On March 16, 2018 Delcath Systems, Inc. (OTCQB:DCTH), an interventional oncology Company focused on the treatment of primary and metastatic liver cancers, reported that financial results for the twelve months ended December 31, 2017 (Press release, Delcath Systems, MAR 16, 2018, View Source;p=RssLanding&cat=news&id=2338487 [SID1234524857]).
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Highlights from the fourth quarter of 2017 and recent weeks include:
Revenue from European sales for 2017 increased 35% to $2.7 million from $2.0 million in 2016;
Satisfaction of all obligations under the privately placed senior secured convertible notes issued to two institutional investors in June 2016;
Completed a $5.0 million capital raise in February 2018;
Modified the Special Protocol Agreement (SPA) with the U.S. Food and Drug Administration (FDA) for the Company’s Phase 3 clinical trial of Melphalan Hydrochloride for Injection for use with the Delcath Hepatic Delivery System (Melphalan/HDS) to treat patients with hepatic dominant ocular melanoma (OM);
Announced that the independent Data Safety Monitoring Board (DSMB) of the Phase 3 FOCUS clinical trial recommended that the study continue without modification; Reported the 500th CHEMOSAT treatment in Europe;
Announced results from a multi-center analysis of Delcath’s Percutaneous Hepatic Perfusion (PHP) therapy in the peer-reviewed Journal of Surgical Oncology; largest data set outside of clinical trial showed manageable toxicity and overall median overall survival of 15.3 months, and;
Secured a commercial supply of melphalan through an agreement with Tillomed Laboratories for use with the company’s CHEMOSAT Delivery System for Melphalan, where it is marketed in Europe for the treatment of a wide range of cancers of the liver.
Management Commentary
"For much of the second half of 2017 and recent weeks, our focus has been on easing the cash constraints and other restrictions related to our capital structure," said Jennifer K. Simpson, Ph.D., MSN, CRNP President and CEO of Delcath. "These limitations necessitated a series of transactions during the second half of 2017 and the early weeks of 2018 that have permitted us to exit our 2016 Convertible Note, invest in our clinical development program, and advance our commercialization efforts for CHEMOSAT in Europe. We continue to work to resolve the remaining issues and to secure new equity financing under less dilutive terms to execute our plan and create value for our shareholders."
"Despite cash constraints, total revenues for fiscal year 2017 increased 35% over the prior year, continuing the steady growth in our core European markets. This growth was supported by the establishment of ZE diagnostic-related (DRG) reimbursement for CHEMOSAT in Germany, which we are leveraging to obtain market access and reimbursement in other regions such as the United Kingdom and the Netherlands. In the Netherlands, Dutch Health Authorities have included CHEMOSAT treatment in their published guidelines for OM liver metastases. We are hopeful that inclusion in the national guidelines and the support of clinicians treating patients with CHEMOSAT will support an application for reimbursement in this market. Since launching CHEMOSAT in Europe, over 500 commercial CHEMOSAT procedures have been performed.
"In our clinical development program, we achieved an important milestone in December 2017 when the independent DSMB for our Phase 3 FOCUS clinical trial for patients with hepatic dominant OM completed a pre-specified review of safety data and recommended that the study continue without modification. This confirms our own observations of the improvements in the safety profile of PHP therapy based on prior research and our commercial experience with CHEMOSAT in Europe. We were also happy to announce a SPA modification agreement with the FDA to revise the FOCUS trial’s eligibility criteria to permit a greater extent of extra-hepatic disease by removing the size restriction, number and location of extra-hepatic lesions, in conjunction with a treatment plan for the extra-hepatic metastases. We requested this protocol modification to improve patient access to this important clinical trial for appropriately selected patients. In an ultra-orphan indication like OM, striking the appropriate balance between eligibility criteria and patient access can be a challenge. We are pleased that the FDA agreed to this modification, and hope that once approved by the European Competent Authorities, ethics boards and institutional review boards of our participating clinical trial sites, this protocol modification will help accelerate enrollment in this registration trial.
"Enrollment in our FOCUS Phase 3 Trial has been slower than anticipated, and our ability to take proactive steps to support enrollment was limited by the cash constraints we operated under in 2017. With the rollout of the SPA protocol modification to participating centers underway, we hope to accelerate enrollment in 2018 and expect to update our enrollment projections in the second half of this year. Any impact on enrollment from the SPA modification is not expected to be immediate, and it is unlikely that enrollment for this trial will be completed in time to submit an NDA to the FDA in 2019.
"For our pivotal trial in intrahepatic cholangiocarcinoma (ICC), we continue to work with potential trial sites with a view to opening the trial in the first half of 2018. Our ICC pivotal trial is based on the prior work done in our Phase 2 trial program in hepatocellular carcinoma (HCC) and ICC, which had the objective of identifying an efficacy signal worthy of further clinical investigation. This objective was met by the retrospective data collection performed by European investigators last year, which informed our development path for ICC. We have closed enrollment in the Phase 2 trials to devote available resources to the FOCUS Trial and the planned ICC pivotal trial.
"Though the recent months have been financially difficult, we remain committed to advancing our clinical and commercial programs. We are continuously working to improve our ability to operate so we can realize the potential of PHP therapy and return value to our shareholders," concluded Dr. Simpson.
2017 Financial Results
Total revenue for the year ended December 31, 2017 of $2.7 million was an increase of 35% when compared to the $2.0 million total for 2016. The increase is the result of greater product sales in Europe in 2017 as Delcath continued to see increased market acceptance of its product, particularly in Germany where the establishment of the ZE code contributed to an increase in treatments.
Research and development (R&D) expenses for 2017 increased to $10.5 million from $8.4 million for the prior year, largely as a result of costs associated with the Company’s ongoing Phase 3 FOCUS Trial. Selling, general and administrative expenses for 2017 increased to $9.7 million from $9.4 million in 2016, primarily due to an increase in Delaware corporate taxes, independent audit fees, and costs associated with the Company’s efforts to secure approval for a reverse stock split.
For the year ended December 31, 2017, derivative instrument income increased to $15.1 million from $12.8 million for the year ended December 31, 2016. The increase of $2.3 million is due to the issuance of the November 2017 warrants and the subsequent mark-to-market adjustment at December 31, 2017.
The Company had a net loss for the year ended December 31, 2017 of $45.1 million, an increase of $27.1 million, or 151.1%, compared to the net loss of $18.0 million for the same period in 2016. Approximately $2.3 million is related to an increase in operating expenses primarily related to increased investment in clinical trial initiatives. The balance of the increase is related to several non-cash items, including a $7.4 million increase in interest expense primarily related to the amortization of debt discounts and a $29.9 million loss on the settlement of the convertible note debt, which was partially offset by a $2.3 million change in the fair value of the warrant liability and a $9.6 million gain on the extinguishment of the June 2016 Series C Warrants.
The 2016 net loss included a $14.3 million increase in interest expense primarily related to the amortization of debt discounts and a $1.4 million increase in operating expenses primarily related to increased investment in clinical trial initiatives. This was offset by a $12.2 million change in the fair value of the warrant liability, a non-cash item, and a $0.2 million improvement in gross profit due to increased sales.
Balance Sheet Highlights
As of December 31, 2017, Delcath had cash and cash equivalents of $4.0 million, compared with $4.4 million as of December 31, 2016. During 2017 the Company used $15.4 million of cash to fund operating activities.
On February 9, 2018, the Company closed a registered offering of 212.0 million shares of common stock, 38.0 million pre-funded warrants to purchase 38.0 million shares of common stock and warrants to purchase an aggregate of 500.0 million shares of common stock for total gross proceeds of approximately $5.0 million.
Delcath believes it has sufficient capital and access to committed capital to fund its operating activities through May of 2018.