Delcath Systems, Inc. (NASDAQ:DCTH) Q2 2014 Earnings Conference Call August 6, 2014 4:30 PM ET
Michael Polyviou – Investor Relations
Jennifer Simpson – Interim Co-President and Co-Chief Executive Officer, Executive Vice President-Global Head of Business Operations
Graham Miao – Interim Co-President and Co-Chief Executive Officer, Executive Vice President, Chief Financial Officer
Good day, ladies and gentlemen and welcome to the Delcath Systems’ Second Quarter 2014 Conference Call. My name is Christel, and I will be the operator 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, the conference is being recorded for replay purposes.
I would now like to turn the call over to your host for today, Mr. Michael Polyviou with Investor Relations. Please proceed.
Thank you, Christel, and good afternoon, everyone. Thank you for joining us today for this conference call and webcast to provide an update on Delcath’s fiscal second quarter 2014 results, as well as recent developments. A replay of the conference call will be available approximately for two hours after the conclusion of today’s call, and it will be available for seven 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 on the company’s website.
Before we begin, I’d like to remind you that some of the statements made 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 these – 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 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 Miao is Delcath’s Executive Vice President and Chief Financial Officer.
Following their opening remarks, we will open the call to questions from analysts and the 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 clinical development program and CHEMOSAT adoption in Europe.
Later, I’ll turn the call over to Graham, who will discuss our second quarter financial results.
I’ll begin with an update of a Melphalan – Melphalan Hepatic Delivery System or HDS clinical development program. Our current Phase II trial is designed to investigate Melphalan HDS for first line treatments, our patients with un-resectable advanced hepatocellular carcinoma or HCC also known as primary liver cancer.
We are pleased to report that the global Phase II Signal Seeking clinical program, which is sponsored by Delcath, has commenced in Germany. Clinicians at Johan Wolfgang Goethe University Hospital in Frankfurt also known as JWG are actively treating patients for enrollment in the trial.
Currently, we expect add additional sites in Germany, the United Kingdom and the United States during the remainder of 2014. As a reminder, based on differences in treatment practice patterns and regulatory requirements between Europe and the U.S., we are establishing separate European and U.S. Phase II clinical trials with different inclusion and exclusion patient selection criteria.
Clinical observations from the trials are designed to be complementary, and are expected to be analyzed collectively. If positive results are archived, this will help support our future Phase III pivotal study design, which would evaluate overall survival.
The trials will also incorporate additional safety measures from experience gained from EU commercial phases as well as the U.S. Ocular Melanoma Program. In Europe, the Phase II program will investigate the safety and efficacy of Melphalan HDS treatment without sorafenib in patients with unresectable liver cancer confined to deliver.
In the U.S., the Phase II program will investigate the safety and efficacy of Melphalan HDS treatment with sorafenib in patients with unresectable liver cancer also confined to deliver. The primary objective will be to evaluate tumor response or objective response rate, as measured by modified response, evaluation criteria in solid tumors also known as modified RECIST. With secondary objective to asses progression-free survival, safety, and if sorafenib is utilized, the safety of sorafenib following treatment with Melphalan HDS.
Additional analyses will be conducted to characterize the systemic exposure of Melphalan, administrated by Melphalan HDS, as well as an assessment of patient reported clinical outcome, or quality of life measures. As I mentioned, we are continuing to evaluate other centers that have expressed an interest in participating in the program, and ultimately, expect to include a total of four to seven centers in Europe and U.S., and we’ll seek to enroll approximately 30 patients. Subject to timely enrollment of the eligible patients, we anticipate having interim data available in the first half of 2015.
In addition to the Phase II program, two investigator initiated trials, or IITs have begun, one in a specific HCC patient population subject at JWG in Frankfurt; another, in patients with colorectal carcinoma with melanoma metastases at Leiden University Medical Center in the Netherlands. We have been advised that Leiden have enrolled and treated its first patient.
Together, the IITs will serve to build additional clinical experience with Melphalan HDS, and provide data that we believe will further support clinical adoption and our efforts to obtain reimbursement in Europe. Our team continues to evaluate additional investigator initiative trial proposals as they are submitted.
Lastly, on the clinical development front, we have been working on European patient registry and plan to activate our patient registry this quarter, which will prospectively collect data from EU commercial experience. We anticipate the first site will begin enrolling patients onto the registry later this year. Similar to the IITs, we believe the patient registry will provide valuable data and information from a commercial setting, which can be used to support our efforts for clinical adoption and commercialization in Europe.
Turning to the European market, we have made solid progress in driving clinical adoption at CHEMOSAT treatment, which we believe is the function of expanding clinical experience and interim funding mechanisms. So far, during the first seven months of 2014, 50 CHEMOSAT procedures have been performed in Europe. Of these 50 treatments, 22 were retreatments. This compares to 22 treatments performed during the first seven months of 2013 with six of this 22 treatments being retreatments. Clearly there has been a significant increase in the clinical adoption of CHEMOSAT in Europe. Since CHEMOSAT became commercially available in early 2012 and through July 31 of 2014, 123 treatments have been performed on 83 patients at leading clinical centers in Europe.
Though our commercialization efforts remained focus on Germany and the UK, clinical adoption of CHEMOSAT continues to expand in other EU markets with procedures also conducted in the Netherlands and Spain this quarter.
Turning your attention to our continuing efforts for reimbursement. 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 submitted for individual patients and reviewed on a case-by-case basis by insurance providers. We continue to see a majority of these applications being approved and are hopeful that this trend will continue.
As we have previously discussed in January, we were 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 have the option of negotiating reimbursement under this mechanism, unfortunately we have absorbed the hospitals primarily focused on resources on NUB Value 1 interim procedures. And accordingly, we believe the IFRs will be the primary source of coverage in Germany this year for CHEMOSAT.
In the UK, centers are applying for a block funding grants for a limited number of patients with melanoma. We currently expect the decisions on the 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.
With that, I’d like to turn the call over to Graham Miao for a review of our financial result. Graham?
Graham G. Miao
Thank you, Jennifer, and good afternoon everybody. Our financial results this quarter illustrate our continued progress to enhance operational efficiencies, reduce our cash spend, and strengthen Delcath’s financial condition.
During the quarter, net cash used in operating activities was $4 million, a 62% reduction compared to the $10.5 million in the comparable period in 2013. The reduction was driven by the decrease in new drug application or NDA submission-related costs, and improved organizational and operational efficiencies.
Importantly, we have met our cash utilization guidance for the last five quarters. Based on our successful efforts, we are revising our cash utilization guidance lower for the remaining quarters of the year. We now expect our average quarterly cash utilization to be in the range of $4 million to $5 million for the remainder of the year, as compared to the previous guidance of $5 million to $6 million per quarter. As of June 30, 2014, cash and the cash equivalents were $27.3 million. We believe that the actions we have taken will enable the company to adhere its strategies for at least the next four quarters.
Turning to the income statement, for the second quarter ended June 30, 2014, we’ve recognized $251,000 in revenue. This compares with no revenue, recorded during the second quarter of 2013. For the six months of 2014, we’ve recognized revenue of $561, 000, as compared to $81,000 for the six months of 2013. As we have mentioned previously, we expect the revenue ramp to be slow until permanent reimbursement is secured in Europe.
Total operating expenses during the second quarter of 2014 decreased by approximately 41% to $6.1 million from $10.3 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.
Total operating expenses for the six months were $11.4 million, down 45% from the $20.8 million in operating expenses recorded during the first half of 2013. During the second quarter, we signed a sublease with a tenant for 50% of our corporate office space in Manhattan. As a result of the sublease, we’ve recorded a non-cash restructuring charge of $855,000, which is reflected in SG&A expenses in the second quarter.
We expect to achieve a total net cash savings of $2.6 million over the remaining lease term of approximately seven years. We continue to explore strategies to further optimize our cash utilization. For the second quarter, operating loss was $5.9 million, as compared with an operating loss of $10.6 million, during the same period in the prior year. The operating loss for the first six months of 2014 was $11 million, as compared with $20.8 million for the first half of 2013.
In summary, we continue to strive to optimize the use of our resources and the streamline operations. We are focused on our European commercialization efforts and our Connecticut development program. We look forward to updating you on a progress of our strategy.
With that, let me turn the call over to the operator, and open the call for questions.
Christel, we are ready to take questions now.
Christel, I believe we don’t have any questions. So I want to hand call back over to Jennifer and Graham.
Graham G. Miao
Thank you very much for participating in the second quarter call. And we look forward to updating you for the upcoming quarter.
Thank you, Graham.
Ladies and gentlemen, that concludes today’s presentation. You may now disconnect. Have a great day.
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