Good morning, ladies and gentlemen, and welcome to the Delcath Systems Second Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Delcath General Counsel, Mr. David Hoffman. Please go ahead.

Thank you, and welcome to Delcath Systems Second Quarter 2025 Earnings Call. With me on the call are Gerard Michel, Chief Executive Officer; Sandra Pennell, Chief Financial Officer; Kevin Muir, General Manager, Interventional Oncology; Vojo Vukovic, Chief Medical Officer; and Martha Rook, 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 in a material manner 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. Our press release with our second quarter 2025 results is available on our website under the Investors section and includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website. Now I would like to turn the call over to Gerard Michel. Gerard, please proceed.

Thank you for joining us today to review our second quarter's financial results and business updates. We continue to make steady progress in building our U.S. business. This quarter marks the fifth consecutive quarter of site and HEPZATO volume growth. Quarterly revenue reached $24.2 million, an increase of over 20% compared to the first quarter of 2025, reflecting continued strong adoption. U.S. sales of HEPZATO were $22.5 million, while CHEMOSAT sales in Europe were $1.7 million. In the second quarter, we generated $7.3 million in positive cash from operations, net income of $2.7 million, and adjusted EBITDA of $9.8 million. Additionally, we ended the quarter with no debt and approximately $81 million in cash and investments. We finished the second quarter with 20 treating sites. And during the quarter, we activated Northwestern Memorial Hospital, University of Miami Hospital, and the University of Virginia Medical Center. Additionally, 10 centers are currently accepting referrals while progressing through the required training and approval process. Crucially, we are scaling intentionally, targeting world-class cancer centers, which can attract patients in both our first ultra-orphan market as well as partner with us as we look to expand the use of HEPZATO into our pipeline indications where there are larger patient populations with high unmet need. Based on the current pace, 25 to 28 operational centers are expected by the end of the fourth quarter. Although this is fewer than previously projected, active centers continue to treat patients at a consistent rate. The episodic pace of site openings reflects the complexities of working with large institutions for a novel product, which treats an ultra-orphan population. I am confident that we will continue to open sites, and we have set a goal of 40 sites by the end of next year. To support the expanding number of both…

Thank you, Gerard. Revenue from our sales of HEPZATO was $22.5 million and CHEMOSAT was $1.7 million for the second quarter of 2025, compared to just $6.6 million for HEPZATO and $1.2 million for CHEMOSAT during the same period in 2024. The second quarter shows growth of over 20% over the first quarter of 2025 in both revenue and volume of kits sold. We recognized gross margins of 86% in the second quarter compared to just 80% for the same period in the prior year. Research and development expenses for the quarter were $6.9 million compared to $3.4 million for the same period in the prior year. Selling, general, and administrative expenses for the second quarter were $11.4 million compared to $6.8 million for the same period in the previous year. Our second quarter 2025 net income was $2.7 million compared to a $13.7 million net loss in the second quarter of the previous year. Non-GAAP positive adjusted EBITDA for the second quarter was $9.8 million compared to an adjusted EBITDA loss of $0.8 million for the second quarter of 2024. We ended the quarter with approximately $81 million in cash and investments and a quarterly positive operating cash flow of $7.3 million compared to $2.2 million operating cash flow in the previous quarter. As of today, we have no outstanding debt obligations and no outstanding warrants. As a reminder, the exercise of Series F warrants resulted in $16.2 million of funding in 2025. The warrants were issued in May of 2020 as a component of a private placement at an exercise price of $10 per share and expired on May 5. We expect to remain cash flow positive throughout 2025. Thank you all for participating today. That concludes our prepared remarks, and I'd ask the operator to open the phone lines for questions and answers. Thank you.

[Operator Instructions] Our first question comes from Marie Thibault of BTIG.

Congrats on yet another good quarter. I wanted to start here with a question about the NDRA program and what you are seeing? I know it's only been 1 month since that was activated, but what are you seeing so far in terms of awareness from centers? Any tailwinds to volume that you're starting to see with this increased access? And how this might be playing into the revised guidance you've given us, if there are any details on the cadence you'd like to see for the next 2 quarters, that would be helpful for us as well.

Sure. Marie, good to hear from you. Probably a little premature to say whether or not there'll be any tailwinds. Prior to us participating in the NDRA, we often, I think, always got questions from sites that were DISH hospitals as to whether or not we participated. And they were generally a little disappointed, and we said no. Now they're happy that we are. But in terms of any breaks being removed, I think that will play out over a number of quarters before we can sort that out. In terms of getting to 25 to 28 centers by the end of the year, the pace of that, which I think you were asking for, I think we can do about 1 to 1.5 per month for the balance of the year to get to that number.

And then I wanted to check, I think I recall that your sales team you were going through an expansion. Just want to progress update on how that expansion has been going, how you found productivity, and how that is helping with perhaps utilization at the centers.

It is completed. As you probably remember, it's 6 regions now. We have 3 professionals or customer-facing people on the commercial side in each of those regions. One is his job or her job is to be at every treatment, clinical support specialist. Another job is to open the sites and kind of manage the sites, liver-directed therapy manager. And the last is an oncology manager, and they're more like a typical pharmaceutical oncology rep. They're all in place. Obviously, there's always a little bit of growth pains as you realign territories, hire new people, but I think about as well as one could be expected, and I think that they've all hit their stride at this point.

The next question comes from John Newman of Canaccord Genuity.

Congrats on a good quarter. Gerard, I just had a question on the NDRA program as well. We get a lot of questions from investors here. Just curious, over the long term, if you could talk about perhaps the potential for volume to expand, and why 340B is actually attractive to these hospitals. I think people are looking at the very short term, but I'm just curious if you could comment on sort of the long-term potential opportunity here.

Sure. And I'm not surprised investors are hungry for more detail because most companies, when they launch, are either in this or out of this. and you rapidly understand what the average value per unit is, factoring in the various discounts. For us, we kind of stepped into it midstream because of some changes in, let's say, guidelines from CMS and enforcement discretion, et cetera. So we were forced into it all of a sudden. I think the net effect, what that means, is 2 things. One is based on how things are running right now, and we're not that far into it, a month and a change. We think about half of our volume will take advantage of this statutory discount. The net effect of that is probably a 10% to 15% reduction between the second quarter and the third quarter in terms of value per kit sold. Offsetting that is the more difficult thing to quantify, and that is, to whatever extent were certain hospitals saying, look, we are just not going to make enough to cover our costs in certain types of patients. And either that would maybe limit their excitement to working with us, or more likely, and although one would hope this doesn't happen, I think there's occasionally some screening out of patients who might be underinsured. When hospitals look at this on a portfolio basis with this 340B NDRA program, for a portion of their business, those that participate, they're now making a much larger margin. And on a portfolio basis, the product becomes a bit more attractive to them. Will I ever be able to say how much more business did we get because of it? No. Am I fairly certain that there will be increased volume to some extent if we could run parallel universe experiments? Yes. But I'm reluctant to try to quantify that. I think it will be meaningful, but it will take a bit of time to probably materialize. And that's a very long-winded answer, John. I hope that's helpful.

No, it is. This is a complicated topic that we're not used to hearing much about, but we appreciate all the detail here.

The next question comes from Chase Knickerbocker of Craig-Hallum.

This is Jake on for Chase. Just regarding the NDRA, are you guys seeing any increased urgency to get centers up and running, or hearing anything from centers since joining the program?

No. And I think the reason for that is although that might, to the extent that an existing center that's accepting referrals or is trying to get to the point where they accept referrals, to the extent that was the revenue integrity folks, and there are different names in every hospital for it, but let's use that term. To the extent that they were a little reluctant or wondering how thin the margins would be or can they could cover their costs, it's a much easier conversation to have for those that have DISH eligible facilities. But they are one of, and I probably don't exaggerate when I say up to a dozen different gating items to get this thing approved in hospitals. I don't think anyone is pulling us forward because they're saying, "Hey, we're going to make a lot of money. And I'm thankful for that because at the end of the day, with the cancer treatment, you don't want that to be a driver on either end of the equation. But no, I wouldn't say I see increased urgency in terms of, geez, look at this. This is much better. At the end of the day, what drives us forward are physicians interested in doing the right thing by their patients and hearing from other docs that they're seeing extraordinary results in some patients, and then they just need to get through a lot of bureaucratic gating items.

If we could just turn to R&D for a second. Now that trials are starting to spin up, can you give us some thoughts on how we should be thinking about R&D? How does that ramp, and when the trials are going to fully get going in terms of spend, and what we should be modeling for?

Sure. Sandra, can you help out with that?

Absolutely. So yes, R&D increased already in Q2 over Q1 by about 37%. And again, this is fully loaded with the stock comp in there. We can probably expect another 40% in Q3 increase as we start to really ramp up in CRC and NBC, and probably another 25% to 30% increase in Q4 over Q3. Overall, from 2024, this will result in a full year, probably about a 140% increase. Again, that does include a significant increase in stock comp from the prior year, probably makes up about 20-plus percent of the balance in R&D in 2025.

The next question comes from Sudan Loganathan of Stephens.

Congrats on another strong quarter. First, I wanted to ask about the CHOPIN readout from ESMO. At what capacity can you market or educate physicians with the outcomes of the CHOPIN trial expected at ESMO Congress 2025 in October? Will this data be something your MSLs will be able to talk to, or your sales reps will be able to talk to when meeting with prospective or existing active sites?

It's a great question that we've discussed internally. At a minimum, the MSLs will be able to talk about it. Whether the reps can talk about it, I think they can certainly share the publication. In terms of detailing and saying this is the new treatment paradigm, you should sequence in the following manner. That's probably verboten. But I think in terms of sharing a publication, if the docs ask about it, that's perfectly fine. And also in terms of putting in touch with MSLs, that certainly will happen. It's kind of a slight gray area because it is on the label to use this just for 2 or 6, however, you want, the CHOPIN protocol initially 2. But we'll probably try to stay somewhat on the conservative side and have most of the detailed conversations occur with the MSLs.

And secondly, if I could ask, I think if I heard correctly, you made a slight adjustment to the number of active sites you're anticipating by the end of the fourth quarter to be 25 to 28, versus the prior guidance of 30 by the end of the year. Since you're also mostly retaining your product sales guidance ranges, does the continued strength really coming from the number of treatments per site per month being at 2 or higher still for the existing vaccine sites and even the ones that are potentially coming on between now and the end of the year?

Yes. So when we first issued guidance just a couple of months ago, I think it's important for me to share, and I've talked to a lot of you one-on-one about this, why we did that share, and why we decided to issue guidance. When we, quite frankly, quickly found out that we needed to participate in 340B and NDRA due to some rule guideline changes. We realized that it would be very difficult for investors and analysts to tease apart what the heck does that mean. Now we have another variable, the discount, but also how many sites are participating in the discount. We also knew our volume was ahead of what the consensus was out there on the street. And we thought it would probably be really prudent, even though I didn't want to issue guidance until starting next year, because of the difficulty in predicting site activations. We thought it was best to put some bounds out there to the investment community, given this new variable out there. With that said, if you're asking why it didn't come down more, which I think we tightened it a little bit and moved it down slightly. Yes, we're doing okay. We are slightly over 2 treatments per center, which is great. Some of the centers that are coming on board, we think, will be higher volume centers as well. So that gives us a fair amount of confidence as well, and just a modest adjustment in the guidance.

And then the last point, I'm assuming most of or all of the adjustment from the product revenue guidance changes coming from HEPZATO KIT and not from CHEMOSAT. And I just wanted to see if that's a correct assumption to make.

All right. You asked if most of the growth is coming from HEPZATO, not CHEMOSAT.

The change in the range for the product revenue guidance range, is that primarily due to changes in HEPZATO expectations or CHEMOSAT?

A slight change in CHEMOSAT expectations and a change, I think, both. Now, CHEMOSAT is tough because the end in terms of treating centers that really contribute to revenue is fairly small. I think 3 or 4 centers probably account for 70% of the business. So a bunch of docs are out because they're sick, which actually happened at one of the sites in Germany that can really swing it around. But I think 2/3 of the change is probably from HEPZATO and 1/3, give or take, from CHEMOSAT.

The next question comes from Bill Morgan of Fear Street.

So it's kind of a multipart question on treatment rates at sites. So you're currently at around 2 per month per center, and you've indicated that should be similar through year-end. Do you see that changing meaningfully in the currently activated centers beyond this year, either up or down? And then, as you grow to a target of 40 by the end of next year, given that those are probably not the first 20 most attractive sites to add, do you expect them to have a lower treatment per month per center?

Yes. In terms of the last point, less attractive because it's the next 20. I'm not sure about that. They may have less of a book of business of uveal melanoma patients, but part of what we're going to do is build referral networks to those centers. One of the dynamics that we are aware of and are working on plans to deal with is that some centers, some of the heavy volume centers, run out of capacity. So we have 2 things to do there. One is to keep that in mind as we're building referral networks and centers that we know don't have enough slots to treat. We'll try to adjust that referral pattern to other centers that are under capacity. The second dynamic is just to try to see if we can actually get centers to increase either room time or train a second team. In some centers, it's room time. In some centers, it's just the team that's available. I know one center was treating at a rate that required some of the team members to come in on their days off. I think it's a testament to what they think of the therapy that they're willing to do that, but that's probably not sustainable. So we're trying to see what we can do about getting more people trained up. But that's the dynamic in the growth. Some centers reach a cap, and either we need to refer, I won't say refer around them, but refer to other centers to the extent we can do that, or try to help them build a case that they can expand capacity. If we are successful in that, then I do believe we'll start seeing increasing growth beyond 2 in terms of on an average basis.

The next question comes from Yale Jen of Laidlaw & Co.

On the top line this quarter. Just a few quick ones. The first one is that in terms of the ESMO presentation, to your best knowledge, what kind of data will be presented? And so this is the first one.

Okay. So talk about the CHOPIN study at ESMO. Okay. All right. Vojo, do you mind responding to that?

Sure. Thanks for the question. The CHOPIN trial, just to remind you, is comparing the 2 treatments. One arm is PHP alone, CHEMOSAT, and the other is the sequential use of CHEMOSAT with ipi/nivo. The primary endpoint of the study is 1-year progression-free survival. And our understanding is that the analysis is underway, and it is the intention of the investigators to present the primary endpoint results along with safety and secondary efficacy results at the ESMO conference.

And one other question here is in terms of you going to reduce the center to be activated from 30 to maybe 25 to 28. Is there a specific reason for doing that? And we'd just like to know a little bit color about that as well.

Sure. I'd say there's definitely not one specific reason it really -- I wish there was, it would be easier to deal with perhaps, but it really has to do with the complexity of activating these most of the large academic centers. But Kevin, do you mind just adding a little bit of color as to what's going on, and just the sense from the field force?

Sure. I will. As Gerard mentioned in his comments, we're scaling intentionally, and our focus is on activating the right sites. So that brings its own layer of complexity in the process. And this HEPZATO KIT procedure sits outside traditional care pathways and conventional team structures. So their flexibility is crucial for us to open the sites. And one example is perfusion. Perfusion is often the final hurdle before launch. It involves credentialing, scheduling integration, and alignment with surgical workflows. It's also one of our most crucial onboarding steps. Securing perfusion services is essential to procedural success, but it's not universally available. So what we're having to do is go into a number of these sites and contract with external providers of perfusion services. So we've had a recent wave of success in signing some of these contracts. So what we're seeing is kind of an alignment across the board with these hospitals. And I would expect that even though we dropped the guidance on the total number, I think we'll see a lot of the sites that we have been trying to get in that have significant patient volume opening in the near future.

And maybe just a follow-up on this one. As you mentioned, securing the perfusion services, do you anticipate overall this will improve going forward, so make it less hurdle, for example, in the next year?

Yes. I think it will help. I will say, as Gerard mentioned, each one of these sites is kind of a unique beast. And there's not one specific thing that holds up an account opening. But definitely providing and securing perfusion services has been identified, and it's one of the things that we are tackling earlier in the site activation process now than we have been in the past.

I’ll just add a little color to that. It's very unusual for a large academic center to say, sure, we're happy to work with you to contract with some other third party so we can have your product. In most cases, they tell you just go pound sand. So this is a testament to the fact that the docs want the product, and they're championing it for us and going through this issue. And I know investors and analysts have probably heard be tired of hearing me say this, this is a very, very unique beast. It doesn't fit into so many different pathways, team structures, et cetera. And the fact that we are getting it into these sites should tell you that there's something here. There's something real. It's been difficult to predict the pace, but we are getting in. It just fits and starts in terms of just the various contracts and bureaucracies, et cetera, that we need to go through.

[Operator Instructions] The next question comes from Swayam Pakula of H.C. Wainwright.

This is RK from H.C. Wainwright. Most of my questions have been asked. I just have one question. After working with different centers in terms of getting them trained and taking patients and go through the procedure, do you have a system at this point where you think you can get through this onboarding and training process a little bit sooner than previously? And the second part of the question is, now that you are on the 340B program, do you think some of the current centers could easily go beyond the average 2 treatments per month to, say, closer to 3 by the end of this year?

Sure. Okay. Let me start with the second question. I don't think that would be like a 50% increase in volume. I don't think we're going to see that do the NDRA 340B program. I do think that it will lead to a portfolio basis if hospitals realize, hey, we are covering our costs and then some. It's a prudent thing to do for the institution not to put the brakes on occasionally. I think that will go away. It will be very hard for us to ever quantify that. So I'm reluctant to do that. But I'll say it certainly isn't going to hurt. Whether or not it's well over the revenue we lose per kit, hard to say. It may very well be. But I think what's good about it is it removes a conversation that perhaps was occurring in some of the centers, and we're not privy to these conversations, and puts the bulk of the decision as to whether to use the product or not basically on how good will it be for the patient. And that's a win. In terms of hey, have we pulled together, is there a process now, a template that we can go to the next set and get this done faster? There certainly are some learnings. And I think Kevin just identified one, perfusion, we found not in all the centers, but in a meaningful percentage. I don't know off the top of my head whether this, let's say, 1/3 or so, perfusion became gating at the end. So Kevin's team is getting ahead of that now. Another thing that Kevin is going to start implementing is in some centers where it's more IR-driven and the oncologist is saying, sure, but isn't necessarily making the phone calls and walking the halls to try to get through some of these gating items. They're just kind of like, sure, I'll do it. I'll be part of it. Kevin is introducing what I'll call oncology pctors. He's going to make a point of trying to get oncologists at other sites that have seen very strong responses in their patients, to try to get them to kind of proctor the oncologists, is what you can expect to see, frankly, for the subset of sites where the oncologist isn't leading it, the IRA. So we can get both MDs to lead the charge. So yes, we're trying to tweak the process. But again, I'm reluctant to put a -- so yes, we're going to be 20% faster. Because obviously, we had a slight slowdown all of a sudden, and I didn't expect that. But again, it's because each of these institutions is very different.

And then the last question for me is, now that you have a clinical program starting in Europe for the additional indication. Do you see that helping out on the CHEMOSAT sales at all by any means, not only for the rest of the year, but in 2026? Or these are 2 independent things that it really should not or may not benefit the sales of CHEMOSAT.

Longer term, it will benefit. Europe was primarily driven by a small number of sites in Germany and 1 or 2 sites in the U.K. where they essentially on their own organically, where the product was approved as a device, used it, became believers, and championed it within their own institutions. We had very little very few clinical sites and participation in Italy, Spain, France, and most of those were IRs. So, to get a new cancer therapy utilized, you really need the oncologists on board. IRs are helpful, but to a large extent, and I hope they're not listening or hope they don't get angry with me, but they're subcontractors to the oncologists. Now opening clinical sites for colorectal cancer, breast cancer, that will allow us to open sites in countries where we either have no sites, Italy, France, Spain, or currently have sites, but we can expand them. Once we have those sites up and running for the clinical trial purpose, and that's a huge, huge hurdle. It takes a lot of activation energy, some reason to open a site from the site's perspective. Once we have a site open, it will be much, much easier to start talking to docs, mostly dermal oncologists, what they're calling in Europe. It will be much easier to have conversations with them and say, hey, look, at your center, you have this team that's doing this procedure. Why don't you steer some patients to that because the team is already trained? So yes, the short answer to your question is, yes, it will help CHEMOSAT sales, but it will take a period of quarters to years to really make a material difference.

Thank you. Ladies and gentlemen, with no further questions in the question queue, this concludes the question-and-answer session. Thank you for attending, and you may now disconnect your lines.