Delcath Systems, Inc.

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 the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Cabrera of Hayden Vesta Relations, Thank you, sir. You may begin.

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 Papora, Chief Operating Officer, Dr. Johnny John, VP Medical Affairs, and Christine Padula, Principal Accounting 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 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. 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. Now I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you everyone for joining today. As many of you know, this is my first earnings call since joining Dell Cath in October. In addition to the expected updates on clinical progress and financial results, I will first explain why I found the Dell Cath opportunity 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 to follow the company years ago. An 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 DELFCAP clearly has such a product. The drug-device combination, MELP1-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. The lead indication is metastatic ocular melanoma, and while an orphan indication, with an estimated 1,200 to 1,500 patients a year in the U.S., there is no standard of care, and the existing treatments have not been shown to offer significant benefit to patients. Upon diagnosis of liver metastases, patients have a very poor prognosis from this devastating disease. While it is clear that there is an unmet need, the next key question is whether the ongoing focus trial would demonstrate adequate efficacy. The trial's primary endpoint is overall response rate. In our submission to the FDA, we based the outcome of the trial on the hypothesis that melphalan HDS is more efficacious than immune oncology agents, one category of treatments frequently used in patients with metastatic ocular melanoma, given their approved label for metastatic melanoma. For analytical purposes, the FOCUS trial should demonstrate an overall response rate of at least 21% to show superiority over the response rate calculated from a meta-analysis that was conducted on immuno-oncology trials in metastatic ocular melanoma. It is important to note that all previously published studies, even the first pivotal trial with the first-generation filter, exceeded this targeted overall response rate. In these studies, the overall response rates have varied from 27% to 72%. with the last three studies using the second generation device ranging from 47% to 72%. While these last three published studies were all single or dual center studies, which often have higher response rates, and the last study focused on earlier stage patients who generally seem to have a better response rate, we do fully expect the trial results to be somewhere within the range of all four studies and be well in excess of the 21% target overall response rate. All of this information was critical to my conclusion that DelCath is nearing the end of a development program which leads to an efficacious product addressing an unmet need. While the lead indication is an ultra-orchid indication, we believe methyl and HDS will eventually have a role in treating other solid tumors of the liver in the U.S., as it already does in the EU. In addition to ocular melanoma, the liver is the predominant site of metastasis for colorectal cancer and gastrointestinal neuroendocrine tumors. Complete surgical resection might represent a curative option in patients with isolated hepatic metastases, but resection is not possible in most patients because of the number, location, or size of the hepatic metastases. Hepatic metastases can also co-occur with many other malignancies, such as breast cancer, renal cell carcinoma, cutaneous melanoma, and soft tissue sarcoma. Liver is often the life-limiting organ for cancer patients, and overall survival is usually under 12 months. There have been a variety of studies and case reports in many of these tumor types that support further investment to investigate the possible efficacy of melphalan HDS in a broader set of tumor types, thereby dramatically expanding the market potential for melphalan HDS. Of course, turning this potential into reality will take time, and the first step is approval in a single indication, which is currently our primary focus. A second critical factor, which I examined carefully before deciding to join DELCATH, is whether there is adequate evidence to conclude that the safety of the second-generation melphalan HDS device is meaningfully improved over the device studied in the pivotal trial conducted 10 years ago. In that trial, four deaths occurred due to the treatment, and despite clear signals of efficacy, the risks associated with the device led the FDA to conclude that the benefits of the product did not outweigh the risks with the first-generation product. The safety issues were multifactorial, but there were two that are most noteworthy. The first was patient selection. In the first pivotal trial, many patients had extensive liver disease and were not restricted by volume of tumor burden in the liver. These patients accounted for a disproportionate percentage of the adverse events. We now know that, like most chemotherapeutic regimes, some patients are just too sick to tolerate treatment. Patients were treated in the first pivotal trial that would have been excluded from many other liver-directed therapies and systemic hemotherapeutic agents. A second and perhaps most important change was improving the filtration efficiency and consistency. The previous generation filter, whose manufacturer was outsourced, was inconsistent in its filtration efficiency and had an unacceptable rate of hematological toxicities due to both the design of the filter and inadequate manufacturing controls. To this end, the company changed the design of the filter, insourced manufacturing the filter and develop validated physical and functional release specifications for the filter and its critical sub-components. The evidence for the improved safety is again in the public domain. I will not go through the safety findings of each of the three published studies mentioned previously, but I will mention results from the most recent study from Leiden University Medical Center. In a publication reporting the results of the study, the authors noted that all the adverse events were well manageable or self-limiting and there were no treatment-related deaths. The investigators also noted that the hematologic and hepatic toxicity percentages were significantly lower compared to studies using the earlier generation of chemosat, which utilized a different filter system. Finally, based on a validated quality of life tool used in the trial, the investigators concluded that chemosat is well tolerated with maintenance of quality of life with only a mild and temporary impairment of physical functioning noted six weeks after the second chemosat treatment. It is important to note that there is not but a single treatment-related death in over 1,000 treatments in Europe, and that in the FOCUS trial, which still has nine patients undergoing treatments, 356 treatments have been given to 91 patients, and we can confidently state that the adverse event profile is within the ranges seen in the published studies. This study is utilizing an independent data safety monitoring board, which is met seven times as planned during the course of the trial. and there has never been a need to pause the trial for reasons of unacceptable safety risk or a safety concern. In summary, given the totality of the safety and efficacy data available, I reach the conclusion that the FOCUS trial is likely to produce the data necessary to support a compelling case that Delcas Melphalan HDS has a high probability of approval to treat metastatic ocular melanoma. And given the multiple smaller studies and case reports on other tumor types, Melflin HDS has significant potential to expand into larger markets over time. While compelling, that in itself was not adequate to convince me to join DELFCAP. Beyond just the data, an important question is whether the team is in place to execute. While the team is lean and key positions need to be filled, John Purpura, our COO, and Johnny John, Dr. Johnny John, our Vice President of Clinical and Medical Affairs, have done an excellent job planning and executing on all aspects of the development program. including manufacturing, process validation, regulatory strategy, and clinical development. I would not have joined if I was not confident in their capabilities. In addition, we have a strong, experienced, and reinvigorated board with a wealth of experience supporting the management team. Since my arrival, John Papora, Johnny John, and I have set the company's near-term priorities as follows. One, complete the FOCUS trial and submit an approvable NDA. prepare for the commercialization of melphalan HDS in the United States. Three, raise the awareness of Delcath in the investor community. Four, prioritize additional indications for melphalan HDS and then design and execute a development plan for the higher value indications. I will touch briefly upon each of these priorities. Starting with the FOCUS trial and NDA submission, Delcath enrolled and started treating the final patient October 2nd, 2020. The next milestone is the release of top-line data, which we will project will occur early in 2021. In that release, we intend to share the primary endpoint, overall response rate, as well as duration of response and an evaluation of safety. We are currently projecting submission of the NDA to the FDA in the first quarter of 2022, which would still allow for a 2022 launch. The primary gating item to our submission is data monitoring, which requires site access. Due to the increased rates of COVID-19 cases, many sites have recently increased access restrictions. While we are utilizing remote monitoring where feasible, not all sites are equipped to support remote monitoring, and not all data can be remotely monitored. In addition, when lockdowns end, the number of days of access is being reduced due to the high demand from multiple sponsors. Our projections assumes that current and future access restrictions are limited in duration to a few months. Given the rapidly changing landscape, it is difficult to project a submission date with a high degree of confidence, and our assumptions could prove to be overly optimistic or pessimistic. In an effort to minimize further delays, we are attempting to negotiate increased site access when restrictions are lifted, and also intend, subject to FDA feedback, to adjust our monitoring plans to focus on the CRF pages most important to the efficacy and safety endpoints. a strategy which we believe is consistent with current FDA guidance on monitoring. I must stress that the team's focus is not primarily speed, but quality. Our goal is not to submit an NDA as quickly as possible, but to submit an approvable NDA in a timely manner. Regarding the second priority, commercialization planning is underway, with a well-known consulting firm helping lay the groundwork to ensure appropriate patient access and reimbursement. In addition, we expect to announce some significant hires over the coming few months in commercial roles. One small but exciting step towards commercialization is the choice of a trade name. In September, the FDA conditionally accepted the name Hepzado kit for use in the U.S. Going forward, we will use Hepzado or Hepzado kit when referring to melphalan HDS, the combination drug device product. I look forward in the coming quarters to providing additional updates and details on our prelaunch activities. Our third priority is to raise awareness with the investor community. Delcath has not received much attention for many years for a variety of reasons. It is not the first company that has had some missteps, been forgotten, and then continued to be overlooked despite mounting evidence of significant progress and value creation. To raise awareness, Delcath will need to deliver on its milestones, and the management team will need to be transparent with and accessible to the investor community. To that end, I plan on getting out on the virtual road on a regular basis and maintaining an open and, of course, Reg FD compliant line of communication with our current and potential shareholders. Consistent with our efforts to raise awareness, last week we hosted a key opinion leader call with Dr. Mark Bergmans, head of interventional radiology at the Leiden University Medical Center in the Netherlands, an investigator in the study I previously mentioned, which studied the use of chemosat in earlier stage ocular melanoma patients. Our fourth strategic priority is the prioritization of additional indications for HEP-SATO and the subsequent design and execution of development plans for the higher value indications. Over the next six months, we'll review the incidence, unmet need, available efficacy data, and development requirements for a broad set of liver cancers in order to select a portfolio of follow-on indications which will maximize the value of HEP-SATO and CHEMOSAT platform. A key part of that process will be to convene disease-specific advisory boards to ensure that we choose the highest potential indications and, as importantly, the optimum development plan. In 2017, we initiated the ALIGN trial, a global phase three clinical trial for intrahepatic cholangiocarcinoma based on promising data generated from commercial treatments in Europe. Presently, we have paused our work on the ALIGN trial while we revisit the protocol to determine changes which may boost recruitment rates. In the interim, the clinical team is focusing its efforts on the focused trial conclusion and subsequent NDA filing. In summary, I believe Hepzado is a clinically differentiated, high-value platform with the potential to address multiple cancer indications of high unmet medical need. I am committed to leading the organization towards its goal of making Hepzado the first product specifically labeled for metastatic ocular melanoma patients a population which currently has limited therapeutic options. I look forward to building shareholder value both through the successful commercialization of HipsAuto and metastatic ocular melanoma and longer term initiating additional targeted clinical programs to expand the market opportunity of this platform technology. I look forward to taking your questions, but first we'll turn the call over to Christine to review the financials.