Delcath Systems, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Development-stage oncology company focused on its CHEMOSAT chemosaturation system, initially for primary and metastatic liver cancers. The system had CE Mark authorization for European commercialization, but had not received FDA approval for commercial sale in the United States. The filing covers the three months ended March 31, 2012; financial statements are unaudited.
The company reported 93 full-time employees at March 31, 2012, compared with 50 at March 31, 2011. Approximately 50.2 million common shares were outstanding as of May 8, 2012.
Financial Position and Results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| General and administrative expense | $7.4 million | $4.2 million |
| Research and development expense | $7.1 million | $3.6 million |
| Total costs and expenses | $14.6 million | $7.8 million |
| Operating loss | $14.6 million | $7.8 million |
| Net loss | $14.9 million | $1.8 million |
| Basic and diluted loss per share | $0.31 loss | $0.04 loss |
| Cash used in operating activities | $14.2 million | $6.7 million |
There is no meaningful revenue or profit margin to report because the company remained pre-commercial and generated no reported revenue. Stock-based compensation included in operating expenses was approximately $0.9 million in Q1 2012, compared with $1.3 million in Q1 2011. A $0.3 million pre-tax expense resulted from the change in fair value of the warrant liability.
At March 31, 2012, cash and cash equivalents were $17.1 million, certificates of deposit were $3.7 million, and total current assets were $22.1 million. Total assets were $25.6 million. Current liabilities were $8.6 million, including a $2.9 million warrant liability. The accumulated development-stage deficit was $161.8 million. The filing does not identify material conventional long-term debt at quarter-end.
Net cash provided by financing activities was $4.8 million, primarily from stock sales and exercises. Investing activities provided $0.7 million, including proceeds from maturities of short-term investments, partly offset by capital expenditures of $0.6 million and purchases of short-term investments of $1.7 million.
Material Changes Versus the Prior Comparable Period
- Net loss increased by $13.0 million, from $1.8 million to $14.9 million.
- Total operating costs increased by $6.7 million, driven by workforce expansion, European commercialization activities, FDA submission preparation, and Generation 2 filter development and regulatory work.
- General and administrative expense increased $3.3 million, primarily from additional personnel, European headquarters and sales and marketing support.
- Research and development expense increased $3.5 million, primarily due to global regulatory activities, NDA preparation, Generation 2 filter work and additional regional approvals.
- Operating cash burn increased by $7.5 million to $14.2 million.
- Cash, cash equivalents and certificates of deposit declined to $20.8 million at March 31, 2012, from $39.3 million at March 31, 2011.
- The company sold approximately 1.4 million shares under its at-the-market program through March 31, 2012, generating approximately $4.8 million of net proceeds; approximately $34.8 million remained available under the program at quarter-end.
Guidance, Outlook, Risks and Unusual Items
- Management expected continuing and increasing losses as the company pursued European commercialization, FDA approval and additional development programs.
- Management stated that available capital was expected to fund operations through 2012, but additional capital would be required to fully commercialize the product and fund further development.
- The company was preparing to resubmit its U.S. NDA after a prior FDA Refusal to File. Management expected to lock the clinical database on May 25, 2012, complete final statistical analysis and submit the NDA in mid-August 2012.
- In April 2012, the company announced CE Mark approval for its second-generation hemofiltration cartridge. It also reported its first commercial order from the European Institute of Oncology, fulfilled in April with Generation 2 systems.
- Through May 8, 2012, the company sold approximately 395,000 additional shares for approximately $1.1 million of net proceeds, leaving approximately $33.6 million available under the at-the-market program.
- On April 20, 2012, the company entered into a four-year revolving credit facility with Silicon Valley Bank of up to $20.0 million, subject to borrowing-base and minimum-cash requirements. The filing does not state that any amount had been drawn as of the reporting date.
- Outstanding warrant terms were adjusted following equity sales. At March 31, 2012, the 2007 and 2009 warrants were generally exercisable at $3.03 per share; subsequent sales reduced the exercise price to $2.65 per share as of April 23, 2012.
- Key risks include regulatory approval and timing, clinical and safety outcomes, product manufacturing and commercialization, financing requirements, intellectual property, competition, dependence on key personnel and the possibility that insufficient capital could force reductions or abandonment of development and commercialization efforts.
- No legal proceedings were reported, and management reported effective disclosure controls with no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the planned mid-August 2012 NDA submission occurred and how the FDA responded.
- The pace and economics of European commercialization, including orders, patient treatments, pricing, reimbursement and sales expenses.
- Actual cash burn and liquidity runway relative to management’s expectation of funding through 2012.
- Future equity issuance, dilution and remaining capacity under the at-the-market program.
- Availability and draw conditions of the Silicon Valley Bank credit facility.
- Changes in warrant share counts, exercise prices and fair-value liabilities following subsequent equity offerings.
- Whether the company achieved meaningful revenue, regulatory approvals outside Europe, or profitability, none of which was reported for Q1 2012.