Delcath Systems, Inc. (NASDAQ:DCTH) is an interventional oncology company focused on the treatment of primary and metastatic cancers in the liver. The company's lead product, the HEPZATO KIT (melphalan for Injection/Hepatic Delivery System), was approved by the FDA in August 2023 for the treatment of adult patients with uveal melanoma with unresectable hepatic metastases. With the commercial launch of HEPZATO in the U.S. and continued growth of its CHEMOSAT system in Europe, Delcath is well-positioned to capitalize on the significant unmet need in liver-dominant cancers.
Business Overview
Delcath's HEPZATO KIT is a drug/device combination product that delivers a high dose of the chemotherapeutic agent melphalan directly to the liver, while minimizing systemic exposure. This targeted approach aims to improve outcomes for patients with liver-dominant cancers. In the U.S., HEPZATO is regulated as a drug by the FDA's Center for Drug Evaluation and Research, while in Europe, the CHEMOSAT Hepatic Delivery System for Melphalan is a stand-alone medical device approved for sale.
The company's clinical development program for HEPZATO was centered around the FOCUS Trial, a global registration study that demonstrated a statistically significant higher overall response rate compared to historical controls in patients with metastatic uveal melanoma. Delcath is now focused on generating additional clinical data to support increased adoption and reimbursement for CHEMOSAT in Europe, as well as potential expansion into other liver-dominant cancers such as metastatic colorectal cancer, neuroendocrine tumors, and intrahepatic cholangiocarcinoma.
Financial Performance
For the full year 2023, Delcath reported annual revenue of $2,065,000, a significant increase from the prior year. This growth was driven by the commercial launch of HEPZATO in the U.S. market, which contributed $2 million in revenue in the first quarter of 2024, as well as continued sales of CHEMOSAT in Europe. The company's annual net loss for 2023 was $47,678,000, and its annual operating cash flow and free cash flow were -$31,251,000 and -$31,309,000, respectively.
In the first quarter of 2024, Delcath reported total revenue of $3,139,000, with $2,008,000 from HEPZATO sales in the U.S. and $1,131,000 from CHEMOSAT sales in Europe. Gross margins for the quarter were 71%, reflecting the positive impact of a non-recurring standard cost revaluation adjustment. Without this adjustment, gross margins would have been approximately 60%.
Research and development expenses for the first quarter of 2024 were $3,700,000, down from $4,576,000 in the same period of the prior year, as the company shifted its focus from clinical trial activities to commercial launch support. Selling, general, and administrative expenses increased to $8,814,000 in the first quarter of 2024, compared to $4,165,000 in the prior year period, due to the ramp-up of commercial operations.
Liquidity
As of March 31, 2024, Delcath had $27.2 million in cash, cash equivalents, and short-term investments. The company believes its current financial resources are adequate to fund operations until it achieves $10 million in quarterly U.S. revenue, which would likely trigger the exercise of warrants and provide an additional $25 million in proceeds. Delcath expects to achieve this revenue milestone no later than the fourth quarter of 2024.
In addition to its cash position, Delcath has access to other sources of capital, including an at-the-market (ATM) offering program and a $20 million term loan facility with Avenue Venture Opportunities Fund, L.P. The company has also recently completed a $7 million private placement financing, further strengthening its balance sheet.
Commercialization and Adoption
Delcath's commercial launch of HEPZATO in the U.S. is off to a strong start, with the company reporting $2 million in revenue from 11 treatments in the first quarter of 2024. The company currently has 4 active treating centers, with plans to expand to 20 active centers by the end of 2024. Delcath's guidance suggests an average of 1 treatment per center per month, ramping up to 2 treatments per month by the end of the year.
The company has seen a significant increase in interest from both interventional radiologists and oncologists, driven by the FDA approval of HEPZATO and the establishment of a permanent J-code for reimbursement. Delcath is also seeing positive momentum in Europe, where it has recently hired a dedicated sales representative in Germany, the only market with a consistent reimbursement scheme for CHEMOSAT.
Risks and Challenges
While Delcath's commercial launch of HEPZATO is off to a promising start, the company faces several risks and challenges. The pace of center activation and treatment volume ramp-up will be critical to the company's near-term success. Delays in site activation or slower-than-expected patient adoption could impact Delcath's ability to achieve its revenue targets and financial projections.
Additionally, Delcath's long-term growth will depend on its ability to expand the use of HEPZATO and CHEMOSAT into other liver-dominant cancers. The company's plans to initiate new clinical trials in these indications will require additional capital and resources, which may not be readily available.
Outlook
Delcath Systems is well-positioned to capitalize on the significant unmet need in liver-dominant cancers. The commercial launch of HEPZATO in the U.S. and continued growth of CHEMOSAT in Europe provide a solid foundation for the company's future success. With a strong balance sheet, a growing network of treating centers, and a robust clinical development pipeline, Delcath is poised to deliver value for shareholders as it expands the use of its innovative liver-directed therapies.