Delcath Systems, Inc. (NASDAQ:DCTH)
Q1 2014 Earnings Conference Call
May 7, 2014 04:30 PM ET
Michael Polyviou – Investor Relations
Jennifer Simpson - Co-President, Co-CEO, EVP, and Global Head of Business Operations
Graham Miao – Co-CEO, EVP, and CFO
Yun Zhong - Cowen & Company
Good day, ladies and gentlemen, and welcome to the Q1 2014 Delcath Systems Incorporated Earnings Conference Call. My name is Patrick, and I will be your moderator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the call over to Michael Polyviou. Please proceed sir.
Thank you, Patrick, and good afternoon, everyone. Thank you for joining us today for this conference call and webcast to provide an update on Delcath’s fiscal first quarter 2014 results as well as recent developments. A replay of the conference call will be available approximately 2 hours after the conclusion of today’s call, and it will be available for 7 days. The operator will provide replay details at the conclusion of today’s call. A live webcast of this call is also available at www.delcath.com, and the call will also be archived in the Company’s website.
Before we begin, I’d like to remind you that some of the statements made today during this conference call will contain forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties, and actual results could differ materially from those projected in any forward-looking statements. Factors that could cause actual results to differ are discussed from time to time in the company’s filings with the SEC, including our Annual Report on Form 10-K and our reports on Form 10-Q and 8-K. These documents are available on the Investor Relations section of our website, and we encourage you to review the material. The company has no obligation to publicly update or revise these forward-looking statements to reflect the events or circumstances after the date they are made.
Participating on today’s call are Delcath’s Interim Co-President and Co-CEO’s, Jennifer Simpson and Graham Miao. Jennifer is also Delcath’s Executive Vice President, Global Head of Business Operations; and Graham is Delcath’s Executive Vice President and Chief Financial Officer.
Following their opening remarks, we will open the call to questions from analysts and institutional investors.
And with that, I’d like to turn the call over to Jennifer.
Thanks, Michael, and good afternoon everyone. This afternoon, I’d like to provide updates on our two main priorities, our HCC clinical development program and CHEMOSAT clinical adoption in Europe. Later, I’ll turn the call over to Graham, who will discuss our first quarter financial results and provide an update on the availability and use of resources.
I’ll begin with an outline of our current clinical development program. As a reminder, this program is designed to investigate Melphalan HDS for first line treatment of patients with unresectable, advanced hepatocellular carcinoma or HCC, also known as primary liver cancer.
We are pursuing a phased clinical strategy initiating a Phase II Signal Seeking clinical trial program in 30 patients followed by a Phase III trial program if the initial responses are positive. Based on key opinion leaders’ feedback regarding differences in treatment practice patterns and regulatory requirements between Europe and the U.S. We’re establishing separate European and U.S. Phase II clinical trials with different inclusion and exclusion patient selection criteria.
Clinical observations from the two trials are designed to be complementary, and data between the two Signal Seeking trials will be analyzed collectively to help support in future Phase III pivotal study designs. The trials will also incorporate additional safety measures from experience gained in our EU commercial phases as well as the U.S. Ocular Melanoma Program.
For the U.S. portion of our program, our IND amendment has been cleared by the FDA, and once the trial protocol clears Ethics Committee review at participating sites, they will be ready to recruit patients in the U.S. portion of the study. For the European study, we submitted a separate HCC Phase II trial protocol to the German Health Authorities to initiate the trial in Germany. This protocol is also proceeding through the Central Ethics Committees at Heidelberg Cancer Center and JWG in Frankfurt. We are continuing to evaluate other centers that have expressed an interest in participating. Pending any comments from the German Health Authority and clearance of the protocol by the German Institution, these sites will be ready to begin recruiting patients.
Overall, we believe that participating sites remain on track to be open for recruitment in the Phase II HCC trials in the first half of 2014 and subject to timely enrolment of the eligible patients, we anticipate having interim data available in the first half of 2015. We also continue to support investigator initiated files or IITs as suitable opportunities present, with IITs currently in Germany and the Netherlands nearing activation. We believe these IITs will serve to build additional clinical experience at key cancer centers and provide data that will further support clinical adoption and efforts to obtain reimbursement in Europe. Obtaining reimbursement for CHEMOSAT procedures in Europe remains our primary objective on the commercialization front.
In Germany, individual funding request or IFRs continue to be the primary means of reimbursement for CHEMOSAT procedures until permanent reimbursement is in place. These applications are reviewed on a case-by-case basis, and we continue to see a majority of these applications being approved.
As we discussed in our last call, in January we were then granted NUB Value 4 status for 2014 Interim Reimbursement in Germany, which provides hospitals the opportunity to negotiate a budget to fund CHEMOSAT procedures with their regional insurance carriers. While we are pleased that hospitals in Germany will have the option of negotiating reimbursement under this mechanism, we believe the IFRs will be the primary source of coverage in Germany this year.
In the UK, centers are applying for funding for a limited number of patients with melanoma. We currently expect decisions on block grants to be made in third quarter of 2014 and potential funding, if granted, to be available in the fourth quarter of 2014. The current application seeks funding for 15 to 75 ocular melanoma patients and 15 to 20 cutaneous melanoma patients. The mechanism under which block funding is granted is new and ongoing delays and policy changes in the National Health Service or NHS makes it difficult to predict the likelihood and timing of block grant funding.
CHEMOSAT procedures and re-treatments continue to increase, which we believe is a function of expanding clinical experience, interim funding mechanisms, and clinical buy-ins from influential key opinion leaders. Through our commercialization efforts, we remain focused on Germany and UK. We’re also supporting clinical adoption of CHEMOSAT in other European markets where we have established our footprint; and procedures were conducted in The Netherlands and Spain in the first quarter.
We were pleased to achieve an important milestone during the quarter with our hundredth treatment since CHEMOSAT became commercially available in early 2012. 103 procedures have been performed on 72 patients at 17 [principal] (ph) centers.
With that, I would like to turn the call over to Graham Miao for a review of our financial results. Graham?
Thank you Jennifer. Good afternoon everybody. Our financial results this quarter illustrates our continued progress to enhance operational efficiencies, reduce our cash spend, and strengthen Delcath’s financial condition.
Cash spent for the quarter was $4.5 million. This was a reduction of 59% or $6.4 million year-over-year for the same period due in part to a reduction in NDA submission-related costs and improved organizational and operational efficiencies. We also reduced the cash spend by 13% or $0.7 million sequentially from the fourth quarter of 2013. This reduction was achieved largely by improved organizational and operational efficiencies. Importantly, we have met our cash spend guidance for the last four quarters. In this quarter, our cash spend was lower than our reduced guidance of $5 million to $6 million. We are confident that we remain on target to achieve our average quarterly cash spend target of $5 million to $6 million in 2014.
In addition to improving our cost structure, we raised additional capital to further strengthen our balance sheet. As we mentioned on our year-end earnings call; during the first quarter, we raised approximately $4.5 million before related expenses through our at-the-market offering program. As of March 31, 2014, cash and cash equivalents were $31.3 million, including $0.5 million in accounts receivable collection. We believe that the actions we have taken will enable the company to help advance its strategy and extend its cash runway through the first half of 2015.
Turning to the income statement, for the first quarter ended March 31, 2014, we recognized $0.3 million in revenues. As we have mentioned previously, we expect the revenue ramp will be slow until permanent reimbursement is secured in Europe. Total operating expenses during the first quarter of 2014 decreased by 50% to $5.3 million from $10.6 million for the same period in 2013. The decrease is primarily due to a significant reduction in expenses related to the company’s NDA submission to the FDA as well as the company’s overall cost management efforts. The reduction also reflects our more streamlined operations. For the first quarter, operating loss was $5.3 million, which included non-cash, stock-based compensation expense of $0.2 million as compared with an operating loss of $12.8 million including $0.6 million in non-cash, stock-based compensation expense in the prior year.
Lastly, on April 8, 2014, we effected a one-for-sixteen reverse stock split which had previously been approved by shareholders. Following the reverse split, we were notified that we had achieved the minimum bid requirement and had regained NASDAQ listing compliance.
In summary, we continue to optimize the use of resources and expect to maintain our streamlined operations in an efficient and effective manner by focusing on markets where we believe we have the best chances for success and on clinical programs that we believe will offer us the greatest potential reward.
With that, let me turn the call over to the operator, and open the call for questions.
(Operator Instructions) Your first question comes from the line of Edward Nash with Cowen & Company; please proceed sir, your line is open.
Yun Zhong - Cowen & Company
I missed the first part of the call, but just wanted to find out when do you expect to receive feedback from the FDA regarding the product [indiscernible] and when do you expect to initiate the clinical trial?
Sure. We did commit the IND to FDA, and we have passed the tolerance period, so we are good to go. From that perspective, and right now the protocol is making its way to the Institutional Review Board at the U.S. Institutions, and we believe right now that we are on target to have those sites open to recruiting patients by the first half of 2014.
Yun Zhong - Cowen & Company
Okay great, and going to Europe, are you able to share with us the new patients and the number of new centers that were added during the first quarter of ’14?
In terms of the number of new centers during the first quarter, we do not have any new activation of sites. In terms of the number of patients treated, I should have to look back, first quarter, roughly 10 to 12 patients.
Edward Nash- Cowen & Company
And I think the reimbursement situation is largely dependent on the publication of the Phase III clinical results, and when do you expect that to happen?
Yes. [Indiscernible] is tied to Phase III publication. I mean, at this time we continue to work with the investigators and we are at -- it is at their discretion as to when they submit the publication. So, this time I don’t have a definitive date for you.
I’m showing that we have no additional questions in queue. I would now like to turn the call back over to management for closing remarks.
Thank you operator, and thank you everyone for joining us today.
Thank you ladies and gentlemen. This concludes today’s conference. We do thank you for your participation. Also please be advised that the replay will be available two hours after the end time of this call. You can access the replay by dialing 866-233-1854, and using replay code 52886168. Again thank you for joining the call today, and have a good afternoon.
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