Q4 2023 Delcath Systems Inc Earnings Call
Participants
David Hoffman; Chief Compliance Officer, General Counsel, Corporate Secretary; Delcath Systems Inc
Gerard Michel; Chief Executive Officer, Director; Delcath Systems Inc
Sandra Pennell; Senior Vice President - Finance, Chief Accounting Officer, Executive Officer; Delcath Systems Inc
Bill Maughan; Analyst; Cannacord Genuity
Presentation
Operator
Good day, and welcome to the Delcath Systems reports fourth-quarter and fiscal year 2023 financial results conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to David Hoffmann, Delcath's General Counsel. Please go ahead.
David Hoffman
Thank you. And once again, welcome to Delcath Systems' 2023 fourth-quarter results and business update 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, the Chief Medical Officer; and Martha Rook, who recently joined as our 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 27 A. of the Securities Act of 1933 and Section 21 E. 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. Now I would like to turn the call over to Gerard, Michel Gérard. Please proceed.
Gerard Michel
Thank you, everyone, for joining today. On today's call. I will focus primarily on our commercial progress in the US since our last update call in November, we continue to be encouraged by both the medical oncologist interventional radiology community's interest in engaging with our medical and commercial teams, their motivation and stated commitment to incorporate hip side of kit into their practices treating patients with metastatic uveal melanoma. The Company is currently working with over 20 leading centers cancer centers across the U.S., which have indicated interest in upside or chip. I will shortly share more details regarding our team's achievements over the last four months as a result of which we are increasing our site activation guidance from 15 active sites by the end of 2024 to 20 active sites by the end of the year. The approximate pacing of site activation will be 10 active sites by the end of the second quarter 15 by the end of the third quarter and 20 treating sites by year end. Importantly, we believe that our current financial resources, subsequent to our most recent $7 million financing are adequate to achieve these goals. It is important to note that this financing was supported entirely by Dell casting executives, Board members and existing institutional investors in January 2024, we announced the first commercial patient treated at Moffitt Cancer Center. By the end of the first quarter. We expect to have four active sites. These include Moffitt Cancer Center, Stanford University Cancer Center, and Thomas Jefferson University, which are fully trained and are currently treating commercial patients. In addition, in addition to those three, the University of Wisconsin is scheduled to treat its first commercial patient by the end of this week in the first quarter. Given the marked start for most of those sites and the temporary use of product sampling for some of the initial proctored cases, first quarter revenue will predominantly be generated by treatments at Moffitt with the balance of the three sites activated in the first quarter, starting to consistently generate revenue in the second quarter, while some sites will be more active than others. On average, we expect treatments per site to steadily increase from an average of approximately one per month early in the second quarter, ramping to a run rate of approximately 1.5 treatments per month by midyear and then reaching a run rate of two treatments per month late in the fourth quarter. These past four months have been a critical period for the company as we prepared for and subsequently launched Hepsera in the U.S. during the prelaunch and early launch period, the commercial and medical affairs teams needed to accomplish three critical objectives. These included obtaining a product-specific reimbursement code and pass-through status from CMS effectively communicate the potential benefits that Hub's data can provide to patients suffering from metastatic uveal melanoma to a broader set of medical oncologists, intervention radiologists and developing an official efficient process to educate, train and activate commercial sites. I believe that our progress to date demonstrates that we achieved all three of these launch related goals starting with product-specific reimbursement. On January 30th, CMS established a permanent and product-specific J-code, J. nine two four eight for hips data, which become effective on April first, 2024. Supplementing the J-code is transitional pass-through payment status, which was granted on March 21st and will also be effective in April one. While we are aware that hospitals have successfully been reimbursed for the treatment using a miscellaneous C code, the establishment of a permanent J-code. Perhaps auto will greatly simplify the reimbursement process and lowered the perceived risk of a hospital not receiving adequate reimbursement. The importance and impact of having that unique J code cannot be overstated in conjunction with medical oncologists at each of our target sites. We have been working with the sites interventional radiologists to identify and train have cytotoxic treatment teams to date, we have had over 90 perfusion as anesthesiologists and interventional radiologists attend one or more preceptor ships representing approximately 20 institutions in the US with some institutions settlement sending multiple health care providers for the same specialty. This volume of trading activity is clear evidence of the success of our outreach and the resulting broad physician interest in the US. two and corporate hub sought out as a standard of care for patients suffering from metastatic uveal melanoma. In addition to training the treatment teams at each site, we are also working to continue to obtain outside of the hospital formulary and value analysis committee approvals at additional hospitals. And we have found MD champions at each site to help separate hubs out of through these processes since the product-specific J-Code will greatly simplify these reviews after it becomes effective on April one, we expect to see a significant increase in the pace of facilities conducting the first commercial treatment and fully completing the required REMS training and tracked in just the first two weeks of April three additional sites scheduled treatments. These include Ohio State University, Wexner, Medical Center, University of Tennessee, Metro Memphis and UCLA health. Further two sites, Mayo Clinic, Jacksonville and Duke University have completed the necessary steps to conduct their first commercial treatment under the guidance of a proctor once hospital formulary and value analysis committee approval is obtained in total, there are nine sites currently accepting patient referrals, four of which have or will conduct a commercial case before the end of the first quarter, three of which have a patient scheduled the first two weeks of April and another two sites which are pending hospital formulary and value committee analysis before these nine beyond these nine sites, approximately another 1010 to 11 sites currently have preceptorship scheduled or are partway through the preceptorship training. As a reminder, the active lives activate a site we need to train the center, which includes doctor training, three health care professionals traveling to attend a preceptorship And subsequently, three experienced healthcare professionals traveling to the new site to proctor the first case and of course, reviews by hospitals, formulary and value analysis committees. The entire process from initially scheduled every ship preceptorship to activation can take approximately three months. Given the significant level of commitment required from these health care providers to become fully trained and certified under the REMS program, we believe all the health care providers and the approximately 20 centers cancer centers involved to date, all intend to incorporate hubs out of kit as a core part of their treatment regime for metastatic uveal melanoma patients. These achieved this with not impossible, but out of without a world-class commercial team with support from our medical affairs and operations groups.
Kevin, your del Campo General Manager, Interventional Oncology, has been focused on building the right commercial organization to launch a plateau for well over a year. Kevin has made a point of bringing on team members that have experience in launching complex therapies that require multiple stakeholders in the hospital setting. As a reminder, we have divided the US into four regions, each of which will be initially served by a commercial team of three comprised of a liver-directed therapy manager who will manage the hospital approval process and ensure that they have cyto kit procedure team is trained and supported an oncology matter manager was building referral networks to the oncologists within the treating centers and the clinical specialist who will support the treatment teams in preparation for and during the treatment with the goal of ensuring patient safety and improving patient outcomes. At the moment, we have about 70% of this team in place and expect to finish recruiting by July. Overtime. We may increase the field force by a modest amount, for example, increasing the number of oncology managers to two per region. In addition to the significant commercial activity, we continue to support both internal and external efforts to add to the growing body of evidence that PHP. procedure with utilizing melphalan delivered by Delcath hemostat for the Hip side of kit is an important treatment option for patients with liver dominant uveal melanoma. As a reminder, there is an ongoing investigator initiated randomized Phase two trial in Europe. The Japan trial evaluating the effect of adding immunotherapeutic hemostat liver-directed therapy. The trial has enrolled approximately 60 of the planned 76 patients and the investigators expect the trial to be fully enrolled by the end of this year. The primary objective of the trial is to compare the progression-free survival at one year of patients treated with the combination of immunotherapy with ipilimumab and nivolumab with seamless access to patients treated with chemo side alone, as Japan is an investigator-initiated initiated trial, we do not control the timing of data release. However, our understanding is that the study results, including the primary endpoint, will be presented at a major oncology conference in the second quarter of 2025. In the fourth quarter, we announced the publication of results from two independent investigator-led studies. The first of which was a retrospective comparative study of chemo set and selective internal radiation or research published in the Journal of cancers. And the second, which focused on the impact of chemo set on the quality of life of patients with metastatic uveal melanoma and was published in the journal Melanoma Research. The comparative study of chemo setting certain was conducted by independent investigators from the University Hospital to begin Germany and Cape Verde multiple cycles of search versus two treatments of PHP. with chemo set in this paper chemo site demonstrated clear advantages over certain, including a clinically meaningful and statistically significant improvement in OS.
Second, publication entitled quality of pipe after melphalan hepatic profusion for uveal melanoma was conducted by independent investigators from university hospital Southampton UK and reported the impact of PHP. with chemo set on the quality of life of patients with metastatic uveal melanoma. The authors concluded that utilizing Delcath seamlessly to administer high-dose melphalan deliver is well tolerated by patients and does not negatively affect their quality of life. While that data is used to treat metastatic uveal melanoma represents a validated and sizable market opportunity for us to capitalize and capitalize on. We believe that have sort of has the potential to treat other cancers in the liver, such as metastatic colorectal cancer, metastatic neuroendocrine tumors, metastatic breast cancer and intrahepatic cholangiocarcinoma. And we plan to begin a study on hip hip side of kit to treat one of these physicians within a year while still focused on our revenue growth and increase in cash flows from operations. We believe that those similar disease states are in areas of unmet medical need that always represents significant future growth opportunities for our platform.
In summary, the Company has passed a major inflection point in terms of relative risk and potential return given FDA's approval of the Hepsera kit last year. The issuance by CMS of a product-specific J-Code. We've demonstrated that and the demonstrated interest from over 20 major institutions and our proven ability to train and activate sites while the treatment of metastatic uveal melanoma patients will support significant growth for the foreseeable future. We are planning to pursue additional indications given the tremendous unmet need for patients suffering from cancers of liver. Clearly, the future of Delcath has never been brighter. I will now hand the call over to Sandra to share some details on our financial position. Sandra?
Sandra Pennell
Thank you, Chad. We ended Q4 with $32.5 million in cash and investments and cash used in operations was approximately $8.1 million in the fourth quarter. The increase in cash from prior year end is due to the 2023 private placement financing, which provided approximately $60 million in cash to fund the activities through approval and the launch of PEP cytokines. Recently, on March 19th of this year, the Company closed a $7 million private placement to ensure sufficient cash for operations until the Company achieved 10 million in quarterly revenue which will trigger a potential warrant exercise, which could result in $25 million in proceeds. We are confident we will achieve 10 million in quarterly revenue, no later than the fourth quarter of this year. Revenue from our sales of chemotherapy was 0.5 million for the three months ended December 31st, 2023, compared to $0.6 million for the same period in 2022. For the three months ended December 31st, 2023, research and development expenses were $4.7 million compared to 4.4 for the three months ended the previous year. The increase is primarily due to higher personnel expenses for the three months ended December 31st, 2023 compared to the same period in 2022.
Selling, general and administrative expenses have increased to 7 million from 3.8 million. The increase is due to activities to prepare to prepare for commercial launch, including marketing related expenses and additional personnel in the commercial team. That concludes our prepared remarks. I'd ask the operator to open the phone line for Q&A. Can you please check for questions?
Question and Answer Session
Operator
(Operator Instructions) Bill Maughan, Cannacord Genuity.
Bill Maughan
Good morning and congrats on the hot start for commercialization on just in terms of what you're seeing so far in the patients that are being enrolled and treated. Can you comment on what other treatment, what other therapies they have been through and what therapies that the doctors are choosing not to put them on in and to put them on perhaps auto instead. And when you're speaking with these doctors, is there interest on their part in combination with systemic agents? Or are they just simply kind of kind of taking instruction as as you're giving it and just sort of following that playbook things?
Yes.
David Hoffman
I'm going to hand that question off in a second to Kevin on and maybe Leo can comment on the combination. But I'd start by saying that due to Hippo rules, we don't have a direct pipeline to what patients, what other treatments they've got Now inevitably, since we do sit in the procedures we do and we do talk to docs, we have some sense of the mix. I think it's fairly varied. But Kevin, why don't you chime in in terms of in terms of early anecdotal evidence as to whether these patients are pretreated, not pretreated, I suspect it's a mix just like we have the trial.
Yes. Thank you, Gerard. You're exactly right. The anecdotally, from what we've learned in the field at this point is that just as we would suspect patients are treated with some of them have had prior systemic treatment. And some of them have that prior liver-directed treatment. And we've even had some patients who had no treatments. So it's a little early to make a in the bold statement about where we fit into the treatment paradigm. And I'm sure that that will shift over the year. But you want to maybe talk about some of your medical affairs this team about and heard about interest in combination therapy?
Yes, similar to what Kevin mentioned, we see several patents emerging of the implementation of the horizontal into the 2nd year into the treatment paradigm, one being induction treatments to get the disease under control and enable other treatments. For example, maintenance and but also a very big interest for combinations. As Gerard mentioned in the remarks, I don't know, chip entirely in ipi nivo that mixed immunotherapy combination. There are other regiments of ipi nivo that are currently under consideration. And there's also strong interest in combinations that have been fast results. So we'll be exploring, obviously, together with the investigators all these options to simply find the best path. The great example is the treatment paradigm.
Thanks. And then just as a quick financial follow-up, looking at your cash position and cash runway and this final tranche of financing that would come into play. If you hit $10 million in the quarter, what's sort of your base case outlook for for the company's finances going forward?
It looks like you can get to cash flow positivity from. And then at that point, you can you can push into potentially other liver cancers, um, do you expect cash flows from your initial upside indication to support all that extra potential development? Or I just kind of want to get a sense of how you're feeling in terms of cash needs on that that our base case is to be very sensitive to dilution to existing investors and therefore on fund new development off out of cash flows from the company. So our base case is we should be able to be cash flow positive on assuming the stock works when we had $10 million, I think it warrants exercise, et cetera, without additional financing. And that's so that's we're not planning on starting 4Q trials at once. We'd be able to fund at least one trial off that cash flow and hopefully more over time. Thank you.
Operator
Marie Thibault, BTIG.
David Hoffman
Hi. Congrats, Gerard and Sandra. On this some positive update today, I wanted to ask a little bit more about some of the commercial traction you're seeing so far, I know and at Moffitt and for now and then some commercial proctored cases coming. Just to clarify, are all those first proctored cases, are those commercial? Are they all going to be bringing in revenue? And then any details you can offer on how many patients have been treated commercially so far here in the first quarter. Are they coming back for repeat? What's sort of the trend this is I know it's early to call a trend, but if there's any more kind of metrics you can give us around the commercial traction?
Yes, I don't think we're going to be doing too many sample cases in this. And yes, proctored cases in the second quarter in the first quarter, we found it useful for a variety of reasons to do so. I think most I would say 80% of the business we're going to get in the first quarter is going to be from Moffitt. I mean, they're running at a run rate of, let's say, roughly two a quarter. So hopefully that'll help you there in terms of what to expect in a two per month, excuse me, I just had some of my videos drive. Would you say that 52 per month and but all the centers that were are up and running now will definitely contribute to contribute to our revenue in the second quarter.
In terms of our patients coming back, yes, patients are coming back I can't at this point, tell you what the average number of treatments will be per patient in the commercial setting was 4.0 0.1 in the clinical trial. But we see no indication that they're doing one and stopping or two and stopping at this point, it looks like they're they're behaving at least with the data we have in hand, at the moment, they're behaving at least like they did in the clinical trial.
Operator
Okay. That's really helpful for us to know. And then congrats to Martha to their doctor rock on her new role. Can you tell us anything about the priority should be focused on any changes, any tweaks happening on the operations side that she's focused on?
David Hoffman
And thanks for taking the SuperVAR with very low mid-single digits. We are I think the number one priority is on ensuring we have a robust supply chain. There are a lot of components in this product, a lot of single source vendors, and this is something I'm very familiar with as Sandra and David from Vericel, we had actually more single source suppliers there, and we made it in the background, we made a strong effort to make that supply chain as robust as possible. And I know that companies never had a stock-out. They've done a great job and we're going to make sure the same thing occurs here. So that an ongoing priority on. But that's probably one of her first tasks. And I think I'll leave it at that.
Operator
Thank you again.
David Hoffman
Okay.
Operator
Our next question comes from Yale Jen with Laidlaw & Company. Please go ahead.
David Hoffman
Good morning and thanks for taking the questions and congrats on a good start. My first question is that Gerard, you suggest that it could be 10 million revenue toward the fourth quarter. Could you give us a little bit what make that assumption and some details of that and I have a follow-up.
Yes, I think if you run through the metrics I gave a little earlier on the call, we're ramping one per month to 1.5 per month to per month starting in the first quarter, get into the end of the year on average per site. And then the site activation, which I said 10 by midyear, 15 end of the third quarter 2020 into the fourth quarter. And you multiply that by 1.25 on price per kit. You'll find that you can achieve $10 million by the end of the year.
Okay.
Bill Maughan
Great.
David Hoffman
That's very helpful. And the follow-up question is that you've got so far have NIOBE, what would it have been trained to and what do you anticipate over the next quarter or two that number might be? And what impact do you think that could have in terms of the going forward, I can fix it. We're finding that the average size is spending more than three people that are often doubling up on either an IRR, an anesthesiologist or profusion as the center when they go home. So you wouldn't divide that 90 by three. You get to 30 minutes of roughly 20 sites. It sounds at least one person or have scheduled a training. I actually haven't thought through how many do I how many more preceptor ships will occur before the end of the year?
I think it'll probably be at least a similar number. I mean, we're partway through about 20 institutions right now some move at a glacial pace, some move very quickly. So when I said before, it takes about three months in reality, some came rolling through in a little under two months and some were on month five or we are working with Ameristar six. So I'm but I think maybe another 90 to 100 preceptor ships would probably get us to 20 plus sites 20 sites by the end of the year, particularly at maybe just add one more question here, which is a little bit. Again, people are looking at given that you anticipate 20 sites the overlap of four in place by year end. What's the longer term go, for example, for next year, what's the general thought you have and again, things you know, yes, I honestly don't know. And I will tell you the reason I don't know is we need to spread out whether or not 20 to 25 sites is adequately handling the patient flow, whether or not we can put in place adequate referral referral networks to get the patients to those 20 to 25 sites, if it looks like it makes sense to open 35 sites, we'll do. So we want to be careful that we don't open sites that are only doing one every month or two because I don't think that will lead to that. We may not lead to the best patient outcomes if sites are doing that lower volume. So we'll have to see how how things how things will evolve in terms of commercial sites we might open other sites just for purposes of R & D, I get it treats a site train for the you know, that does a modest volume, so they can do another indication. But again, I think somewhere between 20 at the low end, the 35 is the range next year.
Okay, great.
Operator
Thanks again, congrats on the that Graceba again, if you have a question, please press star then one.
Our next question comes from Sean Lee with H.C. Wainwright. Please go ahead.
David Hoffman
Hey, good morning, guys. It's Sean here for our K. And congrats on the positive commercial developments. My first question is on the are we expecting market. So I was wondering within the first 20 sites, considering there's some of the largest cancer centers in the U.S., what percentage of the overall market you expect to cover by the end of this year.
Yes, but I think if we count patients who have one or more referrals at those sites to show up once the genetic consult with an oncologist, it's probably over 75%. If we count, you know, who is actively being treated somewhere outlets at the moment, it's a lower percentage, but these patients are used to going somewhere for a referral. And I think that I'll just put that the majority of the market might just leave it at that will be covered by these sites because we will be actively putting in place referral networks to these sites expanding upon the referral of networks that currently have.
That's great to hear on. My second question is on reimbursement so I was wondering whether you can highlight some of the reimbursement process as you've gone through so far on what do you run into any issues as to whether you are you would go with more on reimbursements towards a recovery with tire payers this year with the J-code active?
Operator
Thanks.
David Hoffman
Yes. So the first part of the year, we did not have passed through or a C code on sometimes CMS takes more than three months to do that. In our case, it was more than three months. So we didn't get it on January first, which was our hope. And my assumption when I initially gave the guidance of five treating sites that we managed to get four sites up and running or we will have four sites by the end of the first quarter using a miscellaneous code, no easy task for a product priced at an orphan pricing level that we are at. As I mentioned, starting April one that the pass-through status will be active as with the J-code. And I think a good indication of the impact of that is the fact that we have three treatments planned and scheduled in the first two weeks of April. And that is largely due to the fact that some of those sites were clearly waiting for the J code to become active.
Thanks and that's all the questions I have.
Operator
This concludes our question and answer session.
David Hoffman
I would like to turn the conference back over to Gerard Michel for any closing remarks, I would like to thank everyone for their interest and taking the time to tune in today, and I very much look forward to providing a future updates probably about two months from now, given the length of time to get the K out and have this call on. So again, I look forward to giving everyone future updates. And I very much. Appreciate the support. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
