Delcath Systems (NASDAQ:DCTH) Q2 2020 Earnings Call

0:01 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 listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to James Carbonaro. Thank you. Please go ahead, sir. Thank you. And once again, welcome to Delcat Systems' second quarter 2020 earnings call. With me on the call are John Pappura, Interim Chief Executive Officer, Christine Padula, Principal Accounting Officer, Dr.

0:49 Johnny John, VP of Medical Affairs, and Dr. Gil 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 statements described in the Private Securities Litigation Reform Act of 1995. False 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 assurances that such expectations will prove to have been correct.

1:34 Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10-Q, as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances.

2:22 Now I would like to turn the call over to John Perfora. John, please proceed.

2:28 Thank you, James, and thanks, everyone, for joining us today. We will arrange our comments by providing a strategic overview, highlights of our second quarter performance, an 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, recapitalization, 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 due led by Fundamental Healthcare Focus Funds to allow us to complete our Phase III registration focus trial of our therapeutic treatment platform, Melphalan HDS, in liver-dominant metastatic oculomelanoma, for which we have an orphan drug designation, and refile our new drug application with FDA by mid-2021.

3:45 I can truly say that working towards the possibility of making Melflan HDS available as the only labeled metastatic oculomelanoma-specific product for U.S. patients who currently have limited therapeutic options is our organization's top focus and priority. During the second quarter, we completed a $22 million capital raise in conjunction with an uplisting 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.

4:32 With Melflin HDS set to potentially be FDA approved by the second half of 2021 as the only metastatic oculomelanoma-specific therapy in the U.S., Delcat has begun pre-commercialization activities, which it intends to accelerate in coming quarters. These include initial market sizing, physician, hospital, and payer surveys. While Melphalan HDS is a platform technology with the potential broad applicability across multiple liver-dominant metastatic cancers, let alone other potential organs, We look at metastatic oculomelanoma, which in over 90% of cases is liver dominant, as our initial commercial indication on which to build upon.

5:25 Our initial medical oncologist 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 Melflin 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. Belcat estimates that there are currently about 1,500 annual new cases of liver-dominant metastatic oculomelanoma in the U.S. Assuming parity pricing with other ultra-orphan oncology therapies, we believe that the U.S.

6:24 metastatic oculomelanoma 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, Melklin HDS is a platform interventional oncology technology with broad potential applicability in multiple liver dominant as well as other organ metastases. 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.

7:12 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 Meltland HDS represents an exciting new technology in the interventional oncology armamentarium, which is mechanistically unique. are clinically differentiated and of high value commercially. While we believe that metastatic oculomelanoma 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 III studies, and Interhepatic Cholangiocarcinoma, ICC, offering the company both guidance and suggestions on a path forward.

8:12 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 project to strategically pursue as we look to spend our precious R&D dollars in the coming quarters. Specifically, with over 1,000 commercial procedures performed in the EU in 13 different tumor types using our technology in recent years, where a product is approved by the brand name Kemosat 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.

9:03 As part of this initial evaluation, we have worked during the quarter to better define the U.S. patient incidence 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. Earlier this year, as with other global trials, our phase three registration focus study in liver dominant metastatic melanoma has been impacted by COVID-19.

9:54 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 ongoing 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 included, among other things, required non-clinical studies, Chemistry Manufacturing Controls of CMC work to ensure that any potential delays will not affect our timelines to NDA submission by mid-2021.

10:45 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 US. 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 reopening, our goal is to report our phase three 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, MELFLA and HDS is approved in Europe under a CE mark with the brand name Chemosat.

11:32 In late 2018, we signed a royalty-bearing partnership agreement with MEDAC, a leading private German pharmaceutical company, to become our commercialization partner in the EU. While over 1,000 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 BDAC's performance proactively to ensure optimal execution and growth trajectory by country by country with an emphasis on tactical execution.

12:22 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 Melflin HDS is a unique, differentiated, high-value interventional oncology asset representing an exciting opportunity for the treatment of metastatic cancers of high unmet medical needs. In the last 12 months, Melflin HDS 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, Meltzland HDS, in liver-dominant metastatic oculomelanoma, which we believe would represent a US commercial opportunity in the hundreds of millions of dollars.

13:14 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.

13:46 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 with 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 and 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.

14:37 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. A 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, December 31, 2019 and $1.4 million at June 30, 2019.

15:26 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 payables subsequent to the resignation of executives and a director and several past due payables.

16:17 At this point, we believe our cash resources and anticipated 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. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question, thank you, comes from Scott Henry with Roth Capital.

16:59 Thank you and good afternoon. A couple 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?

17:19 Hi, Scott.

17:21 This is John Purper. How are you? Good to hear you. 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.

17:41 Okay. Okay, thank you. That's helpful. And with regards... to the ongoing trial in COVID-19. Did you lose any patients to follow up or were there any dropouts as a result of what's going on? I doubt you would, but.

18:02 So the effort there 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. Dr. John?

18:28 Yeah, thank you, John. So we have managed to keep all ongoing patients to continue on the protocol and have treatment based on the window prescribed by the protocol. So all treatment patients that were ongoing at the time of the pandemic hit, which would be mid-March in these past few months, have continued and have been treated on protocol stipulated timelines for treatment. So we're very fortunate to have continued that.

18:57 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 be maybe just a slight upward trend? And also, how should we think about spending during perhaps the first year of launch? Any sort of parameters or color you can give would be great.

19:28 So we're maintaining our current spend on a quarterly basis, Scott, of about $4.5 to $5 million per quarter. And as expenses come and go, will 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.

19:55 Okay, that's helpful. And then when we do get to product launch, have you put any parameters in terms of what sources, what magnitude of resources you would utilize there?

20:09 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 proceed through the coming months, that will become clearer, and we'll be able to update you on future calls.

20:55 Okay, I look forward to that. Final question, just when we think about expanded indications and the timing of that, would that be something you would wait to pursue until after the filing, or would you even wait until approval? Just trying to think about when we might get updates there.

21:16 So there's a strategic assessment of exactly which indication to pursue, which given the number of treatments in the European commercial experience, which is over 1,000, plus our clinical work in the U.S. and KOL 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 the focus trial data. So we have sort of a parallel path to these activities, but will one happen sequentially after the other? It's unknown at this point in time.

22:03 We're trying to parallel path multiple strategic events. Whether or not that starts after the NDA is submitted or approved has yet to be seen.

22:16 Okay, great. Thank you for taking the questions. As a reminder, ladies and gentlemen, that is star one if you would like to ask a question at this time. Your next question is from Yael Jin with Laidlaw and Company.

22:33 Good afternoon, and thanks for taking the questions. Oh, yeah.

22:38 How are you?

22:40 I'm fine. How are you doing?

22:42 Very well, thanks.

22:44 And in the prepared remarks, you mentioned about you have spoke with FDA, get some feedback from their comments on the intrahepatic carotid carcinoma. And any details specific you can reveal?

23:01 Well, so, yeah, we did receive feedback from FDA regarding our Phase III ICC program. that gives us a path forward should we so choose to decide. So that said, as part of our strategic review, comprehensive strategic review, which has already started even prior to FDA feedback, we focused on better defining the potential end market opportunities for which we have interest in pursuing for additional clinical development. As it turns out, and this is highlighted in our corporate deck, relevant ICC incidence rate, the annual incidence for the U.S. is somewhat smaller than we originally perceived.

23:47 So at the same time, by the way, the annual incidence for liver-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 1,000 treatments we've conducted there, management is considering its options in relation to the clinical trial initiations to be able to understand and pursue the most attractive clinically and commercially follow-on indication. So this is a strategic reassessment that we're looking forward to executing in the coming months.

24:36 Okay, great. That's very, very helpful.

24:39 And another question is that if you eventually going to file assuming the positive data, are you guys in the sort of rolling submission pathway or that's not the case?

24:58 The rolling submission pathway is for 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. And within that six-month window, there will also be, we expect, The potential for us to be in front of an advisory committee. So that six-month window could potentially put the approval of our resubmission toward the end of 2021. But there's no plan at this point to go with a rolling resubmission to FDA.

25:52 And you mentioned that the U.S. Potentially anticipate ODAC meeting or EDCOM meeting. Is that an assumption at this moment?

26:04 So we anticipate that. Well, there has been absolutely no confirmation from FDA that that will be the case. But we anticipate it and we'll be prepared for it.

26:18 Okay. And maybe the last question.

26:21 That would occur, by the way, sorry to interrupt, that would occur probably at the month four or five of the review. Okay, great.

26:31 And maybe the last question here is that as you guys are going through the assessment of different indications to be explored, just in theory, I understand different tumors are different, but once they Metastatic to the liver. Are they overall similar to some extent that as long 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 that would be, as you mentioned, the CRC, colorectal cancer, or even breast cancer, or any other cancers to that organ.

27:19 That's a great question, Yael. So, you know, this therapy, Melphalan HDS, is a treatment of the liver. So we have actually had Delcat's R&D department several years ago release a published paper on the apoptotic effects of Melphalan on liver hepatocytes. So it's actually quite an effective therapy. compound in many, many different cancers of the liver. What is interesting in relation to the various disease states is the effect of potentially extrahepatic 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, the diseased 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.

28:28 While there may be other organs and other compounds to address those, we believe melphalan hydrochloride to be the best compound for addressing cancers of the liver. Okay, great. That's very insightful.

28:44 I appreciate that. Again, congrats on the progress and looking forward to speaking with you guys soon.

28:53 Absolutely, any time. That concludes the Q&A session and this earnings call. Thank you, everyone, for joining. You may now disconnect your lines.

29:05 Thank you. Thank you.