Delcath Systems, Inc. 2020 Form 10-K Summary
Business Context and Reporting Period
Delcath is an interventional oncology company focused on primary and metastatic liver cancers. Its lead U.S. drug/device candidate is HEPZATO, while CHEMOSAT is marketed in Europe as a Class IIb medical device for hepatic delivery of melphalan. The filing covers the fiscal year ended December 31, 2020, and was filed March 31, 2021. It is an annual report rather than a quarterly filing.
- HEPZATO was not approved for sale in the United States and remains subject to FDA review.
- CHEMOSAT is commercialized in selected European markets through an exclusive license and distribution arrangement with medac GmbH.
- The FOCUS trial for metastatic ocular melanoma completed enrollment of its final patient on October 2, 2020.
- The ALIGN Phase 3 trial for intrahepatic cholangiocarcinoma was paused because of enrollment difficulties and trial-design reevaluation.
Financial Metrics
| Metric | 2020 | 2019 | Change or comment |
|---|---|---|---|
| Product revenue | $1.156 million | $1.101 million | Increased approximately 5% |
| Other revenue | $0.490 million | $0.479 million | Increased approximately 2% |
| Total revenue | $1.646 million | $1.580 million | Increased approximately 4% |
| Gross profit | $1.006 million | $0.861 million | Gross margin approximately 61% versus 55% |
| Research and development | $11.201 million | $9.490 million | Increased approximately 18% |
| SG&A | $11.108 million | $11.279 million | Decreased approximately 2% |
| Operating loss | $21.303 million | $19.908 million | Operating margin approximately negative 1,294% of revenue |
| Net loss attributable to common stockholders | $24.211 million | $8.879 million | Loss increased materially, largely because of non-cash warrant-liability expense |
| Loss per common share | $8.35 | $342.83 | Per-share figures reflect the 1-for-700 reverse stock split |
| Cash, cash equivalents and restricted cash | $28.756 million | $10.183 million | Increased primarily from equity offerings |
| Cash used in operating activities | $22.868 million | $23.689 million | Operating cash burn remained substantial |
| Total liabilities | $12.557 million | $20.569 million | Declined year over year |
| Convertible notes payable | $2.000 million | $2.000 million | Current at December 31, 2020; maturity July 16, 2021 |
The company reported a net loss margin of approximately negative 1,471% based on net loss attributable to common stockholders and total revenue. The filing does not provide a clear quarter-specific Q4 income statement; the reported financial statements are annual.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly, but remained immaterial relative to operating expenses and development requirements.
- R&D expense increased by $1.7 million as FOCUS trial enrollment and related professional services accelerated after prior funding constraints eased.
- Net loss increased by approximately $15.3 million. The principal unusual driver was a $2.8 million non-cash warrant-liability expense in 2020 versus $17.5 million of non-cash income in 2019.
- The company raised approximately $42.4 million of net cash from financing activities, including May and December public offerings, an at-the-market offering, and warrant exercises.
- The warrant liability was reclassified to equity after the related warrant price-reset provisions were eliminated; approximately 4.24 million warrants remained outstanding at year-end.
- Common shares outstanding increased substantially, from 67,091 at December 31, 2019 to 5.996 million at December 31, 2020, reflecting the reverse split, equity issuances, warrant exercises and preferred-stock conversions.
- Gerard Michel became Chief Executive Officer on October 1, 2020. The former CEO and CFO resigned, and their compensation dispute resulted in arbitration and subsequent mediation.
Guidance, Outlook, Risks and Unusual Items
- Management expected to submit an NDA for HEPZATO for metastatic ocular melanoma in the first quarter of 2022, subject to completion of data monitoring and analysis.
- A preliminary FOCUS analysis released March 31, 2021, after the fiscal year-end, reported a 29.2% intent-to-treat overall response rate, exceeding the predefined 21% criterion. The analysis was preliminary and subject to change as data matured.
- COVID-19 materially slowed clinical-trial enrollment, treatment, site monitoring and European CHEMOSAT procedures. Management could not reasonably estimate the ultimate effect on operations, liquidity or financial results.
- The independent auditor included a going-concern explanatory paragraph. The company has recurring losses, significant cash burn and a need for substantial additional financing. Management stated that additional working capital is required, but financing may not be available on acceptable terms or at all.
- The FDA issued a Complete Response Letter in 2013 for the prior HEPZATO NDA. The current FOCUS study is a non-randomized, single-arm study with objective response rate as its primary endpoint and does not operate under the prior Special Protocol Assessment. FDA approval is therefore uncertain.
- CHEMOSAT commercialization depends on reimbursement, physician adoption and the availability of separately sourced melphalan in Europe.
- The company faces manufacturing and supplier risks, including reliance on third parties for components, sterilization and melphalan supply, as well as ongoing European Medical Device Regulation compliance requirements.
- The former executives seek approximately $1.14 million in purported unpaid compensation, plus potential statutory damages, fees and interest. The company accrued the full claimed compensation amount as of December 31, 2020; mediation was ongoing after year-end.
- There were no material off-balance-sheet arrangements disclosed. The company does not expect to pay cash dividends in the foreseeable future.
Most Important Facts for Investors to Verify
- Whether additional financing was obtained after year-end and whether liquidity is sufficient to fund operations through NDA submission and commercialization efforts.
- The final, audited FOCUS trial data, including response rate, durability, overall survival, progression-free survival and treatment-related safety outcomes.
- The FDA’s response to the planned HEPZATO NDA and whether additional randomized trials or other requirements are imposed.
- The maturity, repayment, conversion or refinancing status of the $2.0 million convertible notes due July 16, 2021.
- The status and resolution of the former executive compensation arbitration and mediation.
- European CHEMOSAT procedure volumes, reimbursement decisions, medac performance and the impact of COVID-19 on product revenue.
- Potential dilution from approximately 4.24 million outstanding warrants, approximately 1.08 million stock options and remaining preferred-stock conversion rights at December 31, 2020.
- Whether the company can continue as a going concern without materially reducing clinical development or commercialization activities.