Eamonn P. Hobbs – President and Chief Executive Officer
Delcath Systems, Inc. (DCTH) Lazard Capital Markets 9th Annual Healthcare Conference Call November 13, 2012 8:00 AM ET
Eamonn P. Hobbs
Good morning everyone, and thanks so much for attending and your interest in Delcath. First our forward-looking statement. Well, Delcath is a cancer therapeutic company, and we are focused on technology that allows us to gain control over disease in the liver. The liver is a site for uncontrolled diseases, often life threatening and tends to not respond to systemic treatments, and transitions very quickly to palliative care.
We plan on being a fully integrated company, and are building infrastructure to develop and commercialize some products in Europe and North America, while pursuing opportunities in other parts of the world. In Europe, we are commercial. Our Gen 2 system was introduced in June, and we just had good news on reimbursement in Italy last week.
We believe that our first product CHEMOSAT may extend the lives of a large number of cancer patients. Our problem is quite significant. Metastatic disease to liver, brain, or lungs is often the life limiting aspect of a patient’s disease. In contrast to the brain and lungs, the liver does not respond to any of the existing therapies very well. Systemic chemotherapy has very limited utility in the liver because the chemotherapeutic agents are metabolized, that is what the liver does, so they are ineffective because to dose escalate usually it doesn’t work because of the inherent toxicities of the dose escalation.
So focal therapies are often used, but have very limited utility because they are focal. Existing treatments, surgical resection, the gold standard, can be quite effective, but is extremely limited in that there is a very, very small number of patients that are amenable to that. There are a large number of other focal therapies, and at the other end of the spectrum is systemic therapy, oral or IV administered chemotherapeutic agents.
So this broad spectrum, it spans from systemic chemotherapies to focal chemotherapies, is interesting in that systemic chemotherapies have certain advantages and disadvantages. They are minimally invasive, but they have minimal utility in the liver. They could work quite effectively in a patient’s extrahepatic disease, but in the liver have not shown great efficacy.
Focal therapies have shown great efficacy, but only on the lesion that is treated. You can’t resect the entire liver without doing a transplant. So in diffused disease, resection is quite limited, all the other focal therapies are see a tumor, treat a tumor, and have inherent limitations. So, we have created a middle ground of isolated hepatic perfusion, which allows us to use dose escalation with manageable toxicities, and have shown great therapeutic effect.
So here is a picture of the problem. Often we look at radiographic images of the liver and see these numerous golf balls in the liver, and think that that is what the disease is, these isolated tumors and if you can resect them out, there will be healthy liver tissue that will heal and the patient can progress. And rarely that is the exactly the case. So, surgical resection can actually be quite effective in approximately 10% of patients. The other 90% of patients have what you see on the screen here, and that is literally millions of micro metastasis or micro tumors that obviously can’t be resected out of the liver.
So focal therapies, embolization for example, chemoembolization, radioembolization, you can’t embolize the entire liver or the liver would die. It needs blood supply. You can embolize a small piece of the liver, but again that is not going to treat this kind of systemic, excuse me, organ-wide diffused disease. So our technology is really aimed at the 90% of patients that aren’t great candidates for focal therapy.
So, our solution, our proprietary CHEMOSAT system, isolates the liver circulation, delivers an ultrahigh concentration of chemotherapy, which in our first product is melphalan to the liver, and filters most of the chemotherapy out of the blood prior to returning it to the patient, a very simple, straightforward concept.
The procedure typically takes approximately 2 hours to complete, and involves a team, including an interventional radiologist and a perfusionist. CHEMOSAT with Gen 2 has demonstrated minimal systemic toxicities and impact to blood components in initial commercial use and may in fact complement systemic therapy because of the extremely low impact to the bone marrow. And CHEMOSAT has been used now in well over 200 patients, and through our clinical development program and early commercial launch.
So here is a schematic of this system. You can see that the isolation of the liver is really isolation of the venous output of the liver that is created by a double balloon catheter that is placed in the largest vein in the body in the inferior vena cava. Another catheter is put in through the other leg, into the femoral artery, and then guided into the hepatic artery, where the chemotherapy is delivered.
So the liver actually sees normal blood flow, there is no ischemia, there is no real challenge to deliver, and the chemotherapy even with extreme dose escalation has shown very little, if any, hepatotoxicity. So this is a very benign procedure for the liver. The third catheter is actually the return loop, where the cleaned blood is actually returned to the venous system through the jugular vein and is a small catheter.
So there are three very small access points, three band aids after the procedure, if you will. The extracorporeal filtration loop is the real technology of Delcath. We have developed a filtration system that filters out 98% plus of the chemotherapeutic agent from very fast flowing blood, and delivers it with minimal impact to the blood back to the patient’s circulation in real time.
The data, we conducted a randomized Phase 3 study under a Special Protocol Assessment, or SPA, using Generation 1 of our chemosaturation system with melphalan in patients with melanoma, both ocular, cutaneous and metastatic, to the liver. Melanoma liver metastases are relatively homogeneous regardless of origin. There really isn’t any difference in cutaneous or ocular melanoma with regard to a cytotoxic agent.
Liver metastases in melanoma often are the life limiter for these patients. They die of liver failure. Melanoma is notoriously insensitive to systemic chemotherapy in the liver, and our study was a great demonstration of our technology’s potential in an extremely challenging histology. The Phase 3 clinical design was a one to one randomization between the treatment arm of chemosaturation with melphalan and the control arm, which was a very high bar and best of alternative care, physicians choice.
There was a crossover provision since there was no alternative therapy, when the study was conducted for melanoma mets in the liver. So, patients upon progression were allowed to cross over. Primary endpoint was hepatic progression free survival, and with a study powered to show a doubling in benefit, very high bar again.
Now the good news about a study powered to show a doubling in benefit is it can be powered adequately with less than 100 patients. So, the study was powered to 46 patients in each arm, or 92 patients. The results, we had a very, very strong benefit demonstrated with hepatic progression free survival, primary end point with an independent review committee, and it was 7 months versus 1.7 months.
Overall progression free survival, based on investigator, was 5.4 months versus 1.6 months, and overall survival because of the crossover, the overall survival data was confounded in that there was a very minimal separation of the curves due to the fact that we were comparing treatment to treatment, so the majority of the control arm did crossover and did benefit extremely well from the therapy.
So the unfortunate aspect of that is that relegated us to looking at exploratory analysis, which were allowed by the [statistical analysis] plan, and we see a very, very positive trend in that patients who got the treatment did extremely well compared to patients who did not. So very positive Phase 3 results. The Gen 1 safety profile, there was myelosuppression, and it was as it would be expected with a systemic exposure of a dose of melphalan. So there was significant neutropenia and thrombocytopenia, known side effects and right in line with the existing approved labeling for melphalan.
Now, why melphalan? There is tremendous evidence and experience with melphalan being an excellent agent for treatments in the liver. The majority of the evidence is based on surgical data with extremely high dose or escalated high dose delivery and isolation that is performed in a procedure called isolated hepatic perfusion, or IHP, and this procedure has been going on for well over 50 years with great success.
Now the problem with the surgery is it is extremely invasive and very few patients, these are very sick patients and very few are amenable to such an invasive procedure, but the net effect is it is very clear that melphalan can provide a tremendous amount of benefit with an overall response rate of about 70% in these trials. And the amazing aspect of melphalan with regard to hepatic disease is it shows very limited if any toxicity to the liver.
The vast majority, if not all of its toxicities, are associated with bone marrow suppression, of course, there is no bone marrow in the liver. It is also a chemotherapeutic agent, a cytotoxic agent that has a very steep dose response curve. So increasing the dosage dramatically as we do with over 100-fold increase in local dosage gives a tremendous benefit.
The other aspect of melphalan is it is -- we believe it is effective on a broad range of cancers in the liver, and this slide here shows a standard onco slide of having a broad aspect of liver cancers, and a large global market opportunity with pharmaceutical high gross margins in excess of 80% is where we are. We believe the global market is approximately $7 billion, and that is really driven by the biggest cancers, the largest patient population of cancers that are prevalent in the liver, primary liver cancer, colorectal, NET or neuroendocrine and melanomas.
We are approved in Europe, Australia, New Zealand. We just got our Gen 2 approved. We are pending in the majority of the rest of the world, and we are pending in the United States with our NDA being accepted recently in a PDUFA date of June 15 next year. EU commercialization, we are very early in the commercialization, but we started with our Gen 2 system in June, and currently have six centers that are doing procedures. The gaining factor for commercial use is as always reimbursement.
We are pursuing reimbursement in the big 5 markets. In Italy, we got very good news last week in that the Italian government decided that an existing DRG, DRG 406 was appropriate to be used with our procedure, which gives now hospitals the majority of the procedure cost at the very least, covered by the government. We are pursuing additional supplementary new technology payments to go on top of that DRG, and expect those to come into play next year, but the lion’s share of the reimbursement is now in place in Italy.
In Germany and the UK, we are well along in our reimbursement efforts. We expect those interim reimbursement programs to be established in Q1 of next year. The other countries, work in progress, Spain and France, we have two active sites in France and are working on our first site in Spain. Before you can apply for reimbursement, you need clinical champions in the country actually doing the procedure. So, we are a little further ahead in France than in Spain, but making progress.
The patient referral pathway is pretty standard. The interventional radiologist is in the referral pathway today with focal therapies. This will be the first whole organ therapy that is available. So, this is not competitive with what the oncologist does. We believe that CHEMOSAT provides nothing but synergy to systemic therapies, because we are only treating the liver, and in metastatic disease the oncologist needs to treat the entire body, but the tools to treat the entire body are most limited in the liver.
So we think this goes hand in glove with current therapies and the existing referral pathway. As I mentioned, we have six sites that are active, and we expect to have approximately a dozen active by the end of the year. And this involves training. We are being very thoughtful and careful in our first sites to train them extremely well with a idea that they are going to be the trainers of the rest of Europe, once they are up to speed. And we did select Quintiles as our partner for the medical science liaisons, which we have in all the large markets.
I have gone through reimbursement in detail. Outside of the EU, we are expecting to initiate commercialization as soon as we pick a distributor in Australia and New Zealand. We are well along in those discussions, and just recently received our Gen 2 approval in Australia.
Hong Kong and Canada are likely next to receive Gen 2 approval, and we expect that in December, and commercial operations will start very shortly thereafter. The US regulatory status, we do have a PDUFA date of June 15, and the FDA has advised us to expect an Oncology Drug Advisory Committee, or ODAC. We have yet to receive a date for that. The schedule for next year hasn’t been published yet.
And the NDA filing did include our Generation 2 filter as a technical change to the CMC module. And what that entails is we have extensive conversations with the agency about the applicability and advisability of including our Gen 2, and we are advised by the FDA and independent regulatory experts that this was an appropriate technical change to the CMC module, in that the Generation 2 filter is really a Generation 1 that has been enhanced in performance.
It is comprised of the same materials, and really is a natural evolution in the device performance. So we became confident that this was a very good thing to do as we are all looking to get Generation 2 to patients in the United States in the most expeditious manner. So, so far so good with Gen 2 in the NDA.
Gen 2, we also have had extensive discussions with the FDA with regards to that technical change in Gen 2, and the FDA has approved the Gen 2 for use in all our prospective trials going forward, including the Expanded Access Program, which we expect will start here in just a few weeks.
Commercialization strategy in the US is very similar to what we are doing in Europe, and we expect to start with a very small sales force to focus on the very large cancer centers, and then expand out from there. On the reimbursement side, a dedicated CPT code is well in the works, and we would expect that to be issued approximately a year after FDA approval.
Clinical development program, we are in 2013 expecting to do a number of clinical programs. We want to extend the database, especially in HCC, CRC and the neuroendocrine tumors. We have very strong neuroendocrine Phase 2 data, and have a very strong Phase 2 data in HCC as well. We will be looking for very large benefits in these trials because we believe CHEMOSAT can deliver those.
We recently got a CE Mark for our delivery system for doxorubicin, and this is very important with regards to partnering in China, and other markets where melphalan is not readily available or approved. The company has a very long history and data associated with doxorubicin, and we believe it is as effective in treating primary liver cancer as melphalan is.
Milestones in 2012, we have had a very productive year. We have had our first patients treated with CHEMOSAT in Europe. We have executed our MSL contract with Quintiles, and they are in the field. We secured agreements with actually well over 10 leading cancer centers in Europe. We have obtained our CE Mark for our Gen 2 system with melphalan. We made our NDA submission this year, and had the NDA acceptance with a PDUFA date in June of next year, and we have obtained our CE Mark for CHEMOSAT for the delivery of doxorubicin.
We are -- now that FDA submission is complete and the dataset is fully locked, we are wrapping up the publications, and expect those to be submitted in Q4 or likely December. First patients enrolled in our Expanded Access Program are expected in a few weeks, our EU registry that allow EU sites to share data is expected to start shortly and we have been working very diligently on numerous strategic partnerships, including China and other countries, and doxorubicin, an NDA filing is very important in those discussions.
Financial update, as of the end of September we had $28 million in the bank. We did a financing in May. We have an active ATM program that is allowing us to treat water, if you will, raise money in a very difficult market in small bites to maintain our cash position. We have no debt. Our cash spend in the third quarter was $14.6 million. We have guided the Street that that is going to be reduced to $3 million to $4 million in Q4, and how that reduction is taking place is a lot of our expenses were associated with the NDA filing, which are now gone, and we are very confident in Q4 we will see a dramatic reduction in cash burn.
The shares outstanding, 73.4 million, 83.8 million fully diluted. Team, we have a very strong management team and we are extremely excited about this revolutionary new cancer therapy, bringing it to the market as it fills a very big unmet need worldwide, and are excited about the future in 2013. Thank you very much.
I will be very happy to entertain questions.
(inaudible) come in sort of where you were expecting or higher or lower?
Eamonn P. Hobbs
Well, the Italian reimbursement, thank you, came -- this is an interim reimbursement. So the way the Italian reimbursement system works is it is not national at the beginning. It is all done regionally, and then the region’s network tend to follow each other very rapidly within weeks.
So the first step in the Italian system is the government actually recommends that the states consider existing codes, existing DRGs, existing procedure codes, and the code that was chosen was one of the highest paying codes. So we were very pleased with that. Having said that it is not ideal. It doesn’t cover all the costs, but it covers a majority of the costs of the procedure. So we’re very excited about that. The Italian -- why this is interim is the Italian government will come in in subsequent years to do an audit and decide whether the DRG is still appropriate, whether a new DRG is necessary that is dedicated to this, whether the DRG should be increased or decreased, and those things take many, many years.
So we’re really solid now for quite a few years. Supplemental payments for new technology are readily available, and we are accessing those so that can further enhance our situation in Italy.
Eamonn P. Hobbs
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