Delcath Systems, Inc. (DCTH) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Delcath Systems, Inc. Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to James Carbonara. Thank you, please go ahead sir.

Thank you. And once again welcome to Delcath Systems second quarter 2020 earnings call. With me on the call are John Purpura, Interim Chief Executive Officer, Christine Padula, Principal Accounting Officer, Dr. Johnny John, VP of Medical Affairs and Dr. Gilad Aharon, Director. 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. Both statements made on this call with the exception of historical fact made by considered forward-looking statements within the meaning of Section 27-A 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 assurances 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. The 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 and 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. And 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 John Purpura. John, please proceed.

Thank you James. And thanks to everyone for joining us today. We will arrange our comments by providing a strategic overview highlights of our second quarter performance and operational update and our financial results before having our Q&A. So first up, a strategic overview. This second quarter has been truly transformational for Delcath and the culmination of a 12-month process of restructuring, recapitalisation and refocusing the company. This included among other things management as well as board transitions. Delcath is now fully restructured with a clean balance sheet and cap table, fully recapitalized with 51.5 million raised over the past 12-months through Q2 led by fundamental health care focussed funds to allow us to complete our Phase 3 registration FOCUS trial of our therapeutic treatment platform Melphalan/HDS in liver-dominant metastatic ocular melanoma for which we have an orphan drug designation and we file our new drug application with FDA by mid-2021. I can truly say that working towards the possibility of making Melphalan/HDS available as the only labelled metastatic ocular melanoma’s specific product for U.S. patients who currently have limited therapeutic options is our organisation’s top focus and priority. During the second quarter, we completed a $22 million capital raise in conjunction with an uplifting to NASDAQ. Our current cash resources in addition to expected cash milestones in the coming quarters from our European Commercialization Partner Medac provide us with a runway through multiple value inflection points, expected by mid-year 2021. With Melphalan/HDS said to potentially be FDA approved by the second half of 2021 as the only metastatic ocular melanoma specific therapy in the U.S. Delcath has begun pre-commercialization activities, which intends to accelerate in coming quarters. These include initial market sizing, physician, hospital and payer surveys. While Melphalan/HDS is a platform technology with a potential broad affability across multiple liver dominant metastatic cancers let alone other potential organs, we look at metastatic ocular melanoma which in over 90% of cases is liver dominant as our initial commercial indications on which to build upon. Our initial medical oncology surveys have highlighted their views of the high unmet medical need for this patient population, the lack of effective therapies, the desire for novel effective therapeutic approaches, and if it were to be approved the potential frontline positioning of Melphalan/HDS in this patient population. Our initial hospital and payer surveys confirmed the expectation of attractive ultra-orphan oncology pricing dynamics for our therapy, in line with the relatively low incidence of this patient population and the high unmet medical need. Delcath estimates that there are currently about 1500 annual new cases of liver dominant metastatic ocular melanoma in the U.S. Assuming parity pricing with other ultra-orphan oncology therapies, we believe that the U.S. metastatic ocular melanoma market opportunity is indeed in the hundreds of millions of dollars and represents a compelling commercial opportunity for a relatively small organization to capitalize upon. As mentioned before, Melphalan/HDS is a platform interventional oncology technology with broad potential applicability in multiple liver dominant as well as other organ metastasis. Interventional oncology in recent years has rapidly become an integrated specialty component of comprehensive oncology care. It is fully accepted and demanded by knowledgeable oncologists where it has become an integral part of the treatment referral pattern. From a business standpoint, we have seen the interventional oncology market expand rapidly in recent years with a consolidation of strategic assets among a number of key players. We believe that Melphalan/HDS represents an exciting new technology in the interventional oncology armamentarium which is mechanistically unique, clinically differentiated and of high value commercially. While we believe that metastatic ocular melanoma is a commercially sizable market on which substantial value can be built, we intend to work towards expanding the U.S. opportunity well beyond this initial indication. During the quarter, we received feedback from FDA in relation to potential protocol modifications to our align Phase 3 study in intrahepatic cholangiocarcinoma, ICC offering the company both guidance and suggestions on a path forward. At the same time, as part of the recent strategic restructuring and refocusing of the company, we have initiated a comprehensive review of all available clinical and commercial data to guide us on the optimal pipeline projects to strategically pursue as we look to spend our precious R&D dollars in the coming quarters. Specifically, with over 1000 commercial procedures performed in the EU, in 13 different tumor types using our technology in recent years, where our product is approved by the brand name CHEMOSAT under a CE mark, we have ample data to help guide us. Some of these potential programs in addition to ICC include Metastatic Neuroendocrine Tumors, liver dominant breast cancer and metastatic colorectal cancer. As part of the initial evaluation, we have worked during the quarter to better define the U.S. patient instance numbers for each of these potential settings. Further, we are in the process of engaging with our clinical advisors to review data generated in recent years in these settings, with the goal of reaching the best risk reward conclusions on our pipeline projects. We look forward to updating you in coming months on our strategic decisions as we look to initiate new trials. Now turning to our operational updates. Early this year, as with other global trials, our Phase 3 registration FOCUS study in liver-dominant metastatic melanoma has been impacted by COVID-19. The pandemic did cause the closure of clinical sites to data monitoring as hospitals restricted access to non-essential staff members and visitors. Importantly, however, throughout these months, trial protocol has remained intact. We have managed to keep on-going trial patients who were being treated at the beginning of the pandemic on protocol. Faced with potential data timeline reporting uncertainty, we have taken steps to ensure progress on our new drug application key deliverables during this pandemic. Those include, among other things, required non-clinical studies, chemistry, manufacturing control the CMC work to ensure that any potential delays will not affect our timelines to NDA submission by mid-2021 At the same time, we are pleased to report the majority of our clinical study sites are on a trajectory of reopening to data monitoring visits, starting in Europe, and more recently in the U.S. In addition, we have implemented a number of steps to increase data monitoring efforts in light of the impact of the pandemic. Based on the current trajectory of sites re-opening, our goal is to report our Phase 3 top line data by the end of 2020 or early 2021 with a refiling of our NDA with FDA by mid-year 2021. Lastly, as mentioned before, Melphalan/HDS is approved in Europe under a CE mark with the brand name CHEMOSAT. In late 2018, we signed a royalty bearing partnership agreement with Medac, a leading private German pharmaceutical company to become now commercialization partner in the EU. While over 1000 commercial procedures have been done using CHEMOSAT in Europe, overall market penetration is still low, partly due to the lack of product reimbursement in the majority of countries; a prerequisite for enhanced reimbursement will depend on the FOCUS study results, which our partner awaits. Further, as part of our recent restructuring, we have taken steps during the current quarter to review Medac’s performance proactively to ensure optimal execution and growth trajectory by country by country with an emphasis on tactical execution. We expect these interactions to continue more frequently, with our goal of ensuring that the European opportunity expands significantly in accordance with its real potential. To conclude, we believe Melphalan/HDS is a unique, differentiated, high value interventional oncology asset representing an exciting opportunity for the treatment of metastatic cancers of high unmet medical need. In the last 12 months, Delcath has emerged as a late-stage interventional oncology company with a series of potential near term transformative value inflection points. We are focused on pursuing the initial approval of our platform technology Melphalan/HDS in liver dominant metastatic ocular melanoma, which we believe would represent a U.S. Commercial opportunity in the hundreds of millions of dollars. We are further strategically focused on follow-on indications for which our technology is applicable. Our goal is for this technology to become available as part of the armamentarium of integrated cancer care for patients who have limited treatment options. We are excited at the opportunities ahead and look forward to updating you on the progress in months to come. At this point, I'll now turn it over to Christine for a more in-depth view of our financials.

Thank you, John and good afternoon to everyone. I'd like to provide everybody a summary of our second quarter 2020 financial results. Our product revenue for the first three months ended June 30 2020 was approximately $262,000 as compared to the $221,000 for the prior year results of sales of our CHEMOSAT procedures in Europe. Our selling, general administrative expenses were approximately $2.3 million compared to $2.7 million in the prior year quarter. Research and Development expenses for the second quarter were $2.2 million compared to $1.7 million in the prior year quarter. Our total operating expenses for second quarter were $4.5 million compared with $4.4 million in the prior year quarter. We recorded a net loss for the three months ending June 30, 2020 of $4.3 million, compared to the net loss of $6.0 million in the same period in 2019. On -- highlight on our balance sheet, at June 30 2020, we had cash, cash equivalents and restricted cash totaling $16.2 million as compared to cash, cash equivalents and restricted cash totaling $10.2 million at December 31, 2019 and $1.4 million at June 30, 2019. During the three months ended June 30 2020, and June 30 2019, we used 7.9 million and 3.2 million respectively, of our cash in operating activities. In Q2 2020, we made a number of one-time cash payments that are not indicative of our usual cash usage trend, totaling approximately $3.3 million. This included compensation payable subsequent to the resignation of executives, and a director and several paths to payable. At this point, we believe our cash resources, and anticipated milestones -- milestone payments to be received are adequate to fund our operating activities into mid-2021. That concludes my financial remarks. I will now ask the operator to open the lines for Q&A.

[Operator Instructions] Your first question in queue comes from Scott Henry with Roth Capital.

Thank you and good afternoon. A couple of questions. First, there's mention of the expected cash milestones from Medac. Have you given a sense of magnitude of what range those would be in?

So those hi, Scott, this is John Purpura. How are you? Good to hear you. Those, those milestones are not very substantial, but they're substantial enough to allow us to declare that we have enough cash runway through NDA filing.

Okay, thank you. That's helpful. And with regards to the on-going trial in COVID-19, did you lose any patience to follow up or were there any dropouts as a result of what's going on? I doubt it would. But…

So the effort that has been a Herculean effort to keep patients on protocol and throughout the comings and goings of the waves of the pandemic, to actually keep the patients within the treatment window has been a Herculean effort. But we've managed to do that. Dr. John, who is also on the line, can give you some further details with respect to that. Back to John?

Yes, thank you, John. So we have managed to keep all on-going patients to continue on the protocol and have treatment based on the window prescribed by the protocol. So all treatment patients that were on-going at the time of the pandemic hits, which would be mid-March and these past few months have been, have continued and they've been treated on protocol stipulated timelines for treatment. So we're very fortunate to have continued that.

Okay, great. Thank you for that color. And then with pre-commercialization going on right now, can you give me a sense of how I should think about spending for the next couple quarters should it maybe just a slight upward trend? And also, how should we think about spending during perhaps the first year of launch? Any any sort of parameters or color you can give would be great.

So we're, we're maintaining our current spend on a quarterly basis Scott of about four and a half to 5 million per quarter. And as expenses come and go, we’ll have certain expenses go down due to the ending of FOCUS trial, and other expenses go up. So our guidance is roughly 5 million a quarter.

Okay, that's helpful. And then when we do get to the product launch, have you put any parameters in terms of what sources, what magnitude of resources you would utilize there?

So, the company has as you know a former Chief Commercialization Officer, John Sylvester on our board, and John's unique presence, giving us commercialization guidance is a significant addition to the restructured board, but also in terms of how we're moving forward in this pre-commercialization phase. So as all these commercialization pieces are coming together, we're taking guidance from various sources. And as we as we proceed through the coming months, that will become clearer, and we'll be able to update you on future calls.

Okay, I look forward to that. Final question. Just when we think about expanded indications in the timing of that, would that be something you would wait to pursue until after the filing? Or would you even wait till approval, just trying to think about when we might get updates there?

So there's the strategic assessment of exactly which indication to pursue, which, given the number of treatments in the European commercial experience was over 1000 plus our clinical work in the U.S. and KOL [ph] and other Medical Advisory Board discussions. We have to decide which is the best way to spend our R&D dollars. So, the timing of that, of course, cannot interfere with the NDA submission and the roll up of FOCUS trial data. So we have sort of a parallel path, these activities, but will when happen [ph] sequentially after the other? It's unknown at this point in time. We're trying to parallel paths, multiple strategic events. Whether or not that starts after the NDA is submitted or approved, has yet to be seen.

Okay, great. Thank you for taking the questions.

[Operator Instructions] Your next question is from Yale Jen with Laidlaw and Company.

Good afternoon, and thanks for taking the question.

Hello, Yale. How are you?

I'm fine. How you doing?

Very well. Thanks.

And in the prepared remarks you mentioned about you have spoken with FDA get some feedback from their comments on the intra hepatocellular carcinoma and any details specific you can reveal?

Well, so yes, we did receive feedback from FDA regarding our Phase 3 ICC program that gives us the path forward should we so choose to decide. But now, so that is part of our strategic review comprehensive strategic review, which has already started even prior to FDA feedback. We are focused on better defining the potential and market opportunities for which we have interest in pursuing for additional clinical development. As it turns out, this is highlighted in our corporate deck relevant ICC incidence rates, the annual incidence for the U.S. is somewhat smaller than we originally perceived. So at the same time, by the way, the annual incidence for limited dominant metastatic ocular melanoma was somewhat larger than we originally perceived. So in light of these data, as well as additional clinical evidence emerging in the EU from various centers and the 1000 treatments, we've conducted there, management is considering its options in relation to the clinical trial initiation, to be able to understand and pursue the most attractive clinically and commercially follow on indication. So this is a strategic reassessments that we're looking forward to executing in the coming months.

Okay, great. That's very helpful. And another question is that if -- eventually going to file assuming the positive data, you guys in sort of rolling submission pathway, or that's not the case?

So, the rolling submission pathways for you know, an original NDA filing, this is categorized as a resubmission, pursuant to a receipt of a complete response letter way back when. So, we have the review clock, a PDUFA assigned review clock on a resubmission of six months. So and within that six month window, there will also be, we expect to be the potential for us to be in front of Advisory Committee or ODAC. So, that six month window could potentially put the approval of our resubmission towards the end of 2021. But there's there's no plan at this point to go with a rolling submission -- a rolling resubmission to FDA.

And you mentioned that you were potentially in Pennsylvania ODAC meeting or ACOM [ph] meeting. Is that the assumption at this moment?

So we are -- we anticipate that. Well there has been absolutely no confirmation from FDA that, that will be the case. So, but we always will we anticipate it and we'll be prepared for it.

Okay, and…

That would go on curve by the way, sorry to interrupt that would occur probably at the month four or five of the review.

Okay, great. And then maybe the last question here is that, as you guys going through the assessment of different indications to be explored in theory, are we I understand different tumors different, but once they’re metastatic to the liver. Are they overall similar to some extent that as well as the Melphalan or other chemo agents is effective? You can just treat them in the same manner. In other words, I don't know whether they'll be, as you'd mentioned, the CRC colorectal cancer or even breast cancer or any other and yes to that organ.

That's a great question, Yale. So, this therapy Melphalan/HDS is the treatment of the liver. So we have actually had Delcath’s R&D departments several years ago released a published paper on the apoptotic [ph] effect of Melphalan on liver hepatocytes. So it's actually quite an effective compound in many, many different cancers of the liver. What is interesting in relation to the various disease states is the effect of potentially extra hepatic disease and the control of the disease in the liver, which is usually the life limiter. So, while there are other agents out there that one might envision so for example, one might say oxaliplatin because it's colorectal. But remember our disease, the disease organ that we're focusing on is the liver, and we believe Melphalan to be the best compound of choice for disease in the liver. While there may be other organs and other compounds to address those, we believe Melphalan hydrochloride to be the best, the best compound for addressing cancers of the liver.

Okay, great. That's a very important. Well, I appreciate that. Again, congrats on the progress and looking forward to speaking with you guys.

Absolutely Yale, anytime.

That concludes the Q&A session, and this earnings call. Thank you everyone for joining. You may now disconnect your lines.

Thank you.