Delcath Systems, Inc.

Good day and welcome to the DelCast Systems Report's first quarter fiscal 2023 financial results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Hoffman of General Counsel. Please go ahead. Thank you.

And once again, welcome to DelCast Systems' 2023 first quarter earnings call. With me on the call are Gerard Michel, Chief Executive Officer, Dr. Johnny John, Senior Vice President of Medical Affairs and Clinical Development, Kevin Muir, General Manager of U.S. Interventional Oncology, John Purpura, Chief Operating Officer, and Anthony Diaz, Vice President of Finance. 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 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 risk 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. Since filing the NDA resubmission on February 14th and receiving a notice on March 20th that FDA determined resubmission constituted a complete Class II response, the company has been working with the agency on the review process as the August 14th producer date approaches. This primarily entails a routine information request that would be expected during an NDA review. Since I know the question will be asked, At this time, we have received no indication about whether the agency will schedule an advisory committee meeting. Of course, until we hear otherwise, we will continue to assume one will be scheduled. Given the recent financing and the approach in Purdue today, we are accelerating our preparation for the commercial launch at Pusato, if approved. Our commercial model will be comprised of referring oncologists and treating centers. Therefore, a core part of that sites, which are sites that are either trained in treating patients in the Expanded Access Protocol prior to launch, or committed to becoming trained within a few months after approval. As we have mentioned before, DELCAP currently has three sites enrolled in the Expanded Access Program, with four more sites undergoing startup activities. In addition, approximately five other sites have expressed their intention in becoming treating sites if the Hipsado Kids is approved. So in total, we believe there are over 10 sites with the potential to become treating sites in a relatively short timeframe post-launch. While we will continue to seek additional treating sites, we believe this number of identified sites will ensure that we do not have treatment bottlenecks as referrals build for medical oncologists post-launch. A second key component to a successful launch is outreach to medical oncologists. Recall that the majority of our U.S. investigators in the FOCUS trial for surgical oncologists. While we have a number of very supportive metastatic ocular melanoma KOLs, we need a broader set of medical oncologists familiar with our data. Thus, we have started to build a medical affairs team, and we will have MSLs out in the field by next month. Post-launch, the MSLs will continue to focus on medical education with oncologists. We have also begun recruiting for the sales course management team. The sales force will be bifurcated, with one team focused on supporting existing treatment centers and working on opening new treatment centers, with the second team focused on calling on medical oncologists to facilitate the potential referral of appropriate patients to treatment sites. Turning to ongoing clinical work, because we have spoken about the preliminary child parent results extensively on past calls, I won't review those results yet again. However, I will note that the independent investigators conducting that study have informed us that they are on track to publish a pre-planned interim analysis by the end of this year. The analysis will include 40 of the planned 76 randomized patients comparing percutaneous hepatic perfusion with chemosat alone with percutaneous hepatic perfusion with chemosat plus ipilimumab and nivolumab. Based on conversations with treating medical oncologists, We know there is strong interest in anticipation for these pending interim results, given the signals seen in a small Phase I study and the prevalence of immune oncology therapy in the treatment of metastatic ophthalmological patients. As previously reported, on March 29, the company closed a private investment in including approximately $25 million in upfront funding. The financing was led by Vivo Capital, with participation from Logos Capital, VVF Partners, Stone Pine, and Cerato Capital, as well as existing investors, including Roswell Advisors. We are delighted to have the financial backing from these high-profile healthcare-focused funds, and we believe the initial $25 million will be adequate to support the ongoing commercial launch preparations. The previous mentioned financing will trigger another $35 billion in gross proceeds upon approval, and then another $25 billion in gross proceeds upon achieving 10 million in quarterly revenue. In addition, we announced that we had reached an agreement with Avidant Capital to resume the interest-only period on the Avidant loan from March 31st, 2023 Together, these two financial transactions greatly enhance our ability to appropriately fund launch preparations and should eliminate any perception of a financing overhang, which often hinders share price depreciation upon product approvals. I look forward to taking questions in a moment, but first we'll turn the call over to Tony to review the financials. Tony?

Thank you, Gerard. As stated in our earnings release, we're in the process of completing our customary year-end close and review procedures. including certain valuation work associated with the issuance of the warrants and preferred stock in Dowcast's previously announced private placement that closed on March 29th, 2023, and as of and for the quarter end, March 31st, 2023. Dowcast's full first quarter 2023 financial results will be reflected in the quarterly report on Form 10-Q, which will be filed no later than May 22nd, 2023. Revenues is expected to be approximately $600,000 for the three months ended March 31st, 2023, compared to $378,000 for the three months ended March 31st, 2022. The estimated increase in product revenue was due to the transition to direct sales in Europe, which occurred in March 2022, as well as an approximately 37% increase in unit volume. For the three months ended March 31st, 2023, Research and development expenses expect to be relatively flat as compared to 4.5 million for both periods compared to the three months ended March 31st, 2022. As of March 31st, 2023, the company had cash equivalents and restricted cash totaling 24.3 million as compared to cash equivalents and restricted cash totaling 11.8 million as of December 31st, 2022. The increase in cash at $12.5 million was due to proceeds from the private placement which closed on March 29, 2023, offset by the use of $4.3 million of cash in operating activities and $6.3 million of principal payments towards the companies existing along Avenue. That concludes my financial remarks. I'll ask the operator to open the phone lines for Q&A. Can you please check for questions?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Yael Chen from Laidlaw & Company. Please go ahead.

Good morning and thanks for taking questions and congrats on all the progress. I've got two here. One is that given you guys already have, we'll have more cash. Any thoughts or any plans in the pipeline development? And then I have follow-up questions.

Yeah, we're going to restrict our pipeline activities to probably advisory committee meetings for the time being. I think our primary focus is a successful launch. With that said, there will be activity in parallel going on to prepare, but I don't see any significant actual clinical dosing patients probably until sometime next year. Now, with that said, we are prepared to support investigator-initiated trials as they are put in front of us by interested oncologists. And, you know, we're hopeful that we'll have a number of those started probably later this year, whether it's additional combination trials with, you know, oncology agents or trials in other indications. But next year, without a doubt, we will be running trials in other indications, both other tumor types and likely other indications combined with immuno-oncology agents.

Okay, great. That's very, very helpful. And then maybe one more question here, which is one of the competitors I think recently reported that their studies in the ocular melanoma, both in the first line as well as in the broad lines. Any thoughts, any comments on what type of possible sort of competition may happen or not happen?

Yeah, I think we're referring to ID as data, which I thought looked quite good myself. Their ORR and duration of response looks more like in the realm of what we're seeing with our product. I think what's important to note is two things. One, most patients go through more than one line of therapy. The second thing is most medical ontologists treat this disease believe patients should get both a systemic therapy as well as a local regional therapy. The latter, of course, is what we are. So I don't see additional systemic therapies coming out as being a direct competitor with us. I think the question is what goes first, a systemic or a local regional therapy? I think more data needs to be generated to determine really what's best for the patient. I would note that most of these patients When they do succumb to disease, it is usually due to liver failure from liver mets. So I know there'll be a place for us at some point for most of these patients.

Okay, great. That's very helpful and I appreciate that. Congrats on the progress.

Thank you, yeah. Our next question comes from Swayam Pakula Ramakant from HC Wainwright. Please go ahead.

Thank you. This is RK from . Good morning, Gerard. A couple of questions from me too. In terms of the EAP program that's being run, could you give us an idea of how many patients have been treated so far or being treated under this program? And also, any commentary on the experience so far from both physicians and the patients?

Yeah, so right now, well over, I think they had 40 patients at the start of this year, so they're probably well past the 40 at this point. I don't have a precise number. I had to guess based on the pace, and it's an estimate for me. It's probably somewhere in the range of 50 patients out of 76 patients. that need to be treated. It is a randomized trial. ORR is the primary. Objective response rate is what we reported in the interim data. And they're not sharing those results with us as time goes on. Of course, that's just appropriate. They should not share that with us. All I can say is we're very hopeful that the data The signal that was seen in the small number of patients, seven patients early on, will continue to hold, but we'll have to wait. If we turn to the seven patients, they tolerated the sequential treatments quite well. I don't think there were any toxicities that the physicians didn't think they could handle or that would be undue for the patients. So that was a very important issue to start with. And then again, as I talked about before, very, very high response rates, 100% duration, 100% disease control, 86%, I think, response rate and, you know, two and a half years roughly of duration of response and PFS or excuse me, PFS at the last data cut. So fingers crossed that that level of response and duration can be held with the larger end when we get the interim data later this year.

Fantastic. And then it's encouraging that, you know, you're getting more centers signing up for getting ready to adopt when Hapsado becomes, you know, approved. So at this point, what do you think is the market in terms of, like, number of centers who regularly do liver directed therapies, um, and you know, which can be, uh, I don't know if you're kind of dividing the market into different tiers as like, um, early adopters and, um, you know, adopters that you have to work on, um, to, to, to gain, um, uh, to gain, gain their confidence and start using Hepsado.

In terms of the number of, of, uh, centers that do liver-directed therapy, I don't know the precise number. It's at least in the hundreds. If we think about TACE and Y90, which are the two primary liver-directed therapies, for this particular indication, we have no need, nor would it be prudent, to try to get it to any meaningful percentage of that. I think if we had 10 centers up and running within three to six months, or within three months, let's say, of launch, that would be fantastic. I can't see us ever going past, and this number might flex down or up, but I can't see us going much past 20 centers, maybe 25 at peak. The reason for that is we want to keep close tabs of these treating centers. And again, recall that it is only about, well, it's hard to say, but we're We're saying, some people say we're conservative, but we're saying our TAN is 800 patients. You know, I don't want to have a center doing, you know, one of these every three months. You know, I'd like to see centers doing at least two a month just to make sure they're well-trained, the team is up to speed. So, again, I think, you know, 25 at the most peak. I'm very happy with 10, you know, one to two quarters post-launch if we can accomplish that. That will mean a phenomenal launch if we have the referrals up the pipeline to support those centers.

Very good. Thank you very much for taking the questions.

Again, if you have a question, please press star, then 1. Our next question comes from Bill Maughan from Canaccord Genuity. Please go ahead.

Good morning and thanks. Of the initial dozen or so sites that are either currently online or have expressed interest, do you have a sense of how many patients they represent? And then second question, are you at the point yet where you can have even preliminary discussions with payers? Do you have any sense of how they'll on board payment for Hepsado as it launches or any sort of timeline on that?

Thanks. Sure. Let me handle that first part of the question in terms of how many they represent. And Kevin, I'm going to ask you to talk through the dynamics with hospitals and reimbursement in a moment. In terms of the number of patients they represent, Shooting from the hip, maybe 30% of those 10, maybe 40, because we're not surprisingly focused on centers that already have a set of patients. But that's not really, you know, that's only part of the equation. The other part of the equation is going out to medical oncologists where we're not intending to open sites and get in to refer to these treating sites. That's the other part of the equation. Now, the reason, you know, what we have to make sure for both parts of that kind of equation is for treating sites, you know, some sites might not be able to do more than one, you know, two a month. Others might be able to do eight a month. It varies. But if we assume that four a month is the average site, If you think about one a week probably will be average for sites. If we assume that, then 15, 20 sites is more than enough to generate several hundred million dollars worth of revenue. But the key to that is getting the patients referred to those treating sites. Again, as I said before, we don't want sites that do one every two months. Ideally, we'd have a site that's about four a month.

This concludes our question and answer session. I would like to turn the conference... Oh, hang on.

No, no, no. No, no, no.

Oh, I'm sorry. Kevin, can you chime in on the reimbursement for the hospital? I can't.

Yeah, I can't. So, you know, over the past period of time, we have done some significant market research with the payers, and... So far, through that market research, we've found that we think our strategy is prudent. We have a market access team in place, and we are prepared to handle the questions that we get. The true outreach to the payers will happen shortly upon approval when we are taking our EAP patients and converting them from clinical patients to commercial payments. So like I said, from a market research standpoint, we think we have a sound strategy. We've talked to some of the payers, but we'll see how that – and we're confident that when we take those payers, or I mean the patients, from clinical to commercial, the strategy will prove itself out.

Yeah, I think it's important, Devin, is the majority of the patients will be outpatients, correct? Yes. So the reimbursement will be under a C code, correct, initially?

Initially, we'll start with the traditional path of a C code and hopefully go to a J code shortly after.

Right. So for the majority of patients, it will be a pass-through expense. Yes. And given this is an ultra-orphan product with a minority of patients that may end up being treated on an inpatient basis, i.e. they need to stay an extra night past a single night, what our hub service has told us is that given the small number of patients here and the fact that these are very sophisticated academic centers that are working with it, they probably, it's not going to be an issue of bundle payments. They'll be able to maneuver through that. But again, The bulk of these patients will be outpatient patients, so it'll be a pass-through.

Got it. Thank you very much. Okay.

This concludes our question and answer session. I'd like to turn the conference back over to Gerard and Michelle for any closing remarks.

Yeah, I just want to thank everyone for taking the time this morning to listen in. We're going to keep our heads down and push forward. And thank you again for the support. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.