Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Delcath Systems Incorporated Earnings Conference Call. My name is Regina, and I will be your conference operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Doug Sherk. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for this conference call and webcast to provide an update on Delcath's first quarter 2012 results and recent corporate progress. A replay of the conference call will be made available beginning approximately 2 hours after the conclusion of today's call and it will be available for 7 days. The operator will provide replay details at the conclusion of today's call. A live webcast of this call is available at www.delcath.com, and the call will also be archived on the website. Before we begin, I'd like to remind you that some of the statements made during this conference call will contain forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities and Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties, and actual results could differ materially from those projected in any forward-looking statements. The factors that could cause actual results to differ are discussed from time to time in the company's filings with the SEC, including our annual report on Form 10-K and our reports on Forms 10-Q and 8-K. These documents are available on the Investor Relations section of our website, and we encourage you to review the material. The company has no obligation to publicly update or revise these forward-looking statements to reflect the events or circumstances after the date they are made. Participating on today's call are Eamonn Hobbs, President and Chief Executive Officer; Graham Miao, Executive Vice President and Chief Financial Officer; and David McDonald, Executive Vice President, Business Development. Following their opening remarks, we will open the call to questions from analysts and institutional investors. To maximize the time allowed for Q&A, we ask you to limit each question -- excuse me, we limit you to 2 questions and encourage you to re-queue to ask additional questions. With that, now let me turn the call over to Eamonn.

Thanks, and good afternoon, everyone. Since our last update call in March, Delcath has made significant progress toward our goal of realizing the commercial potential of our chemosaturation system in Europe and around the world. During our first quarter of 2012, tangible results from the foundation we've laid over the past year began to emerge. Among the significant milestones achieved during the quarter and recent weeks are: receipt of CE Mark approval for our second-generation hemofiltration cartridge for CHEMOSAT and the subsequent treatment of the first patient in Europe with our Gen Two system. Presentation at the European Congress of Interventional Oncology of the first evidence of our Generation Two filters' ability to dramatically improve the side effect profile for chemosaturation therapy; addition of 8 EU cancer centers to our initial launch and training program for CHEMOSAT, giving us a presence in 5 of our 7 target markets; receipt of the first commercial orders for CHEMOSAT; final preparations for filing our new drug application with the FDA; regulatory approval in Australia for CHEMOSAT; and finally, we continued to strengthen the management team with the addition of pharmaceutical industry veterans, Chris Houchins and Dr. Jennifer Simpson to our management team. We believe that the approval of Gen Two, the initial clinical validation of its performance and its positive impact on post-procedure care represents some of the most important developments for chemosaturation therapy in recent years. It's where I'd like to begin the business of today's call. On April 5, we announced the receipt of CE Mark approval for the second-generation hemofiltration cartridge of our CHEMOSAT system. As we've reported in the past, in bench and preclinical animal studies, Gen Two demonstrated melphalan removal of greater than 98% during drug infusion, and in the same studies, showed removal of significantly fewer blood…

Thanks, Eamonn, and good afternoon, everyone. As many of you are aware, I transitioned full-time to my current role leading Delcath's business development and partnering initiatives at the beginning of the year. I'd like to take a few minutes now to update you on our recent activities. The last 3 months have been a very active period on the BD front. Our efforts have been focused primarily in Asia particularly China, as well as on clinical development partners in North America. Now while the timing of such partnerships is always difficult to predict, I'm very happy to report that we are meeting with considerable interest and having discussions with multiple parties currently. We expect these potential partnerships to provide both financial and human capital to expand the CHEMOSAT platform into key Asian markets as well as support additional clinical studies that will drive commercial adoption worldwide and expand clinical indications in the U.S. Also now, we're discussing potential collaborations for both melphalan and doxorubicin both in the U.S. and internationally. As Eamonn mentioned, doxorubicin is a drug of interest in China, given it's both approved and has a long history of use in the treatment of primary liver cancer. Again, as many of you know, China accounts for just over 50% of the world's primary liver cancer patients and as such, it is the disease of interest in that country. The progress we've made in recent months on the doxorubicin CHEMOSAT system is really what's driving the renewed interest of potential partners in China. So in summary, I'm excited about where we are regarding potential partnerships and look forward to updating you on future calls. With that, I'll turn it back to Eamonn.

Thanks, Dave. I'll conclude my portion of our prepared remarks by recognizing the latest additions to our executive leadership team. Chris Houchins joined us in February as our Senior Vice President, Clinical and Medical Affairs, bringing with him over 21 years of experience in leading the global development and implementation of clinical, medical and scientific operations in oncology. Chris' expertise will be invaluable as we execute our clinical development program I just mentioned. Chris joined us from Arno Therapeutics, where he was COO and SVP for clinical operations. Previously, Chris held senior leadership positions at Schering-Plough and Pfizer. In April, Dr. Jennifer Simpson joined us as Executive Vice President, Global Marketing. Jennifer has an extensive background in pharmaceutical and oncology marketing and has been responsible for global product development in the oncology sector. Additionally, her experience as an oncology nurse practitioner, educator, medical science liaison and marketer, combined with intimate knowledge of the commercialization process, make her uniquely suited to help execute our plans. Jennifer joined us from ImClone Systems where she was Vice President of Marketing and Oncology Brand Lead. Earlier in her career, she held several leadership positions at Ortho Biotech, a Johnson & Johnson company. We're pleased to welcome both Chris and Jennifer to the Delcath team. With that, I'll now turn over the call to Graham Miao for a review of our financial results. Graham?

Thank you, Eamonn, and a good afternoon, everyone. Let me begin by providing an update on the company's financial condition. Our cash balance as of March 31, 2012, was approximately $20.8 million. We remain debt-free. Although, as we announced in the first quarter, we secured a $20 million working capital credit facility with Silicon Valley Bank. This facility provides us with additional financing options to access capital to support our commercialization plan. Silicon Valley Bank is a world-recognized commercial lender in the life sciences field. And now we are pleased to have established this relationship with them. Turning to use of cash. Our gross cash spend in the first quarter 2012 was $14.7 million as compared to $7.8 million in the same period in the prior year. The increase was primarily driven by the NDA submission related costs, staff increases in various functions to support commercialization in the EU and the new EU HQ -- headquarter operational hub in Galway. Average monthly growth spend was $4.9 million, which was in line with our expectation of about between $4 million to $5 million a month. Taking into consideration the proceeds from our at-the-market equity -- facility, the net cash spend was approximately $10 million in the first quarter, or a monthly average of $3.3 million. Following the submission of our NDA, which we expect to be in mid-August, we expect monthly cash expenses to decrease to around $3 million to $4 million for the remainder of 2012. We anticipate generating revenue in the second half of the year, which will partially offset cash expenditures. Turning to the income statement. For the quarter ending March 31, 2012, our operating loss was $14.6 million, which included approximately $0.9 million in noncash stock-based compensation expenses. G&A expenses were $7.4 million compared to $4.2 million for the prior year. The increase in G&A was primarily due to an expansion in staff, particularly for our EU headquarters in Galway, Ireland, and of our sales marketing support staff in the EU. Research and development expenses were $7.1 million in the first quarter compared to $3.6 million in the prior year quarter. The increase was primarily driven by global regulatory efforts, including continued preparation of our NDA submission to the FDA, securing CE Mark with the Gen Two and expansion of addressable markets through the pursuit of additional regional regulatory approvals. With that, we are ready to take questions.

[Operator Instructions] And gentlemen, your first question today comes from the line of Edward Nash with Cowen and Company.

Wanted to ask -- my 2 questions were, first of all, could you give us some hard numbers on exactly how many patients have undergone the procedure under the old filtration system? And how many have undergone the procedure now under the new filtration system?

Sure. The Gen One cases were 7, and we've had one Gen Two case so far. There are additional Gen Two cases planned for May at both the IEO and the University of Frankfurt and, of course, all new centers will start with Gen Two as they come on board in June and thereafter.

Okay. And then my second question is just with regard to the first commercial sale that you said that you've now received, do we know exactly how many units that was for? Have you disclosed...

We haven't disclosed how many units. It's still in relatively small numbers since both of the orders -- we've had 2 orders, both of them have come from the IEO, our first center that we got up and running.

[Operator Instructions] Gentlemen, your next question comes from the line of Greg Wade.

I know you're not providing financial guidance, but could you tell us maybe in broad brush strokes, how many sites do you want to have online in Europe by the end of the year? And maybe what you would hope that number to be for the end of next year, if that's something you may share with us, please?

The goal for this year is to have between 12 and 15 centers up and running by the end of the year. I think we're very comfortable that we'll have at least that many centers up and running. The goal for the following year is much higher because those first 12 to 15 centers that we have doing cases this fiscal year or in calendar year are going to be the training centers for all these centers that we bring up next year. So it's a bit of a domino effect that cascades forward as we get these training centers up and running. So 12 to 15 this year and then a much larger multiple of that next year.

And if I just might ask a follow-up question. It was, I think, very interesting to see that the first few cases done in Europe were outside of the ocular and cutaneous melanoma area. In your travels to meet with the centers, can you just maybe outline for us what people have been talking to you about and the types of cases that they plan to use and whether you're seeing any barrier to the use of the product outside of where the most of the data is in melanoma?

Well, absolutely. We have been getting tremendous interest outside of melanoma and neuroendocrine mets to the liver, which is where the majority of our data has been presented. Centers are very interested in HCC, in cholangiocarcinoma, in the colorectal mets to the liver and, of course, we have already done our first breast cancer patient and gastric cancer patient. So I think we're getting a great deal of comfort that the clinicians in the EU are seeing melphalan as a -- and CHEMOSAT as a hammer and cancer as a nail. And it really doesn't matter which type of primary got the cancer to the liver. At the kind of concentrations we're providing, there are no cancer cells that can stand up to that level of chemical bombardment.

[Operator Instructions] Your next question comes from the line of Matt Dolan with Roth Capital Partners.

So the first question is on Europe. As you transition to a revenue phase here in the second half of '12, what can you tell us about your level of confidence in gaining reimbursement at your centers at this point in the game? And therefore not see any disruption in the sales ramp as you shift from kind of early trial phase to commercial phase? And maybe tell us when that switch is turned on to full aggressive commercial mode?

Well, the way reimbursement works for a new device is, there are no specific reimbursements for devices. Devices are effectively reimbursed as a cost to a reimbursed procedure. And the hospitals we're working with are comfortable that they'll be able to get reimbursed for procedures codes that they already have. So I can tell you that our confidence level is increasing from a couple of perspectives because we are gaining traction and two, the Gen Two clearly reduces the cost overhead of the procedure which is to everyone's advantage in that the postop care is greatly reduced with Gen Two and it -- because there isn't a requirement for an extended ICU stay and tremendous application of blood products and transfusions. And the medications to deal with the bone marrow suppression are dramatically reduced. So the net-net is, the overall procedure cost in handling a CHEMOSAT patient is reduced, which helps the hospital in their choice of -- in methods of how to get reimbursed for whatever procedure they're intending to bill for. Now I would say that initially as we roll out, the learning curve for the hospital and how to get paid is just as early and initial as our approach to them. So they find their way, but the administrators at the hospitals have been pretty comfortable that they're going to be able to get paid since they do get paid today for other liver-directed therapies that are conducted by interventional radiologists such as radioembolization and the like which also has a similarly-priced consumable and is conducted multiple times.

Okay. So maybe just to clarify. Do you expect the transition to be smooth as we go onto revenue phase, or should we kind of soften our ramp in Europe as you sort out some of those variables you just went through?

No, I think the transition will be smooth. We're in a -- where a bump in the road appears with devices is typically not for 18 to 36 months post-commercialization because the payers will eventually come back and potentially modify the payment or the reimbursement for CHEMOSAT by creating a new billing code for the CHEMOSAT procedure that's unique to CHEMOSAT. And if that reimbursement is less than what the hospitals had been getting paid, then that create -- could create a bump in the road. But we're not going to face that for between 18 to 36 months. And that will vary dramatically country to country and sometimes even hospital to hospital.

Okay. And then shifting to the U.S. Just 2 points of clarification. One is, what changed in your time line from your call 6 weeks ago? And then secondly, given -- sounds like your feedback and our feedback has been dramatic in terms of the side effects improvement for Gen Two. So -- and I know you said you can file a supplemental NDA, how should we think about just the general time line for when Gen Two is on the market in the U.S. because that seems like that would be really the full U.S. launch?

Well, the first part of your question, what changed, all through the process of the data collection, we have been a bit hat in hand in going to the clinical sites and asking them for their attention to collect and input the data. We can't input it for them. The rules of good clinical practice are quite explicit in that the sites have to do their own data entry. Now when we received the RTF and agreed with a plan with the FDA to generate a very, very complete and comprehensive safety depiction of this new procedure, we went back to the sites that had already completed this trial in their mind in it and all of the research staff, of course, wasn't waiting around waiting for us to knock on their door, they were all very busy with new prospective trials. And we came back in and said, "Look, we're -- unfortunately, we're not done yet. We have to go back to the patient records, and we have to collect a tremendous amount of data." And as I mentioned, conservatively, 1.4 million new data points. So the sites have really dictated the time line all along because we can only go as fast as they would let us go, and we really didn't have the ability to tell them anything. We can only ask. And we knew we were being disruptive and we would agree with them on a time line, and they would make best efforts to hit that time line and, needless to say, we didn't make most of those time lines over the last year. So what changed over the last few months is, once again, the data was just not in the database, not completed in a -- what was all of our expectations which were really driven by the sites. So again, I don't want to point a finger at the sites and say anything other than thank you because we're done, we've gotten everything, and we really appreciate all that they did for us to allow us to collect and amass this really comprehensive safety database that we're going to be putting into the NDA. But the fact remains, the schedule has been dictated by their ability to input the data based on their time in between conducting prospective clinical trials on many, many other fronts. And the -- I'm sorry, Matt, the last...

Yes. It was just about integrating Gen Two into your U.S. launch because it sounds like that will be the real launch point for your domestic strategy.

Yes, the Gen Two approval in the U.S. is definitely a high priority. We are in conversation with the FDA about how to optimally get Gen Two approved. So there's no question. We want to get Gen Two approved and give patients in the United States access to Gen Two as quickly as possible. The IND amendment that we submitted is a very complete and comprehensive package that compares Gen Two to Gen One on a technical and bench and preclinical basis that shows the comparability of the 2 filters from a technical perspective. So that submission will now allow us to have very substantive conversations we've already begun with the FDA about how to optimally get the NDA approved. So at this point in time, we have no idea what the FDA is going to suggest is the right and optimal pathway for Gen Two. The -- in our prepared remarks, what we try to convey is there's a broad spectrum of possibilities here. The shortest path to Gen Two approval is if the FDA told us that they agreed we could add it into our NDA that we're filing in August. The other end of the spectrum is the FDA would say to us, "We will require additional clinical data for Gen Two approval, which would likely be a small single arm series to show safety." And then the question would be, would that be a post-approval or a clinical trial would have to be conducted pre-approval of an NDA supplement, or could we do a post approval commitment? So at this point in time, it would be, I think, counterproductive to even venture a guess which way the FDA is going to go, those conversations are going to take place and we'll -- I'm confident, in the next few weeks, we will have a very clear picture of what the FDA is going to want us to do in order to get Gen Two on the market in the U.S. in the shortest amount of time.

Your next question comes from the line of David Musket with ProMed.

So it's very helpful on the regulatory side. Are you still expecting an expedited review from the FDA on Gen One, if that's the way it goes?

Yes, we are expecting a 6-month review. We, of course, won't know whether we have a 6-month review until the NDA is accepted, which typically takes place about 60 days after filing.

And do you see a scenario, depending on how things go with the FDA on Gen Two, where you wouldn't actually launch Gen One?

Well, it's a very good question. And I can't see any scenarios where we would not launch Gen One unless we were extremely confident that Gen Two approval was imminent.

And can you just clarify, I thought when they were going through -- you were going through the expense changes, what would be the change in the quarterly expenses post the filing? And for the period for the end of the year going forward?

The changes that we forecast are expenses to drop from between $4 million and $5 million to between $3 million and $4 million. And why that is likely and evident is because the first half of this year, our -- and the last half of last year, our focus in the company has been around the NDA resubmission. The majority of our expenses associated -- or monthly expenses in total have been associated with the NDA resubmission, the clinical data gathering. Just the outside consultants dedicated to the NDA project would represent in excess of $1 million a month. So after we file the NDA, it would stand to reason that we will not require them in similar capacity as they're working on right now.

Ladies and gentlemen, this concludes the question-and-answer portion of our event today. I'd like to turn the call back over to management for some closing remarks.

Thank you, operator. Before concluding our call today, we'd like to remind investors that Delcath will be holding its Annual Shareholder Meeting on May 23 in New York City, and we'll also hold an Analyst Day Meeting on June 1 in Chicago, immediately prior to the opening of the ASCO Congress. If you're interested in either of these events, please contact us, EBC, at (646) 201-5445 for specific details. That concludes our call today. Thank you all for your participation.

Ladies and gentlemen, you may disconnect at this time. Have a great day.