Delcath Systems, Inc.
Q3 2020 Earnings Call Transcript

Published: 11 Nov 2020

[Operator:]

Greetings, and welcome to the Delcath Systems Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow after the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host James Carbonara of Hayden Investor Relations. Thank you, sir. You may begin.

[James Carbonara:]

Thank you. And once again welcome to Delcath Systems third quarter 2020 earnings call. With me on the call are Gerard Michel, Chief Executive Officer; John Purpura, Chief Operating Officer; Dr. Johnny John, VP, Medical Affairs; and Christine Padula, Principal Accounting Officer.

[Gerard Michel:]

Thank you everyone for joining today. As many of you know, this is my first earnings call since joining Delcath in October. In addition to the expected updates on clinical progress and financial results, I will first explain why I found the Delcath opportunities so compelling that I chose to join the company. I think this will be useful for investors to know the story well and especially valuable for the many investors who are either looking at the story for the first time or taking a second look after ceasing the fall of the company years ago. And obvious first question, when looking at any opportunity, whether a career move or an investment opportunity is whether the company is offering or developing a product or service that addresses a real unmet need. I believe that Delcath clearly has such a product. The drug device combination Melphalan/HDS and the standalone CE mark device CHEMOSAT available in the EU, are designed to administer high dose chemotherapy to the liver while controlling systemic exposure and associated effects.

[Christine Padula:]

Thank you, Gerard and good morning to everyone. Our product revenue for the three months ended September 30, 2020 was approximately $340,000 compared to the $216,000 for the prior year period from our sales of CHEMOSAT procedures in Europe. Selling, general and administrative expenses were approximately $2 million compared to $4 million in the prior year quarter. Research and development expenses for the third quarter were $3.3 million compared to $1.8 million in the prior year quarter. Total operating expenses for the third quarter were $5.3 million compared to the $5.8 million in the prior year quarter. We recorded a net loss for the three months ended September 30, 2020 of $5 million compared to the net loss of $7.5 million for the same period in 2019. At September 30, we had cash, cash equivalents and restricted cash totaling $11.1 million compared to cash, cash equivalents and restricted cash of $10.2 million at December 31, 2019 and $15.5 million at the end of September 30, 2019. During the months ended September 30, 2019 and September 30, 2019, we used $5.2 million and $12.4 million respectively of cash in our operating activities. That concludes my financial remarks. And I now ask the operator to open the phone lines for Q&A. Operator, can you please pull for questions?

[Operator:]

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Scott Henry with Roth Capital. Please proceed with your question.

[Scott Henry:]

Thank you and good morning. A lot of new information on the call. I did just have a couple of questions. First, 91 patients for 356 treatments to about 3.9 for, call it, four cycles per patient, which was seemed to be an encouraging sign. How would you kind of interpret that in your opinion?

[Gerard Michel:]

Well, I think, it means -- just using the simple math that on average patients are getting about four treatments. And as you know, it's six to eight weeks per protocol for treatment. So that's an encouraging sign. I don't want to go beyond that and say, hey, look, impute an overall response rate from that. But certainly if you assume that most of those patients are getting a response and it's not just stable disease, it's very, very encouraging.

[Scott Henry:]

Okay. I would certainly agree. And then with the data coming in early 2021 and a filing coming in early 2022, what's kind of the gating factor? Or what …

[Gerard Michel:]

Yeah. The gating factor is really monitoring. We have probably a disproportionate number of patients in a handful of sites with -- the monitoring is certainly backed up through COVID. And it's really working through that. And the slowest site with the most data is the gating item. So, we might have 17 out of -- I think it's 20 sites give or take done, and it might be two or three they're dragging us that far along. We're certainly doing everything we can to accelerate that. But when you do the math with the pace and the access you have, remember it's us and umpteen other sponsors trying to get in the door and negotiate for additional access. And these -- some of these sites are saying, all we're going to do with scan -- scan for your redact -- and redact and scan, excuse me -- paper copies, and send them off to you. And we know you only get a one person every two days a month to do that because every other sponsor is asking for it. That's one example. Another is when they open up, it could be normally you could have three or four people show up. They only let two, because they're trying to do distancing. There's a myriad of things like that, but all under the same basic theme of -- when things open up, they're not totally opened up. And then things start shutting down like they are now, we have to make some set of assumptions about how long would they be shutdown. So, it's a handful of sites that we're trying to pull the data through bins straws, the best way to think about it.

[Scott Henry:]

Okay. And I very much appreciate the guidance of at least 21%. Now do -- how comfortable you -- are you that that bar hasn't shifted since you last met with the FDA? I mean, has the kind of standard-of-care improved at all, or would you say it's similar to when you came across that -- when you pick that number 21%?

[Gerard Michel:]

I think -- I don't think anything dramatic has changed system, but I'll ask Johnny John to comment.

[Johnny John:]

Sure. Thank you, Scott, for the question. We're not that concerned that this bar has shifted. This was a meta analysis done on 16 publications at the time to get the overall response rate in those publications and establish a baseline or a minimum that we would have to hit to show superiority over immuno-oncology treatments. Even if it did shift a small amount, it still is not of a concern currently to us. But if we would, of course, consider any new publications and we can do an analysis internally to see if those would impact the current 21%. But again, we're not deeply concerned by a small shift in that number.

[Scott Henry:]

Okay. Great. Well, thank you for taking the questions and thank you for the increased visibility.

[Operator:]

Our next question comes from the line of Yale Jen with Laidlaw and Company. Please proceed with your question

[Yale Jen:]

Good morning, and thanks for taking the questions and Gerard, congrats on -- it's a great opportunity. My first question is that, used to have nine patients under treatment, do you get some sense when those treatments will be completed, any comments on those patients? And when you say report the top line data for early 2021, would that be first quarter? Then I have some follow-ups.

[Gerard Michel:]

Sure. Let me start with the second question. It will be in the first quarter, and then hopefully early in the first quarter. To give my -- give yourselves a little wiggle room, so we'll say the first quarter. In terms of the nine patients, we don't know when they'll be completed, depends on how many cycles of treatment they get. We did mention the last patient was dose up in September, started the dosing. Now, if it happens that, we have all the data and except for, let's say two or three patients, we'll give them to top line data. And then we'll just say that, except for X number of patients we're not available at this time, which is not unusual as you know, in oncology trials. So, that will not be a gating item to getting top line data out.

[Yale Jen:]

Okay. And you mentioned the -- about the 21% for the immuno-oncology agents. And are those -- none of those agents actually formally approved for the metastatic ocular melanoma, is that correct? Or that's actually somewhat has been approved.

[Gerard Michel:]

Well, somewhat has been approved. I will let Johnny John explain the kind of the unique situation of those agents.

[Johnny John:]

Sure. So, those agents have been approved, Yale Jen. The analysis -- meta analysis was done on both single therapy agents, but also combination therapy regiments that were used for metastatic melanoma. So, in terms of the approval, the approval for these agents are overall for metastatic melanoma. They didn't specify whether this was related to cutaneous or ocular. But if you look at the data provided to the FDA for the approvals, there are no patients with ocular melanoma included in that data. So, the majority of patients that were analyzed for supporting this approval came from cutaneous treatment by immunotherapy agents. But to answer your question, it was a combination of approved single agent and multiple combination therapy studies that we looked at for the meta analysis.

[Yale Jen:]

Okay. Great. Maybe -- my last question here is that, based on the last your Phase III study in terms of the response rate, do you feel that if the FOCUS study has something similar to that this commercially viable product or any sort of thoughts or comments on this issue? And thanks.

[Gerard Michel:]

Yeah. That's a good question. I mean, if it hits -- if it sales over the bar, but only by inches, which I don't think will be the case. But if that was the case, then I still think it would be commercially viable. The immuno-oncology agents have single digit if even response rates. So, we would be far better than that. And then the other liver directed therapies, don't have a lot of published data at all in this area. So, there's really nothing to point to. Now, it's always best to have a bigger number and that would be helpful. But I do think that any approval in this area with data that shows an overall response rate, something in the 20s, 30s or 40s is going to be a great product with a fair amount of uptake. This is very little available for patients with this type of disease.

[Yale Jen:]

Okay. Great. Thanks a lot. And again, congrats on the progress.

[Gerard Michel:]

Thank you.

[Operator:]

Our next question comes from RK with H.C. Wainwright. Please proceed with your question.

[Ramakanth Swayampakula:]

Thank you. Good morning, Gerard and Johnny John. Gerard, congratulations. You're taking reins of Delcath after having a successful run as CFO at Vericel, which also went to the makeover. What are the learnings there that you would like to bring over to Delcath?

[Gerard Michel:]

Well, that's -- I wasn't expecting that question RK, but thanks for asking that. The learnings from Vericel, I think a couple of things. One is, I'll say the truth will set you free. It's good to always have an open conversation about barriers, obstacles and address them head on, both within the management team and then in a thoughtful manner and the right time with investors. So, there's never -- in this area, there's never a straight line between here and there. There are going to be curves and detours. I think, everyone needs to take those into account and have constructive dialogue. So transparency both internally, and then again, it's a little more stringent and regulated, but also with the investor community, that's important. I think the second is, trust your team, give them solid directions and a direction to go and let them run with the appropriate -- if you seeing . And the third is having the right balance between having very specific goals in mind, but recognizing that at times you'll have to be flexible and deviate from them. I mean, that's probably the toughest part. But just again, unanticipated things will occur at times. So that's kind of a balancing act. So, I think it would -- I will leave it at those three lessons.

[Ramakanth Swayampakula:]

Great. Certainly. I wish you all success here. A couple additional questions. So, obvious -- I mean, it's interesting -- this technology is interesting that you -- that the company utilizes to deliver Melphalan which is a well known and well understood drug. So, what is novel about this technology in the sense -- is it something easy for some of the surgeons to conduct and also, is there a learning curve for this -- for the surgeons to use this technology? Would that be any hindrance at all, or is this something that it's easy for this -- for these folks to use in that EU .

[Gerard Michel:]

They are -- there are really two parts of your question, what's novel about the technology and then the learning curve and the surgeons. I'm going to ask our COO, John Purpura, to discuss about what's novel about the technology. And then Johnny John can talk through the learning curve and radiology.

[John Purpura:]

So, thank you, Gerard. I think what's novel about this technology, it can be summed up in three words. And you might've seen this in various incarnations in our prior communications, but the concept of isolation, saturation and filtration, that's what's novel. Taken together, we can isolate an organ. And because of that isolation technique really ramp up the dose of chemotherapy because you can have the dose of chemotherapy be much more effective in higher doses, and yet spare the patient from the systemic side effects. And then, of course, there's the filtration technique, which comes after the dosing and returns the blood to the patient with the significant amount of chemotherapy removed. So, those are the three tenants of the technology, which sound very simple in practice. There's an orchestration of the various participants conducting the surgical procedure. And yes, there's a learning curve, but each individual practitioner runs the procedure as an orchestrated event. And we have several centers now around the world that have conducted well over 100 treatments. And these things get shorter and shorter in time and the procedure becomes more and more routine. So, we're confident that we'll be able to build the commercial organization around that concept of having specialized centers conduct the procedure as a matter of routine.

[Gerard Michel:]

Let me ask Johnny John to talk through about the experience in Europe the commercial setting, in terms of getting centers up and running and familiar with the technique.

[Johnny John:]

Sure. Thank you, Gerard. So, I would just go on top of what John said, there is a learning curve. We are very familiar with -- what it takes to get up a new site to get up -- get them up and running. We do have a comprehensive training program in place, which constitutes of first part of didactic training and then additional proctoring that takes place for each member of the procedural team that will conduct the procedure. We don't find that individually the tasks required to do the procedure are inherently difficult. It's the combination of the whole team working together, as John said, as an orchestra, while performing the procedure that requires some skill set and some training. So, we usually do have a set of proctors that will be available and present, when a new site comes up and running and this would be an individual proctor for each member of the procedural team that is taking place at the new center. We do encourage and have these centers go and visit and see a procedure prior to that at a trained site, so that they have additional familiarity on how the procedure is conducted. So, so far we haven't had any issues. And again, as John has said about centers that have conducted over 100, and we've had centers that have conducted over 200 procedures. Over -- obviously like anything else, the more procedures you conduct, you're familiar with familiarity and skillsets, of course, improve.

[Ramakanth Swayampakula:]

Fantastic. Thank you, gentlemen. And then the last question from me is, obviously there are multiple indications where I can think you would need -- yeah, it's helpful to target large bullets of drugs. What are the indications would Delcath be looking at once you get to the current indication of metastatic ocular melanoma. I know your listed a few of them on your slide deck, but I'm just trying to see as you regroup, what are the indications that seem most viable and quick to the market.

[Gerard Michel:]

Well, quick to the market, I mean, you touched on an important point there. There are multiple inputs to trying to decide which to go after first or in parallel. Obviously, the unmet need both -- are there alternative therapies and how many patients are there, what type of evidence do we have that it's likely to work? And we have lots of individual case studies and small reports out of Europe for most of those cancers that we mentioned. Then third is the cost to get a label expansion and get and/or get reimbursement. I think it'll be some mix and it may frankly be all, but just staggered in terms of the star of ICC, which the trial is open, but frankly recruitment has been very slow due to some inclusion/exclusion criteria that perhaps we will change. Neuroendocrine where we have some fairly solid data from an earlier trial, or it was a mix of different tumor types treated. Breast, where we've heard of some very good reports out of Europe, single cases, and then colorectal, where just simply given the size of that indication makes -- it make sense to explore. I think that's the set that we'll choose from. And it could very well be that something in a year and a half, now we have something going on in three or four of those or maybe even four on a real hot -- on a very real upside scenario in terms of funding and resources. But I think over time both whether you're looking at compendia and various guidelines and label expansion, this product will be used across multiple tumor types. Again, it's a step wise fashion, but you got to have the first one approved and start developing efforts in others. But we will do that. And I think the four, I mentioned, it some subset of those will be the next ones we start.

[Ramakanth Swayampakula:]

Thank you. Thank you, Gerard and thank you gentlemen for taking all my questions, and we'll talk to you soon.

[Gerard Michel:]

Take care. Thanks, RK.

[Operator:]

Our next question is a follow-up from Yale Jen with Laidlaw. Please proceed with your question.

[Yale Jen:]

Thanks for taking a follow-up. Just a very quick one. That -- thoughts -- now that there is still no deaths occurred in the FOCUS study, is that correct?

[Gerard Michel:]

Yes. That is true. Treatment related, yes.

[Yale Jen:]

Okay. Great. Thanks a lot. I appreciate it.

[Operator:]

Thank you. We have reached the end of the question-and-answer session. Mr. Michel, I would now like to turn the floor back over to you for closing comments.

[Gerard Michel:]

Well, thank you all for taking the time today to join the call. In closing, I will reiterate that I am thrilled to have joined the team here at Delcath and stayed together with that team. We intend to build a world-class interventional oncology company. Thank you for your support. Goodbye.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.