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

Thank you. And once again, welcome to Delcath Systems 2023 fourth quarter results 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; Vojislav Vukovic, the Chief Medical Officer; and Martha Rook, who recently joined as our 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 all for joining today. On this call, I will primarily discuss our commercial progress in the U.S. since our last update in November. We are encouraged by the interest from both the medical oncologist and interventional radiology communities in working with our medical and commercial teams. They are committed to integrating HEPZATO KIT into their practices for treating patients with metastatic uveal melanoma. The company is currently collaborating with over 20 leading cancer centers across the U.S. that have expressed interest in HEPZATO KIT. I will provide more details on our team's achievements over the last four months, which has led us to increase our site activation guidance from 15 sites by the end of 2024 to 20 by year-end. We anticipate approximately 10 active sites by the end of the second quarter, 15 by the end of the third quarter, and reaching 20 treating sites by the year's end. We believe our current financial resources, following our recent $7 million financing, are sufficient to meet these goals, which were fully supported by Delcath’s senior executives, board members, and existing institutional investors. In January 2024, we treated our first commercial patient at Moffitt Cancer Center, and by the end of the first quarter, we expect to have four active sites, including Moffitt Cancer Center, Stanford University Cancer Center, and Thomas Jefferson University, all of which are fully trained and treating commercial patients. Additionally, the University of Wisconsin is set to treat its first commercial patient by the end of this week. In the first quarter, most revenue will come from treatments at Moffitt, with the other three sites beginning to generate consistent revenue in the second quarter. While engagement levels may vary, we expect an average increase in treatments per site from approximately one per month at the start of the second quarter to around 2 treatments per month by late in the fourth quarter. The past four months have been vital as we prepared for and launched HEPZATO KIT in the U.S. Our commercial and medical affairs teams focused on three critical objectives: obtaining a product-specific reimbursement code and pass-through status from CMS, effectively communicating the benefits of HEPZATO to a wider audience of medical oncologists and interventional radiologists, and establishing an efficient process for training and activating commercial sites. I believe our progress shows we have accomplished all three objectives. With the establishment of a permanent J-code for HEPZATO, effective April 1, 2024, and transitional pass-through payment status also effective that date, we expect this will significantly simplify the reimbursement process and reduce the perceived risk of inadequate reimbursement for hospitals. Collaborating with medical oncologists and interventional radiologists at our target sites, we have trained over 90 healthcare professionals across various institutions in the U.S., demonstrating a strong interest in utilizing HEPZATO as a standard treatment for metastatic uveal melanoma. We are also seeking approvals for HEPZATO KIT from hospital formulary and value analysis committees, aided by champions at each site. As the J-code is set to simplify these processes, we anticipate a surge in facilities starting their commercial treatments after April 1. Within the first two weeks of April, three new sites have treatments scheduled, and two additional sites have completed necessary preparations to conduct their first commercial treatment pending approvals. In total, nine sites are now accepting patient referrals, with several conducting their first commercial cases imminently. Furthermore, around 10 to 11 additional sites are progressing through the preceptorship training process, which typically requires about three months to fully activate a site. The commitment from healthcare providers to train and certify under the REMS program suggests they plan to incorporate HEPZATO KIT into their treatments for metastatic uveal melanoma. None of this would be achievable without our outstanding commercial team, supported by our medical affairs and operations divisions. Kevin Muir, Delcath's General Manager of Interventional Oncology, has been dedicated to building a strong commercial organization for HEPZATO for over a year. We have structured our U.S. operations into four regions, each supported by a commercial team focused on managing hospital approvals, building referral networks, and ensuring patient safety and treatment quality. Currently, about 70% of this team is in place, with completion expected by July. We may consider expanding the field force modestly over time. Alongside our commercial activities, we continue to support efforts to expand the evidence base for the PH3 procedure, whether through CHEMOSAT or HEPZATO KIT, as a key treatment option for liver-dominant uveal melanoma. There is an ongoing investigator-initiated randomized Phase II trial in Europe, the CHOPIN trial, exploring the combination of immunotherapy with CHEMOSAT’s liver-directed therapy. With approximately 60 patients enrolled to date, the trial is expected to conclude by year-end, with results anticipated for presentation at a major oncology conference in the second quarter of 2025. Additionally, we announced two independent studies' results last quarter, one comparing CHEMOSAT with SIRT, demonstrating significant advantages in overall survival, and another assessing the quality of life impact for patients treated with CHEMOSAT. While HEPZATO for metastatic uveal melanoma represents a significant market opportunity, we believe it also has potential applications for other liver cancers. We plan to initiate a study for one of these indications within a year while continuing our focus on revenue growth. In summary, the company has reached a crucial point in terms of risk and opportunity, thanks to FDA approval of HEPZATO KIT, the issuance of the product-specific J-code, interest from major institutions, and our ability to train and activate sites. As we focus on treating metastatic uveal melanoma, we also plan to explore additional indications to meet the significant needs of patients with liver cancers. The outlook for Delcath has never been more promising. Now, I will turn the call over to Sandra to discuss our financial position.

Thank you, Gerard. We ended Q4 with $32.5 million in cash and investments, and cash used in operations was approximately $8.1 million in the fourth quarter. The increase in cash from prior year-end is due to the 2023 private placement financing, which provided approximately $60 million in cash to fund activities through approval and the launch of HEPZATO KIT in the U.S. Recently, on March 19 this year, the company closed a $7 million private placement to ensure sufficient cash for operations until the company achieved $10 million in quarterly revenue, which will trigger a potential warrant exercise, which could result in $25 million in proceeds. We are confident we will achieve $10 million in quarterly revenue no later than the fourth quarter of this year. Revenue from our sales of CHEMOSAT was $0.5 million for the 3 months ended December 31, 2023, compared to $0.6 million for the same period in 2022. For the 3 months ended December 31, 2023, research and development expenses were $4.7 million compared to $4.4 million for the 3 months ended the previous year. The increase is primarily due to higher personnel expenses. For the 3 months ended December 31, 2023, compared to the same period in 2022, selling, general and administrative expenses increased to $7 million from $3.8 million. The increase is due to activities to prepare for commercial launch, including marketing-related expenses and additional personnel in the commercial team. That concludes our prepared remarks. I'd ask the operator to open the phone line for Q&A. Can you please check for questions?

Our first question comes from Bill Maughan with Canaccord Genuity. Please go ahead.

Congrats on the hot start for commercialization. Just in terms of what you're seeing so far in the patients that are being enrolled and treated, can you comment on what other therapies they have been through and what therapies that doctors are choosing not to put them on and to put them on HEPZATO instead? And when you're speaking with these doctors, is there interest on their part in combination with systemic agents? Or are they just simply kind of taking instruction as you're giving it and just sort of following that playbook?

Yes, I will pass that question to Kevin shortly, and perhaps Voya can also share insights on the combination. However, I want to start by mentioning that due to HIPAA regulations, we do not have direct access to information about the treatments patients have received. Still, since we conduct these procedures and engage with doctors, we have a general understanding of the treatment mix. I believe it is quite diverse. Kevin, could you provide some early anecdotal evidence regarding whether these patients have been pretreated or not? I suspect it’s a mix, similar to what we observed in the trial.

Yes. Thank you, Gerard. You're correct. From what we've observed in the field so far, patients are treated with a mix of prior systemic treatment, prior liver-directed treatment, and some have had no treatment at all. It’s a bit early to draw any definitive conclusions about our role in the treatment landscape, and I anticipate that this will evolve over the year.

Do you want to maybe talk about some of what your medical affairs team have heard about interest in combination therapy?

Sure. Similar to what Kevin mentioned, we see several patterns emerging with the implementation of HEPZATO and CHEMOSAT in Europe as part of the treatment paradigm. One pattern is induction treatment to control the disease and enable other treatments, like maintenance. There is also significant interest in combinations, as Gerard noted. The ongoing CHOPIN trial involves the IPI/NIVO immunotherapy combination, and there are additional IPI/NIVO regimens currently being considered. There is also strong interest in other combinations. We will be exploring all these options together with investigators to identify the best way to integrate HEPZATO into the treatment paradigm.

And then just as a quick financial follow-up. Looking at your cash position, cash runway and this final tranche of financing that would come into play if you hit $10 million in the quarter. What's sort of your base case outlook for the company's finances going forward? It looks like you can get to cash flow positivity, and then at that point, you can push into potentially other liver cancers. Do you expect cash flows from your initial HEPZATO indication to support all that extra potential development? Or I just kind of want to get a sense of how you're feeling in terms of cash needs on that.

Yes. Our base case is to be very sensitive to dilution to existing investors. And therefore, fund new development out of cash flows from the company. So our base case is we should be able to be cash flow positive, assuming the stock works when we had $10 million and the warrant exercise, et cetera, without additional financing, and since we're not planning to start 4 huge trials at once to be able to fund at least 1 trial of that cash flow and hopefully more over time.

Our next question comes from Marie Thibault with BTIG. Please go ahead.

Congratulations to Gerard and Sandra on the positive update today. I would like to ask about the commercial traction you are seeing so far. I understand there are current activities at Moffitt and some upcoming commercial proctored cases. Can you clarify if all the initial proctored cases are commercial and if they are expected to generate revenue? Additionally, I would appreciate any details on how many patients have been treated commercially so far in the first quarter. Are there repeat visits? What trends are emerging, even if it is early to establish a trend? Any metrics you can share regarding the commercial traction would be helpful.

I don't anticipate that we will conduct many sample cases in the proctor cases during the second quarter. In the first quarter, we found it beneficial for various reasons. I estimate that about 80% of our business in the first quarter will come from Moffitt, which is operating at approximately a 2% run rate per quarter. This should provide some clarity on our expectations, aiming for about 2 cases per month. However, all the centers currently active will certainly contribute to revenue in the second quarter. Regarding patient returns, yes, patients are indeed coming back. At this time, I cannot specify the average number of treatments per patient in the commercial setting; it was 4.1 in the clinical trial. Nonetheless, there are no signs that patients are stopping at 1 or 2 treatments. Based on the data we currently have, their behavior seems consistent with what we observed in the clinical trial.

Congratulations to Martha Dr. Rook on her new role. Can you share any details about the priorities she will be focusing on? Are there any changes or adjustments happening on the operations side that she is targeting?

I will respond to that. I’m not sure of the exact date, but it’s still early in the month. The top priority is ensuring we have a strong supply chain. There are many components involved in this product, with a number of single-source vendors. I have experience with this, as Sandra and David from Vericel can attest, since we had even more single-source suppliers there. We made significant efforts to strengthen the supply chain, and I know that the company has never experienced a stock out. They have done an excellent job, and we will ensure that the same happens here. So, that's an ongoing priority and likely one of her initial tasks. I'll stop there.

Our next question comes from I-Eh Jen with Laidlaw & Company. Please go ahead.

Congrats on a good start. My first question is that, Gerard, you suggested that there could be $10 million revenue toward the fourth quarter. Could you give us a little bit of what makes that assumption and some details of that? Then I have a follow-up.

Yes. I think if you run through the metrics I gave a little earlier on the call, where we're ramping 1 per month, 1.5 per month, 2 per month starting in the first quarter getting to the end of the year on average per site, and then the site activation, which I said 10 by midyear, 15, end of the third quarter, 20 at the end of the fourth quarter and then you multiply that by $182.5 price per kit, you'll find that you're going to achieve $10 million by the end of the year.

And the follow-up question is that you currently have 90 providers trained, and what do you expect that number to be over the next quarter or two, as well as the potential impact of that moving forward?

Yes. We're finding that the average site is sending more than three people. They often have multiple representatives such as an IR, anesthesiologist, or perfusionist when they attend. Therefore, you wouldn't simply divide the 90 by three to get 30. Approximately 20 sites have either sent at least one person or have scheduled a training. I haven't fully determined how many more preceptorships will take place before the year ends, but I believe it will be at least a similar amount. We are currently working with about 20 institutions. Some move very slowly, while others progress rapidly. I estimate that another 90 to 100 preceptorships could help us reach over 20 sites by year-end.

Maybe just add 1 more question here, which is a little bit again, forward-looking, given that you had estimated 20 sites in place by year-end. What's the longer-term goal, for example, for next year? What's the general thought you have?

I honestly don't know. The reason I don't know is that we need to assess whether 20 to 25 sites can adequately handle the patient flow and if we can establish effective referral networks to direct patients to those sites. If it seems feasible to open 35 sites, we will proceed with that plan. We want to avoid opening sites that handle only one or two patients each month, as this may not yield the best patient outcomes. We'll have to monitor how the situation develops regarding commercial sites. We might also open additional sites for research and development that handle modest volumes to pursue another indication. Overall, I believe the target range for next year is between 20 and 35 sites.

Our next question comes from Sean Lee with H.C. Wainwright. Please go ahead.

It's Sean here for RK, and congrats on the positive commercial developments. My first question is on the expected market. So I was wondering with these first 20 sites, considering there's some of the largest cancer centers in the U.S., what percentage of the overall market do you expect to cover by the end of this year?

I believe that if we consider patients who have one or more referrals at those locations and show up after getting a consultation with an oncologist, the figure is likely over 75%. However, for those who are currently receiving treatment elsewhere, the percentage is lower. These patients are accustomed to seeking referrals, and I would say that the majority of the market will be supported by these sites as we work on establishing and enhancing referral networks to them.

My second question is about reimbursement. I would like you to discuss some of the reimbursement processes you've experienced so far, any issues you've encountered, and whether you plan to pursue more reimbursements given the J-code is active with previous payers this year.

Yes. So the first part of the year, we did not have a pass-through or a C-code. Sometimes CMS takes more than 3 months to do that. In our case, it was more than 3 months, so we didn't get it on January 1, which was our hope. And my assumption when I initially gave the guidance of 5 treating sites. But we managed to get 4 sites up and running or we will have 4 sites by the end of the first quarter, using a miscellaneous code. No easy task for a product priced at an orphan pricing level that we are at. As I mentioned, starting April 1, the pass-through status will be active as well the J-code, and I think a good indication of the impact of that is the fact that we have 3 treatments planned, scheduled in the first weeks of April. And that is largely due to the fact that some of those sites were clearly waiting for the J-code to become active.

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

Okay. I'd just like to thank everyone for their interest and taking the time to tune in today. And I very much look forward to providing future updates, probably about 2 months from now, given the length of time to get the K out and have this call. So again, I look forward to giving everyone future updates, and I very much appreciate the support. Thank you.

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