Good day, and welcome to the Delcath Systems Reports Third Quarter Fiscal Year 2023 Financial Results. All participants will be in listen-only mode. [Operator Instructions] After the today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Hoffman, General Counsel. Please go ahead, sir.

Thank you. And once again, welcome to Delcath Systems 2023 third quarter earnings and business update call. With me on the call are Gerard Michel, Chief Executive Officer; Sandra Pennell, Senior Vice President of Finance; Kevin Muir, General Manager, Interventional Oncology; Vojo Vukovic, the Chief Medical Officer; and John Purpura, 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 risks 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. Now I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you, everyone for joining today. Since the FDA approval of HEPZATO KIT on August 14 for patients with metastatic uveal melanoma, we have been focused on outreach potential treating sites and building our commercial team in preparation of commercial launch, which is now anticipated for January. While it's taken slightly longer than expected to work with our CMOs to finalize or produce QC released, labeled and packaged melphalan specific to HEPZATO, we have been productively using the time between approval and launch to expand the number of treatment teams that have undergone by doctor training and attended a preceptorship, both of which required before a new treating team can perform their first proctor case. In HEPZATO KIT FDA approval, we have been encouraged by both the medical oncologists and interventional radiology communities, motivation and stated commitment to incorporate HEPZATO KIT into their practices to treating patients with metastatic uveal melanoma. While we are fielding interest from more than 20 sites, we are primarily focused on a subset of these to ensure that we achieve our planned activation targets throughout the year. In conjunction with the local medical oncologists at each of our target sites, we have been working with the sites interventional radiologists to identify and train HEPZATO KIT treatment teams. In addition to training the treatment teams at each site, we are also working to get HEPZATO KIT approved through the various traditional hospital formulary and value analysis committees, and we have started that process in 13 hospitals. Currently, we have three EAP sites, Moffitt Cancer Center, Duke University and the University of Tennessee, which are fully trained. They can start treating commercial patients upon the availability of commercial product. In addition, we now have a further four sites, Mayo Clinic, Thomas Jefferson, Ohio State University and Stanford…

Thank you, Gerard. We ended Q3 with $40.5 million in cash. Cash used in operations was approximately $9.2 million in the third quarter and $23.1 million for the first nine months of the year. The increase in cash is due to the funding received as part of the Tranche A warrants exercise. Specifically, the Tranche A warrants were exercised for $35 million for the equivalent of $7.5 million in common stock. The $35 million should be sufficient to fund the company until another 4.1 million shares of common stock equivalents are issuable at a strike price of $6 as part of the Tranche B warrant without having to issue additional equity capital. The Tranche B warrants would result in $25 million of gross proceeds upon the company achieving $10 million in quarterly revenue. Current shares outstanding, 22.1 million and 40.5 million on a fully diluted basis. Revenue from our sales of CHEMOSAT was $0.4 million for the three months ended September 30, 2023, compared to $0.9 million for the three months ended September 30, 2022. For the three months ended September 30 this year, R&D expenses were $4.7 million compared to $4.1 million for the three months ended September 30, 2022. The increase is due to activities related to the FDA inspection and other requests in advance of their approval of HEPZATO. For the three months ended September 30, 2023, compared to the same period in 2022, selling, general and administrative expenses have increased from $4.8 million to $6.2 million due to activities to prepare for commercial launch. That concludes our earnings and business update. And I'd ask the operator to open the line for Q&A. Can you please check for questions?

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Bill Maughan with Canaccord Genuity. Please go ahead.

Hi. Good afternoon. Thank you. So I have two questions. So you talked about getting sites up and running and the last hurdles to go through being product availability and sites Value Analysis Committee approvals. On the sites Value Analysis Committee approvals, how active is Delcath in that process or is that generally an internal hospital process? And how much -- how certain is the outcome of those processes. In other words, is it sort of a check-the-box operation or is there any uncertainty in that approval? Second question is, how you see this -- how do you see HEPZATO being used post KIMMTRAK or are those patients simply too far along to be an addressable market? Thanks.

Yes. Let me start with the first question, Bill, good to hear from you. And I think, Kevin, you could probably add some color to this, but I think I wouldn't go as far as to say, check the box, but I would also say and cover -- add some color to this, that we have a lot of sites. There's no place that we're moving forward and aggressively where we aren't confident of support. But David, Kevin can give some color there. And we certainly support the sites to some extent, but I think the days that the company going in and presenting are long gone, but you do have to support them to some extent. Kevin, can you add some color?

Yeah, Gerard. Thank you. It's far from check-the-box. It's a formal process within each facility. And they're basically looking for -- if we code this procedure, will we get paid, will we get reimbursed. And so we are asked to provide a limited amount of information and then a hospital makes its decision on itself. We feel confident with our hub services, Gerard mentioned earlier in the call and are -- they're assisting with the coding -- kind of the coding forecast for the facilities and then it's up to them to see if that's beneficial for them. And the feedback that we've had to this point in time has been very good. So we're confident that out of the 11 sites that Gerard mentioned, that we'll have five of them that will perform procedures by the end of January.

And Kevin, I think it's fair to say that we haven't -- there have been a number of these meetings already, and it's usually not just one meeting, but a number of these meetings have started. We've yet to have any geez this isn't going to happen type reactions. Is that correct?

It's entirely correct. We've been overwhelmed by the response that we've had and the two-way communications that we've had with each hospital to this point in time. As Gerard mentioned, we've had several of these calls and presentations that we've made to the hospitals, and we anticipate most, if not all, of these coming back with the Value Analysis Committee in our favor.

Now Bill, in terms of your second question, are patients who are post [indiscernible], will they be too far gone, too far progressed. And I think the answer is some maybe, some may not be. I think if we take a step back, the first question really is, should you use liver-directed first. There are certainly some oncologists out there who believe that in many cases, liver-directed first makes sense. There are others that want to go to systemic first. So it's not going to be everyone automatically going, it can be first. I think one of the points we're going to make to oncologists is that you can tell after two treatments from us, whether or not you're getting a benefit. With [indiscernible], they recommend treating through progression because the pseudo progression with immuno-oncology agents. So you run the risk of going too long with [indiscernible] before you really know whether it's working or not. So it may make sense to start with us from that rationale. The third thing I'll say is, we have seen patients post-tebn (ph). So we've seen patients that are applicable for tebn (ph) coming with us first, and you've seen patients post-tebn. So clearly, it's going to be a mix, but we think we have a sound argument because the liver is usually the life-limiting organ site of metastases and you can get a quicker read on whether you're getting efficacy when you go with us first. We think we have a good argument to go with us first. But if not, I think we'll still get a fair number of those type of tebn patients that unfortunately eventually progressed.

Got it. Thank you very much.

The next question comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you and good afternoon. Just had a couple of questions. First, as far as -- I'm just thinking about the launch metrics you sort of laid out, Gerard. When we think about one per month, moving to two per month, do you think about that as an average or do you think of that as a high volume, location or just trying to get a sense because I know, obviously, some people will do more, some will do less. How are you trying to put that one to two in reference.

Yeah. I think here's what we have. Before we really get out there and get moving, kind of averaging, maybe down, who knows. I do know, I'm confident there'll be some sites that are doing one a week. And I think there are others as they get started and we're building the referral networks, they might be doing one every two months. Eventually, my hope is that sites do at least one a week out some time over the horizon. And that's what we need to do to get to peak share. But it's definitely an average. And it's really thinking there's one or two sites doing most of those and the new ones that have recently come onboard, they're building the referral networks.

Okay. Great. And when we think about cycles per patient, how would you think about the average cycle -- number of cycles a patient would have and how much time between cycles should we expect in utilization?

Well, we saw on the FOCUS trial. I think, as you know, it was 4.1. So we're kind of -- for our own modeling purposes, assuming four. In the FOCUS trial, we allow patients to go up to eight weeks between cycles, six was the recommended. I think what we've seen in other settings, Europe is that some docs, more incapacitate use setting earlier in the U.S. Some docs choose to do too quickly together at let's say six, eight weeks apart, and then we do watchful waiting. Others follow the protocol perfectly. So I think -- my guess is we're going to have a subset to do two, eight weeks apart and then wait. Others are going to go straight through. One thing I am certain of is patients that we lost in the trial that withdrew because their blood counts have not risen to the level or is appropriate to retreat them, we won't lose those likely in the commercial setting because the doctor will just wait a few extra weeks. So on average, I think it will be -- go ahead.

So when we think about cycles per quarter as we model out expectations for the launch, obviously, everyone doesn't come in the first day of the quarter. It sounds like we should think about it as one to two cycles per quarter, depending on the...

Yes, one to two. Yes -- one on average, kind of starting out early in the first quarter, one treatment a month per site, ending two. And then when I say treatment, I mean a cycle or a treatment. It could be -- we're not really counting patients right now because we were just scratching the surface at these levels in terms of the TAM. At some point, we'll have to start talking about number of patients on therapy. But right now, we're just focused on treatments or cycles.

Okay. And Gerard, maybe for the typical hospital, maybe if you could just walk through how that hospital gets paid with this product? What is the procedure and how we should think about that?

Yeah. So for the typical hospital, there will be three components of payments, all right? And we're going to talk about outpatient because the majority of these patients will be outpatient. They're going to put in a set of CPT codes for a facility fee. They're going to put in a set of CPT codes for the procedure for the doctor's time. Now most of these doctors are on salaries, so it's not a direct incentive to them, but they do care. And the third reimbursement component will be putting in for reimbursement for the drug itself , HEPZATO KIT. That will initially be with a C-code and that eventually we will get a J-code. But that's a pass-through payment. So the hospital would be paid whatever we charge them, plus 6%. Let me just pause there and see if there's any more detail or any particular part of that process that you'd like to hear about.

No, I think that's a good -- so these three codes that all come into place, are all of them necessary to start the process? Or is there sequence that hospitals will want as they utilize this?

Yeah. So let me -- Kevin, why don't you explain the availability of how the CPT codes work in terms of being a portfolio of codes you're going to use? And then when the -- what they'll do initially and then when the C-code comes on board, then a J-code.

Yeah. So thanks, Gerard. So CPT codes are nothing more than codes that describe what the physicians are doing during the procedure. So when they go through the step there will be -- or when they go through the procedure, they will record what they do. The CPT codes will match what they do. They're presented to CMS and the payment comes back. Those are -- there's going to be two payments, one for the hospital, one for these physicians. We've gone through a number of coding exercises to ensure both ourselves and our hospital partners that this will be -- there are codes in place and if they code them correctly or they do the procedure, then the hospital will be reimbursed fully for what they are doing. Physicians, the same thing. Their codes will pay them adequately for their time. So those are the two main concerns when you really come down to it. This is a lot of what's done from the earlier question on the Value Analysis Committee, make sure the CPT codes are there for the hospital in position. And then the final part of that is the product. And we should anticipate hearing very soon back from CMS on our C-code or it's called actually called a TPT, transitional pass-through application, which results in a C-code. We anticipate hearing on that shortly. Those usually go into effect on January 1, but sometimes they drag into January. So that should, as Gerard mentioned, be a pass-through payment for the hospital and they get a 6% administration fee on top of that. So again, from the customers -- from the hospitals that we've talked to at this point in time, there seems to be more than adequate reimbursement for them to move forward.

Great. That’s helpful. Gerard, that’s the scheduled for me. Thank you.

All right. Thanks so much, Scott.

Next question comes from Marie Thibault with BTIG. Please go ahead.

Hey. Good afternoon. This is Sam Iber (ph) on for Marie. Thanks for taking the questions and congrats on the progress getting through some of those treatment sites. Maybe I can use my first question here on the work with the CMOs. I think I caught your comments earlier on the call that it's taking a bit longer than expected. Just wanted to get any additional color on maybe some of the bottlenecks or work that's going on behind the scenes there? Thanks.

Sure. So for -- we've known for quite a while that we'd like to work more directly with a CMO for melphalan. What we -- given the series of acquisitions based on who we initially signed up with melphalan, I won't go through all the details, we're ended up in a situation where Mylan holds the ANDA and they use a CMO Neopharma in Italy. Neuro pharma uses a set of CMOs or contract labelers to make the various labels and such. We have tried prior to approval and post-approval to take some of that work on ourselves saying, ship us naked vials, we'll label it, we'll make the labels and ship them up to Italy, anything we can to accelerate this. And unfortunately, since we're a very small player for this generic product and these nested manufacturers, we really are having difficulty moving -- getting them to move off of what they say is basically, here's your contracted lead times. Now there really was no way in our position to write a large check or even guess what the time of label would be to get way ahead of this. This is an unusual situation. Again, where we're using a generic product, and we're getting into carve-out a small run for us. And that's really what the bottom line. Could it have been a little smoother perhaps. But at the end of the day, we've got to work with what I'm calling these net CMOs. This won't be a problem longer term. We've already got an order in for a second full batch, which will be delivered probably shortly after the first batch. And so that will be well supplied going forward. We wouldn't have these bottlenecks anymore. But again, it's kind of a situation where we're never really in a position to fund our own ANDA for this type of thing. So we just kind of have to live with this situation. And as we go forward, we're going to focus a lot on making sure the supply chain is robust as possible. And we don't have any -- we're never at a stock out situation or a slowdown situation.

Okay. Yeah, that all makes sense. I appreciate the added color there. Maybe I could use my follow-up here on some of the VAC approval process questions. How long do these usually take? I mean we hear for other products that could take six months to 12 months? I assume that it's probably a bit quicker here. I recognize it's not just a check-the-box kind of item, but -- just wondering your thoughts on how long those VAC approvals you expect to take?

Yeah. I think what's unique about this is -- well, this is not another antibiotic for hospital-acquired infection or another stent. This is a product where there is nothing else like it for this patient set. And our individual radiologists and medical oncologists are very happy to champion this and push this forward outside the regular scheduled meetings. Now what I'm doing here is repeating what Kevin has told me, but Kevin, is there anything I left out in terms of the process or any further color?

No. But to add a little color to the question, you're right. I mean, throughout my entire career, of budgeted nine months for one of these Value Analysis Committees. And again, it's kind of been what has been too encouraging about this is that we have -- its ultra-rare disease, it's lack of standard of care for some of these patients, and we're also at the right hospitals. And so they recognize the need for the product that we're bringing and we're kind of moved outside of that nine months, and we're probably closer to three months and even in some scenarios, maybe shorter than that. So it's been very encouraging from the response that we've received from these committees.

Okay. Really helpful. Maybe just a clarification question. How many of the proctor sites do you have in the U.S. that could essentially do the proctor cases that you expect to have?

Kevin?

Yeah. Looking at my list right now, we have the three EAP sites that are ready to go. The rest of the focus trial sites have abbreviated training requirements. So that would be another one, two, three, four. So we'll have some.

Kevin, in terms of proctor teams ready to go, it's Moffitt, right?

Oh proctor team, yes. Yes. I'm sorry, I misunderstood the question.

And that's one of the reasons it's going to be a bit slow, but we'll have another team, two or three teams up and going within a few months, and we have a number of teams in Europe who are more than happy to fly over and proctor. So that’s – we’re probably going to end up relying on some European teams as well.

Got it. Okay. Thanks for taking the questions.

The next question comes from Yale Jen with Laidlaw & Company. Please go ahead.

Good afternoon and thanks for taking the questions and congrats on the progress. A couple of quick – good evening, just a couple of quick ones. First one is that in terms of your inventory preparation for the launch by beginning of the -- end of this year or beginning of next year, what do you think your inventory level might be? And how would that be -- how adequate the supply -- the anticipated -- potentially anticipated use over the next -- the subsequent quarters?

Okay. I got the first question. The inventory level, I'll answer for that is, we're trying to maintain at least a year's worth of inventory. I think once and so that will be a rolling demand forecast looking forward. I think once we get past the $10 million revenue milestone that will bring more cash to the balance sheet, we'll be just short of being breakeven then on an EBITDA basis. I think we'll probably increase safety stock beyond the year on certain components, just to be careful because it's not always easy to switch out components of suppliers change. So that's answer to your first question. What was the second, Yale?

When you start to launch the product, you have adequate or how do you see that preparation at that time?

So do we have adequate. I think we will probably, based on orders coming in this year, and once the melphalan shows up, we'll have -- every component we will have at least a year's worth of stock.

Okay. Great. That's helpful. And my second question here is that given you indicated there's roughly 10 sites ultimately will be in the queue for the, I guess, first half of next year. What is your estimate of the total potential patient size or procedure number of the all the 10 combined?

So are you asking what I think the volume will be for the full year?

For the full year, from the other 10, I guess, hospitals insight.

Yeah. Let me stick with what I said before and then that is -- I mean -- and that is -- and I think you can probably do the math, and that is with a little bit of range, which is I'm trying to ensure here, is five -- by the end of the quarter, we'll definitely have five sites up and running. And I think ending the quarter, they'll be doing at least one a month. Middle of the year, at least 10 sites up and running, end of the year, at least 15 sites up and running, and they should end the year doing at least two a month exiting the year. You can get to a fairly wide range, plus or minus 30% in terms of volume depending on when you assume they get there within the quarter. In terms of how many patients that represents, whatever number you have divide it by four.

Okay. Sounds good. [Multiple Speakers] And maybe the last question here is that -- is there any patient you anticipate or to be in the procedures when you launched the product in other words, they become our patients and presumably people calling [indiscernible]. Any number and colors on that?

Yeah. So we are having the conversations with sites or had the conversation with sites. It varies by site. That -- we plan -- we'd like to transition EAP patients over to commercial patients once commercial supply is available. With the exception, of course, if a patient doesn't have coverage, we wouldn't stop treating them. That the way we set up the protocol is it's not an automatic. We can't force that, and there are some important reasons why we chose not to set it up so that we could force it. But I don't know whether or not it will be a third or half but there'll be some meaningful percentage of the patients that we'll treat in the first quarter will be patients who switch over from EAP.

Okay. That's very helpful and thanks a lot for the details and congrats -- again, congrats on the progress.

Thanks so much, Yale.

The next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please go ahead.

Thank you. This is RK from H.C. Wainwright. In terms of getting centers ready in your -- when you start launching the drug -- the kit in January, as you're preparing some of these hospitals, are you getting a feel for like how long it's taking for some of these doctor teams or the surgery teams in terms of training and -- so that they can start doing their surgeries? And do you see that -- and also, how do you think that, that training time is going to evolve as you launch in more of the physician teams start training.

Yeah. So in terms of how long, it really varies. We have one site that immediately jumped on it and got their preceptorship done within a month or so of having a discussion, maybe a month or two, having a discussion with them. We have other sites that, again, I've used in term on multiple calls or one-on-ones herding (ph) cats where it's been very difficult to get an interventional radiologists and anesthesiologists and prefusionist all attending the case at the same time, which requires an airplane flight, et cetera. So I think that's the reason why -- one of the reasons why I'm saying, look, we'll probably have 11 sites -- well, we're planning on having 11 sites receptor, hopefully, within about two months plus. But of those, I think five will end up getting proctored, is that then we have to look at a team of experienced Docs. And right now, that's just Moffit because we have a requirement that they need to have done a certain number in the recent past that Moffit's the only one that checks off that box as well as some European sites. We expect there'll be some issues with experienced sites. We're getting an experience site to preceptive site. So that will be the second gating item. Again, it's going to be -- it's tough to predict. That's where we're saying out of the 11 that we think we'll have 10 prececeptor ships, maybe five will get on board. And we can't really decide which -- we don't know exactly which five it will be. Thereafter, as more sites do more cases and more sites get beyond the -- I think it's 10 cases they have to do before they can be a proctor. Once they get beyond the 10 cases, all of a sudden, we'll have multiple experienced sites that can proctor. And I think towards the back end of next year, that's when it will really accelerate. And it will be a lot simpler to get sites up and running. So varied, hard to predict. It will take much longer in the beginning of this year than it will towards the end -- the beginning of next year, then it will take towards the end of next year as more and more sites are available to be proctors. So hopefully, that answers the question, RK, which is basically, it depends.

No, I got that. And then in terms of, how do you see hospitals and even Docs (ph) trying to get on treatment -- treating with HEPZATO KIT versus KIMMTRAK. And when you go in to have some of these conversations, what sort of conversations that you end up having. And do you think you will be able to get any of the things to move from KIMMTRAK to the kit.

Yeah, I think -- well, Kevin, why don't you give an example from a commercial rep perspective, what will the conversation be?

Yeah. I don't think that we will replace KIMMTRAK with HEPZATO KIT. The conversations that we've had in the field right now have been -- have revolved around potential to use these two therapies in sequence. What's the best sequence? How can they complement each other? Ultimately, these patients are probably going to go at least on two lines of treatment, if not three. So what is the order that is going to provide these patients with the best options and ultimately, the longest overall survival. So that's where the conversations have been really focusing around, not so much on the either/or between HEPZATO KIT or KIMMTRAK.

Very good. That’s good to hear. Thank you.

And I think it’s also important to remember, and I think everyone on this call does remember this, but the KIMMTRAK has indicated for about 40% to 45% of the overall population. So this is a subset of the patients that we – this conversation is pertinent to – but I think everybody knows that, but worth highlighting.

Thanks, Gerard. Thanks for taking my questions.

This concludes our question-and-answer session. I would like to turn the conference over to Gerard Michel for any closing remarks.

Okay. Well, I want to thank everyone for taking the time this afternoon. I look forward to providing future updates regarding the launch and subsequent to that commercial uptake. Thank you, everyone, and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect