Delcath Systems, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Delcath is an interventional oncology company focused on liver-directed cancer treatment. Its lead product, HEPZATO KIT, received FDA approval in August 2023 for eligible patients with metastatic uveal melanoma, and its first U.S. commercial use occurred in January 2024. CHEMOSAT is marketed in Europe as a hepatic delivery system. This report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $3.139 million | $0.597 million | +$2.542 million |
| HEPZATO revenue | $2.008 million | — | New revenue stream |
| CHEMOSAT revenue | $1.131 million | $0.597 million | +$0.534 million |
| Gross profit | $2.236 million | $0.416 million | +$1.820 million |
| Gross margin | 71.2% | 69.7% | +1.5 percentage points |
| Operating loss | $(10.278) million | $(8.325) million | Loss increased |
| Net loss | $(11.111) million | $(9.000) million | Loss increased |
| Net loss per share | $(0.45) | $(0.77) | Improved per share due to higher share count |
| Net cash used in operating activities | $(9.584) million | $(4.264) million | Use increased |
Operating and net loss margins were approximately 327.4% and 353.9% of revenue, respectively, compared with approximately 1,394.1% and 1,507.5% in Q1 2023. The company recorded a $0.612 million increase in the fair value of warrant liabilities and $0.199 million of net interest expense.
At March 31, 2024, cash, cash equivalents and restricted cash totaled $11.810 million, and short-term investments totaled $15.360 million, for approximately $27.170 million of immediately available cash and investments. This compared with $32.504 million at December 31, 2023 and $24.272 million of cash, cash equivalents and restricted cash at March 31, 2023.
Total debt, net of discounts, was $7.357 million, consisting primarily of $2.408 million of current loan payable and $4.949 million of current convertible notes. The Avenue loan carried a 16.20% interest rate at quarter-end, was secured by substantially all company assets including intellectual property, and matures August 1, 2024. Total liabilities were $21.479 million versus stockholders’ equity of $14.620 million.
Material changes versus the prior comparable period
- Revenue increased more than fivefold, primarily because of the U.S. HEPZATO launch and higher CHEMOSAT demand in Europe.
- Gross profit increased to $2.236 million, while gross margin improved modestly.
- Research and development expense declined 19% to $3.700 million as prior-year NDA submission costs decreased, partially offset by higher medical affairs and regulatory spending.
- Selling, general and administrative expense more than doubled to $8.814 million due to commercial launch activities and infrastructure.
- Operating cash use increased to $9.584 million, reflecting the continuing commercialization investment and working-capital needs, including a $1.323 million increase in accounts receivable.
- The company completed a March private placement generating approximately $7.0 million gross proceeds through common shares and pre-funded warrants. Common shares outstanding increased to 25.439 million from 22.762 million at December 31, 2023.
- Principal debt repayments totaled $3.054 million during the quarter. The Avenue loan’s monthly principal payments began in January 2024.
Outlook, risks, contingencies, and unusual items
- Management plans to expand HEPZATO studies in 2024 for additional liver cancers, including colorectal, neuroendocrine, breast and intrahepatic cholangiocarcinoma indications.
- The company expects to use cash to support HEPZATO and CHEMOSAT commercialization, clinical research and operating activities. No quantitative revenue or profitability guidance was provided.
- Management states that a substantial delay in activating HEPZATO treatment sites would require additional debt or equity financing. Under that scenario, available funds would not be sufficient to meet obligations for the next twelve months, creating substantial doubt about the company’s ability to continue as a going concern.
- Capital commitments for the next twelve months include approximately $6.0 million for operating liabilities, leases and the medac settlement, plus $7.6 million of loan and convertible-note principal payments if holders do not convert up to $5.0 million of notes into equity.
- Additional commitments beyond twelve months include approximately $1.0 million of lease liabilities and $0.8 million related to the medac settlement. The company also committed to purchase $2.25 million of melphalan during 2024.
- The company identified commercialization, reimbursement, site activation, regulatory approvals, competition, manufacturing and supply-chain execution as key risks. It reports sufficient HEPZATO raw materials and components for the first year of anticipated demand.
- The company’s Avenue warrants were exercised in April 2024, after quarter-end. The April 2024 resale registration statement became effective May 9, 2024.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting.
Important facts for investors to verify
- HEPZATO site activation, procedure volume, reimbursement and repeat adoption following the January 2024 commercial launch.
- Cash burn, remaining short-term investments and the company’s ability to refinance or repay the Avenue loan maturing August 1, 2024.
- Whether additional equity or debt financing will be required and the resulting dilution or covenant effects.
- The status and terms of potential conversion of up to $5.0 million of convertible notes and other outstanding warrants and pre-funded warrants.
- Progress, costs and regulatory requirements for planned studies in additional liver-cancer indications.
- CHEMOSAT demand in Europe, customer concentration and collection of accounts receivable.
- Resolution and timing of payments under the medac settlement and compliance with melphalan supply commitments.