Delcath Systems, Inc.

and welcome to Delcat Systems' second quarter 2024 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, Mr. David Hoffman, Delcat General Counsel. Thank you, Mr. Hoffman. You may begin.

Thank you. And once again, welcome to Delcat Systems' second quarter 2024 Earnings and Business Highlights Call. With me on the call are Gerard Nischel, Chief Executive Officer, Sandra Pinnell, Senior Vice President of Finance, Kevin Muir, General Manager, Interventional Oncology, Boyo Vukovic, Chief Medical Officer, and Martha Rook, 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 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 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. Our press release with our second quarter 2024 results is available on our website, www.dellcalf.com, under the Investors section. and includes additional details about our financial results. Our website also has our latest SEC filing, which we encourage you to review. A recording of today's call will be available on our website. Now, I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you, everyone, for joining. During today's call, we will review Delcab's second quarter financial results, our ongoing commercial activities, including projections for both site activation and average treatment rates for the balance of the year, as well as some important medical and clinical updates. In the second quarter, DELCAP reported $7.8 million in total revenue, including $6.6 million in U.S. revenue from House Auto and $1.2 million in European revenue for ChemoSat. As we have previously described, the key drivers of our revenue ramp in the U.S. are center activation and, once activated, the average number of treatments per center. From a high level, we are thrilled with our overall progress in terms of our ramp, and we're very, very encouraged about what the coming quarters will bring. Now, to be specific, in terms of site activation, we ended the second quarter with seven active sites, and as of today, we have eight active sites. While this fell just below the number we projected in our last call, The treatment rate of just under two per month per center is well ahead of our previously communicated projected rate. I'd like to dig a little deeper into both metrics and turn first to center activation. While activation has been a bit slower at some centers than anticipated, there is no systemic reason for the increase in time for center activation, but instead it's just simply a function of the complexity of activating a center given the number of stakeholders involved. It's important to note that we haven't seen any center in the activation process halt the process. From our ongoing conversations with the centers, we are confident that all the centers that are in process, which today stand at over 20 centers beyond our active, currently active sites, will be active in 2025. The eight active centers include Moffitt Cancer Center, Stanford University Cancer Center, Thomas Jefferson University, University of Wisconsin, Regional One Health or University of Tennessee, UCLA Cancer Center, the University of North Carolina Hospital, and Honor Health Scottsdale. Two additional centers have completed all the required preceptorships and have each scheduled their first treatment this month. Assuming no cancellations, we should end the August with 10 treating centers. An additional four centers have completed the necessary steps to conduct their first commercial treatment under the guidance of Proctor and are currently in the process of identifying and scheduling a patient for proctor treatment with hep-sidal kit. As I've mentioned in the past, that can be a complex scheduling algorithm, given all the proctors that need to arrive, as well as that need to fit with the patient's needs as well. A further eight centers have currently completed a portion of the preceptorship requirement. To date, we have had over 130 perfusionists, anesthesiologists, and interventional radiologists attend preceptorships, representing over 20 institutions in the U.S., with some institutions sending multiple healthcare providers. We are confident that the 12 centers that are currently in the process of activating will successfully activate within the next six months. Now I'd like to dig a little into the second metric, average treatments per center, which has been higher than we projected during our last call. Adjusting for the date of center activation, the average treatment by center was just under two per month in the second quarter. Not surprisingly, some centers have notably greater volumes than others, but given the commitment required to become a REM-certified active treating center, we believe that the vast majority of treatment centers either currently active or undergoing the activation process will become meaningful revenue contributors. We started the third quarter with seven active sites, with eight active sites as of today. As I mentioned before, we anticipate we can end the third quarter with 12 active sites. We expect to reach 15 early in the fourth quarter and anticipate having 20 centers by the end of 2024 or shortly thereafter. While apsile treatments in the second quarter average just under two treatments per month for the active treating centers, adjusted for when centers start treating patients, we estimate treatments will average between one and a half to two treatments per center for the balance of the year, somewhat under the second quarter average, but above what we projected in our last calls. This is based in part on a pattern we are seeing where some centers treat an initial group of patients and then pause for a month or more before treating additional patients. Besides assessing patient outcomes, the pause provides an opportunity for our centers to evaluate the explanation of benefits from payers before approving a study flow of patients. As many of you know, this is a common dynamic for the rollout of premium innovative new procedures and therapies within hospitals. even in situations such as ours, where the product has the benefit of a product-specific J-code, which greatly reduces risk of underpayment. Some of you may have seen this morning's press release, in which we shared that on August 1st, we were informed by CMS that we were granted new technology add-on payment status for HPSADA, effective for starting October 1st, 2024. This additional payment under NCAP designation will help cover the costs associated with the treatment for the small percentage of Medicare patients that might require an inpatient stay. As a reminder, most patients do not end up being billed as inpatient, and thus for those Medicare billed patients in an outpatient basis, the product is reimbursed to the hospital under J code at ASP plus 6%. Given the pace of revenue ramp, we continue to expect that we will achieve $10 million in quarterly U.S. revenue by the fourth quarter of this year. which is expected to trigger approximately $25 million in cash proceeds from the exercise of the remaining tranche of warrants that were issued as part of our financing in March 2023. Chemo set sales in Europe have increased over 100% over the same period prior year. The majority of the growth was from Germany and is a result of having a dedicated commercial presence in the market for over a year. We're in the process of submitting for reimbursement in the UK, and we now understand that that review will take place next year. While we estimate approximately 40% of all metastatic UV melanoma patients in the Netherlands are being treated with ChemoSat, those patients are almost all being treated as part of the ongoing Chopin trial. We have started commercial sales in Sweden, but expect most patients to enroll in an IIT we are sponsoring there, looking at sequencing if and even with ChemoSat, which I will describe in greater detail in a moment. We are early in the process of identifying and opening commercial centers in France, Italy, and Spain. We believe it is important to have multiple treating centers in all major European markets. But as I've mentioned before, we are being measured in our investment, given the low price point in Europe, and have chosen to manage the EU market on a break-even basis. Recall that ChemoSat has a broader pan-solid tumor device label, and some of our European sites have over a decade's worth of experience with ChemoSat. The value of Europe in the short to medium term is as trial sites and a source of publications. both in metastatic uveal melanoma and other tumor types. These activities can support both EU and U.S. adoption. 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 the PHC procedure, whether utilizing melphalan delivered by Delcath Chemostat or the Hepsado kit, is an important treatment option for patients with liver-dominant uveal melanoma, as well as potentially other liver-dominant cancers. In the second quarter, we announced the publication of key results from the Pivotal Phase 3 Focus Trial Hepatokit in patients with unresectable metastatic uveal melanoma in the journal's Annals of Surgical Oncology. We expect additional results from the focus study to be presented and published in the coming months. For example, an efficacy analysis in clinically important subgroups of patients in the focus study has been accepted as a poster presentation at the upcoming ESMO conference in September. As we continue to roll out commercial use of Hepsado in the U.S., we are also engaging medical oncologists in the U.S. and EU to discuss integration of Hepsado into treatment algorithms and combination sequencing with available treatment options in metastatic uveal melanoma. There is significant interest in the medical community to evaluate Hepsado in different treatment settings. As an example, I would like to point to a recent single-case publication published in Frontiers in Oncology, on successful treatment of a metastatic UV melanoma patient with chemosat following failure on immune checkpoint inhibitors and cadentifus. As I mentioned a moment ago, we're expecting a new IIT to enroll and start treatments of patients in Sweden this quarter. This IIT will evaluate sequencing of immune checkpoint inhibitors, ipilimumab and nivolumab, or ipinivo, followed by chemosat treatment and compare against therapy with ipinugo as the control. This IIT is the second IIT, the first being Chopin, which evaluates ifadivo first in sequence with chemoset, with chemoset as a control. In discussions with medical oncologists, we are aware that physicians and patients are very interested in exploring epsodart or chemoset in combination with immunotherapy, based on a body of published evidence of possible synergies between chemotherapy and immune therapy in solid tumors. We have heard multiple anecdotal reports of physicians utilizing chemostat and immunotherapy in combination or sequence without waiting for the completion and publication of the Chopin study results. On that note, the Chopin study continues to progress with 70 of the total planned 76 patients enrolled. Currently, the investigators are anticipating final analysis of the primary endpoint to occur in mid-2025 with presentation of results in the second half of 2025. As a reminder, the primary endpoint of the Chopin trial is progression-free survival at one year. This analysis depends on collecting the appropriate number of events, so the timelines for data readout by definition are somewhat uncertain. We continue to plan to initiate one or more clinical studies of hepatochemostat in an additional indication over the next six months and recently conducted two scientific advisory boards focused on colorectal and breast cancer to better define the development path. We will provide updates on our clinical development plan later this year.