that is rarely done nowadays, if ever, because of very high levels of morbidity and mortality. But essentially, doctors at a number of sites, Leiden University, not surprisingly, a site in Sweden, and then I think the other one was Pittsburgh, would basically take the liver, put it on a heart-lung machine, for lack of a better way to explain it and put very high doses of chemo, usually melphalan in the liver. Two of the places that was most commonly done were uveal melanoma as well as colorectal.

So there's very strong data, and I can tell you to take a look at our Investor Day deck, we've summarized some of that data in colorectal.

So whether or not surgically, you're putting high doses of melphalan in or whether or not you're doing it with our HDS, we would expect to see the same results. And I think that the ORR in those studies were about in the high-50s or low-60s, if I remember correctly.

So that's the data there.

For breast cancer, it's thinner. It's based on about a dozen or so patients across a number of different centers in Europe over the years. We've seen some profound responses, in fact, some complete responses in breast cancer patients.

So we've seen some pretty good response rates. In breast cancer carcinoma, breast cancer is generally more susceptible to chemo as well.

So we think there's a very good rationale for usage here.

So about a dozen patients across centers, we've seen some response rates and just the general type of tumor that it is gives us some hope that this will be a good thing for patients.

The next question comes from Chase Knickerbocker with Craig-Hallum.

Maybe just to start, are we learning more kind of about how long it takes to fully activate a center? I know we kind of asked this question last quarter as well, but kind of any new thinking there? And then speak to kind of how those learnings kind of inform your confidence that you'll get 8 of these kind of 10 centers that are in the works activated at some point in Q1? And then any of those centers that look like a similar profile to your 3 largest customers?

Yes. What we're learning is it's very, very, very hard to predict.

You could be flying through it and then you hit, I don't want to say a roadblock, but hit something that takes a bit of time.

Someone in a billing and finance group might say, "Look, I need to talk to somebody who want to see the EOBs, how much do they get paid? And then the hospitals are very, very protective of that, and we got to find someone to talk to somebody." It could be all of a sudden, the perfusionist leaves and we better train somebody else. It's a long list of N-equals-1 issues that usually slows us down.

So it's very hard to predict, because this is a very, very complex activation process. With that said, we are getting it done. And once we're done, we're done. I'm guessing the mean time frame now, and I'm going to look across the Kevin and see what kind of a face he makes at me, but I'm guessing the mean activation time now is north of 6 months, 6 to 9 months. When we started, guess what, it was a couple of months because those are the first ones that came on board. But in terms of confidence of getting to the 20, yes, we'll get there.

I think we'll get there in the first quarter. I've been surprised by how long some take, and I've also been surprised by how productive some centers are.

So net-net, we're doing just fine compared to our projections.

In terms of, is anybody else going to pop up and be like the top 3 centers? Yes, I think at least one of those in that mix that we're activating should be a top 4 performer.

So yes, we've got some strong -- some players with some strong book of business in terms of uveal melanoma patients in that list.

Great. And then I think many agree that CHOPIN data, if you kind of show anything similar to what we saw in earlier stages, could be transformative for the company. Can you kind of help us decode kind of what it means for you commercially if that does occur? Kind of walk us through how you see reasonable usage expanding with a data set that kind of recreates what we've seen to a degree?

Yes. If it recreates what we've seen, I would argue that this becomes standard of care. And I would say it increases the ramp of uptake, obviously, increases the peak penetration, obviously. It may change the dynamic of when patients get treatments. If it replicates CHOPIN, I suspect what we'll see is patients will get 2 and then they will pause while they're on maintenance therapy with ipi/nivo. But unfortunately, these patients all do eventually progress and then they will come back and get additional HEPZATO treatments.

I think you won't notice that in any increased ramp because you're going to get a lot more patients coming in, even though some patients -- some of these treatments get stretched out later treatments. But yes, I think the simple answer is bigger peak revenue and faster ramp.

And then just last for me. Any thoughts -- and sorry, if I missed this earlier, any thoughts on kind of the amount of R&D investments incrementally that will be required for these 2 studies, Gerard or Sandra?

Sure. And I could add one more thing to the prior question, and Vojo was scribbling on a piece of paper because it's a big issue with him.

One of the dynamics we had early on, and it's decreasing is people look at this product, the med-oncs, and go, it's old school chemo, not terribly exciting. If there's something unique going on with the liver as an immune regulating organ and combining it with checkpoint inhibitors with HEPZATO, there'll be a strong surge of interest in medical oncologists, both within uveal melanoma and outside uveal melanoma.

So that's an important point to mention as well. But Sandra, do you want to answer question about R&D?

Yes. Hi, Chase. Q4 R&D expenses should be relatively flat from Q3. But as we move into new indications in these trials and potentially IITs in 2025, we can expect R&D ranging anywhere from $35 million to $40 million depending on the timing. That's including the base R&D as well as new indications.

Thank you. At this time, I would like to turn the call back to management for closing comments.

Okay. Well, I want to thank everybody for joining today, and I look forward to giving future updates on both our commercial uptake, and importantly, our future efforts in both colorectal cancer and breast cancer. Thanks so much, everybody, for paying attention and joining today. Goodbye.

Thank you. This does conclude today's teleconference.

You may disconnect your lines at this time. Thank you for your participation, and have a great day.