Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Delcath Systems Inc. Earnings Conference Call. My name is Erica, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Doug Sherk, please proceed.

Thank you, Erica and good afternoon, everyone. Thank you for joining us today for this conference call and webcast to provide an update on Delcath’s third quarter 2012 results and recent corporate progress. A replay of the conference call will be made approximately -- excuse me, will be available 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 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. 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 Form 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; and Graham Miao, Executive Vice President and Chief Financial Officer. Following their opening remarks, we'll open the call to questions from analysts and institutional investors. [Operator Instructions] In advance, we thank you for your cooperation with this procedure. And now let's turn the call over to Mr. Hobbs.

Thanks, Doug and good afternoon, everyone. Since our call with you in early August, the team at Delcath has achieved several significant milestones. Most important of these was FDA acceptance of our New Drug Application for our proprietary chemosaturation system with melphalan hydrochloride for injection for substantive review. As we announced recently, the FDA has designated a PDUFA goal date of June 15, 2013. Acceptance of our NDA is the combination of many months of work and we hope represents the first step towards U.S. commercialization. Also during the quarter, we continued to implement our launch in Europe, completing applications for interim reimbursement in key markets and signing our exclusive distribution agreements in Italy and Spain. Recently, we also received regulatory approval for our Generation Two CHEMOSAT Delivery System in Australia and have satisfied all the requirements to affix the CE Mark to the Hepatic CHEMOSAT Delivery System device for interhepatic arterial delivery and extracorporeal filtration of doxorubicin in October 2012, which helps establish a pathway for regulatory approval in large key Asian markets. These developments help lay the foundation for realizing the full potential of our system in the U.S. and other markets around the world. After reviewing these achievements with you briefly, I will turn the call over to Graham for a review of our financial results. I'll begin with the most important development for Delcath in many years, the FDA's acceptance of our NDA. This is a tremendously important development, not only for Delcath but for the patients in the U.S. who have a critical need for our treatment. We look forward to working closely with the agency throughout the review process with the goal of securing approval of our application. Our most important objective is to be able to provide patients in the U.S. with unresectable…

Thank you, Eamonn. Good afternoon, everyone. Let me begin by providing an update on the company's financial condition. Our cash and the cash equivalents as of September 30, 2012 was $28.3 million. We are pleased to report that we have been able to maintain a solid balance sheet in the third quarter. Our cash position as of September 30, is only $1 million less than where we stood as of June 30, 2012. The factors that lead to this development are as follows: first, our use of cash during the third quarter was $14.6 million, which was slightly higher than the second quarter. The use was primarily driven by NDA submission related costs and ongoing EU commercialization efforts. Second, offsetting the cash spend in the third quarter were cash resources from the realizing of $4.4 million in September from 2007 warrant exercises, a modest amount from accounts receivable collection and approximately $9 million raised from our at-the-market or ATM facility. As of September 30, we had $21 million available through the ATM. We believe that our cash position and access to capital provide us adequate funds for our operating needs through our PDUFA date. We continue our efforts to reduce operating costs and are committed to reducing cash spend in the fourth quarter to between $3 million and $4 million as a result of expected decrease in NDA-related spend in the fourth quarter. In addition, we remain debt-free, although we have a $20 million working capital credit facility with FDB. This facility provides us with additional financing options to access capital to support our commercialization plans if needed. Turning to the income statement. During the third quarter, we recorded sales of $97,000 from the sale of CHEMOSAT kits in Europe, of which $39,000 was recognized in revenues and the $58,000…

[Operator Instructions] And our first question comes from the line of Matt Dolan with Roth Capital Partners.

This is Chris Lewis on the line for Matt. Just first off, can you provide some more commentary around the pace of procedures you're seeing in Europe and just maybe discuss some of the general adoption patterns that you're seeing there with the training centers and the doctors there?

Well, the path we're following is we're focusing on really leading cancer centers in our target markets and we currently have 6 centers that are actively doing cases. The program is, we provide them with some -- with training and with some product to gain some clinical experience. And then we provide them with the support they need to recruit patients under either research funding or private pay funding while we work on reimbursement. So in Italy, we've had -- Italy and in Germany, we've had commercial orders to date. So 2 centers have actually gotten to the point where they had cases that they categorized as commercial and purchased product. Clearly, we're waiting for reimbursement to be established and, as I mentioned, just this week, we learned from the -- our reimbursement experts that an existing DRG was deemed to be appropriate by the Italian government reimbursement authority for use immediately as an interim reimbursement method and although that doesn't pay as high as we ultimately would like to seek for reimbursement, it covers the majority of the cost of the procedure. And that, we would expect, is going to translate into much -- removing a major barrier to commercial adoption and allow for commercial adoption to accelerate in Italy. Same as the -- happening in Germany and same thing is happening in the U.K. as far as pursuing -- very tangibly pursuing interim reimbursement. So once those clicked in which we believe will be in the first quarter of next year or sooner, that will be very, very important. Now what we've seen from the cases that have been done is we've seen the product perform extremely well. We've seen Gen 2 provide tremendous benefits in a number of ways. Patient tolerance for the procedure is much better. The days in the ICU are dramatically reduced, if not eliminated. And we've seen a wide variety of tumor types being treated. So not just melanoma, we've seen breast-cancer, gastric cancer, primary liver cancer, gallbladder cancer, and I believe tomorrow, there's a neuroendocrine case being done. So it's slow and steady, and we anticipate adding additional centers prior to the end of the year and reimbursement is really the catalyst that we are working towards, and we're making great progress on.

Okay, great. And then just turning to the Asian market, how does the CE Mark with doxorubicin change the types of discussions you're having there with potential partners? And should we be expecting some type of partnership announcement here in the next 6 to 12 months or 3 to 6 months? Or maybe a better timetable there would be great.

Well, certainly that's a very high priority for us and has been for a very long time. And to go back in history a little bit, we got very far down the road with a potential partner in China with our melphalan system and only to find out, with our partner, that although melphalan was routinely used in China, it had actually never been approved as a drug for injection. So that put us in a bit of a tailspin in that we had to regroup, and our plan to regroup was to get our doxorubicin delivery system approved with a CE Mark. And that is a very important milestone for us because now we can actually approach clinical use in China on the back of the CE Mark for the device. As doxorubicin is approved with very broad labeling in China and we believe our device can be approved in the Chinese system to deliver doxorubicin in a rather straightforward way. So we're just now back on track at being able to have substantive negotiations with regard to Chinese partnerships, and we are working very hard on those. I would also add that although not directly related, the FDA accepting our NDA was very important to numerous potential Chinese partners. So now that the FDA has done that, we have that asset in our camp, if you will, and we're leveraging that as well. So, although we can't put any timing on a potential Chinese strategic partnership, we're working very, very diligently on it and we are certainly seeing a significant amount of interest.

Your next question comes from the line of Jason Mills with Canaccord Genuity.

Let's stick, Eamonn, with Asia for a second. Do you have any sort of projections as to when you might see out of Asia revenue? Any timing for initial commercial development there?

Well, definitely, we wouldn't expect revenue in Asia until we have a partner in real terms. So the pathway to revenue in China for instance, is find a partner and pursue a state FDA approval of our device system for use with the already approved doxorubicin. And that would -- we expect would entail some clinical trials. Not very lengthy trials but even a small trial is not without a timeline. So I think we're a ways away from material revenue in China. First step is getting a partner signed up. Now in Japan, we have some opportunities for short-term revenue that center around working with a leading -- key opinion leaders and their institutions to pursue clinical use of both doxorubicin and melphalan, investigate our initiated trials. So on the doxorubicin side, we think we could get some revenue in the -- sometime in the next year, maybe 1.5 years. And the regulatory approval there for melphalan system would be again dependent on local trials. So our partner there is going to be important as well. We did mention in this call that we have a relationship with Kobe University that we've developed over the last few years and are looking to expand that. So we do have a base of operations there in order to provide local data to potential partners. On the Korean side, it's a doxorubicin story, very similar to China and the other Pacific Rim although not Asia, the other Pacific Rim market that is much more near-term would be Australia and New Zealand, both of which are very per capita large markets in melanoma, our sweet spot. So we're -- at the stage where we're very actively involved in choosing our distributor for those markets and gaining the PDA, the local regulatory approval for our Gen 2 system was a pivotal milestone there. So I would expect that we would have revenues in Australia and New Zealand sometime in 2013.

Okay, that's helpful color, Eammon. Next question, staying offshore in Europe, I think you mentioned you have 6 centers actively utilizing CHEMOSAT. How many centers are you negotiating contracts with now and sort of what do you expect by the end of the year, the number of centers utilizing CHEMOSAT could be?

Well, I would expect another half-dozen centers or so would be active before the end of the year. And we have many, many more than that signed up but they're waiting for reimbursement to be established so which again we think, Italy, we're now at a point where we have interim reimbursement established and we expect first quarter interim reimbursement in the U.K. and Germany.

Okay, that's helpful. So then one more and I'll get back in queue. As part of the expanded access protocol, how many patients do you expect you'll enroll in that, ultimately or maybe over the next 12 months? And will you book revenue as part of that or will that be part of the operating expense line?

Well, it's very hard to say how many patients will go through the EAP program. So it's really impossible for us to estimate. I mean, I think it's -- since it's between now and June, it, let's say, we think it would be more than 5 and less than 30 as a wild guess. I don't think it will be 1,000 patients for sure. I think it will be a relatively small number. But at this point in time, we are not planning to charge for the systems, although we are revisiting that very actively at the moment. So and the driving force in our desire to consider charging under the EAP program which we're allowed to do up to the cost of the system is not only to defer the cost of the system and our -- its financial impact, but also to really initiate substantive conversations on a real basis with reimbursement channels in the United States. Now we can say that while we've been preparing the EAP which is a formal clinical program, there have been a compassionate use cases being conducted in the United States. We can't say how many, we can't say much about them at all under other than they are a way for patients to access the therapy at certain centers. And we have been providing kits free of charge to those compassionate use cases. And we have been made aware by the hospitals conducting those compassionate use cases that they have been successful in obtaining reimbursement from private payers for those cases which is a very good sign. And we'd like to -- when we run the EAP program, we'll have a lot more insight into the ability and the negotiations on reimbursement than we do with compassionate use of that very attractive prospect.

Right. Just as a clarification for one of my previous questions, Eamonn, you said 6, or currently using it and many more signed up. I think last quarter or exiting the quarter you had 13, what's that number at right now?

Well, no I was referring to -- I thought we'd have an additional half-dozen or 6 by the end of the year and currently we have 6 centers up and running. So we have about close to a dozen.

Your next question comes from the line of Greg Wade with Wedbush.

So let's just turn back to the expanded access program. Is it your plans to potentially begin charging on this program and...

Well, we -- I was just mentioning that, actually. And we haven't made a decision yet, but I can tell you that we are very seriously considering that because of the ability for us to get into a substantive conversation on reimbursement far earlier than waiting until after FDA approval. And our compassionate use cases are getting paid for, getting reimbursed. I shouldn't say our compassionate use, the compassionate use cases are being done under various institutions protocols and IRBs. So we really don't have any insight into those other than we've been told by those institutions that they have been successful in gaining reimbursement so...

Right, okay. And would you just remind us with respect to what you could potentially charge per device in this setting, it's up to a fully burdened cost per device right? So pretty much whatever you want?

Correct. That's right. Well, if we would -- considering all the investment we've made in this technology and how few we've actually made, practically speaking, we would be able to burden the cost quite significantly.

Okay, that's helpful. So it would be sort of can I say a near commercial cost then?

Yes. I would think so.

Okay. And then if I just might follow up. With respect to the reimbursement that's in place in Italy under this DRG, would the entire amount of that payment be available to -- for the system or is that to cover all of the procedure related expenses for the patients? I just have one follow-up.

That is intended to cover all of the procedure-related expenses. So we -- as we mentioned during the call, the range depending on the region is between EUR 11,000 and EUR 16,000. And just like in the U.S., where reimbursement in New York City are far higher than those in Iowa, the same in Italy. So in the Milano area, Lombardia, we expect it to be on the higher end than the lower end. And that is a great step in the right direction in that at least that much of the cost is now paid for. Now the situation in Italy is that we have a distributor that we sell to at a discount. So if we have to discount in the interim while we're pursuing higher reimbursement or a dedicated DRG, we can certainly do that and share those discounts with the distributors. So the net effect to us is not as significant at all as it would be if we were direct. So...

How much of the percentage -- what percentage do you think is left over for the product versus the cost of doing the procedure?

Well, the majority of the procedure cost to the hospital is going to be the CHEMOSAT system. The drug is extremely inexpensive. And the procedure costs are relatively small. Many of the procedure work up costs are reimbursed under other codes currently, so they are not burdened on the procedure itself. And we've done extensive work in laying out the business case for CHEMOSAT in various European countries. So these reimbursements are pretty material. They're going to allow us to get moving right now where we have applications in for interim new technology supplemental payments which go on top of the DRG to the hospital to help defray some of the additional costs of new technologies, like ours. And then ultimately, that can either become permanent or can become -- roll into a creation of a dedicated new higher reimbursing DRG for CHEMOSAT. So frankly, we're pretty pleased with the EUR 11,000 to EUR 16,000 reimbursement because that will allow us to get moving. That's a major step in the right direction.

[Operator Instructions] Our next question comes from the line of Jason Butler, JMP Securities.

Eamonn, you kind of touched on it before, but maybe you could go into a little bit more detail about what you're actually doing in anticipation of FDA approval in terms of reimbursement in the U.S.. What are the steps that you can take here to minimize the time following product availability that you can get paid for the product?

Sure, Jason. What we've been doing over the last couple of years actually is working through getting a dedicated CPT code, a Category 1 CPT code in the works and have lined up specialty societies to sponsor it. Now the Cat 1 can't be applied for in earnest until we get FDA approval so we're ready to go when we do get FDA approval. So that begs the question, what are we going to do in the interim? So what we'll do in the interim while we're waiting for the Cat 1 code is to work with each institution to go under unspecified 99 codes which will allow them to get paid but each of these are theoretically a one-off negotiation. So, as I mentioned earlier, in the compassionate use cases, we've been paying as much attention as we possibly can to how the institution is conducting compassionate use cases with CHEMOSAT have been successful in getting paid under 99 codes. So the good news is, they've been -- these multiple institutions have been successful in getting paid and getting paid at a level where they -- it wasn't prohibitive. Their administration allowed them to not only do it, but to do -- continue to do it multiple times. And these are from very large prominent private payers. So they are laying the groundwork. So as we move into post FDA approval, we would have dosage ready for new clinical sites to be able to present their arguments to the medical Directors under the 99 code while our Cat 1 code is in the queue, which it normally takes approximately 1 year to 1.5 years.

Our next question is a follow-up question which comes from the line of Greg Wade with Wedbush.

Graham, I didn't want to leave you out. Can you just tell us how many options in the warrants were outstanding at the end of the quarter?

I'm sorry?

Options in the warrants were outstanding at the end of the quarter?

Yes, so we have at the end of third quarter, we have total of 40 million -- 4.8 million shares of options and 5.6 million warrants. So if you want to calculate fully diluted numbers then these 2 numbers add back to that.

Okay. And then, Eamonn, when do you think the expanded access program could be put in place? Is there an approval timeline?

The -- it's pretty imminent. We have 6 centers in various stages of getting their internal approvals. We've been working with them for a long time. One center has gotten their IRB approval and are lining up patients now, so we're hopeful that they'll be enrolling their first patients within the next month. The other 5 centers are very close to that same position. So our goal is that we are enrolling patients before the end of the fall, which would be mid-December. So it looks pretty likely that that's going to happen.

And how will we find out whether you're giving away the product or selling it?

We'll let you know when the EAP kicks off, we'll likely announce that and that will be one of the things that we discuss with the -- whether we're giving the product away or charging for it.

We have no further questions. I will now turn the call back over to management for any closing remarks.

Well, I'd like to thank everyone for participating in today's call. We look forward to seeing you next week at the Lazard conference, as well as updating you on our progress on the next quarterly call. Have a great day.