Good morning, and thanks for joining us to have a conversation with Gerard Michel, CEO of Delcath Systems. Delcath is a commercial-stage oncology company focusing on the treatment of liver cancers, and their lead product, HEPZATO KIT, is a minimally invasive percutaneous perfusion technology to treat primary and secondary tumors of the liver. The HEPZATO KIT was launched in January of 2024. To talk about HEPZATO KIT's commercial growth and also the growth beyond the current indication, I welcome Gerard to this fireside chat. Thanks for having me. Good morning, Gerard, and thank you, and I appreciate you accepting our invitation and also talking to our audience today. To start off, Gerard, can you describe the business strategy behind Delcath? Sure. We have a product that has a lot of potential across a variety of different tumor types. What we do is treat cancers in the liver. The first indication is an ultra-orphan indication, metastatic uveal melanoma. That's a cancer that starts in the eye, and it is somewhat unique in that when it metastasizes, which is about half the time, it's almost always to the liver, and the liver ends up being the life-limiting organ. Commercializing that product really is the foundation of the business in terms of funding, broadening it into multiple other indications. There are probably 100,000 plus patients a year in the U.S. where the liver is a life-limiting organ due to cancer. The FDA, being the FDA, they want to have you prove its efficacy in all the various solid tumors that are the source of the cancer in the liver. What we intend to do is use the revenue and the revenue stream from this first ultra-orphan indication to branch into multiple other indications. These could include metastatic colorectal cancer, which is there's probably about 40,000 patients a year there that end up with metastatic disease in the liver, where that's a life-limiting organ. It could be breast cancer, it could be pancreatic. There's a whole host of other indications we intend to go after. Essentially, this platform is a pipeline in itself. We have two ongoing trials right now, breast and colorectal, as I said. The general business strategy is to leverage what we have, try to be self-funding with the first approved indication, and branch out into other indications. Treating liver has been something that has been tried and tested using different systems and therapies. What's the benefit that PHP offers that other liver-directed therapies have not been successful at? Yeah, the other liver-directed therapies that are out there that are widely used are Y-90, which is a radioactive embolization technology where you use radioactive beads and you steer that towards the cancer and ablate the tumor in that way. Microwave ablation, where you put in a coil or a piece of metal near a tumor and use microwaves to heat that up. Then something called transarterial chemoembolization, TACE, which are basically beads soaked in chemotherapy where you embolize the tumor. All of those do a pretty good job in destroying a tumor or the two or three tumors maybe you can get out in one procedure. The issue is, if you have metastatic disease, in all likelihood, you have multiple small metastases you can't image on a CAT scan or a PET scan or an MRI. It will come back in other spots. HCC, which is the largest, and it's a primary liver tumor, those generally don't spread wildly. They're usually focal. Y-90 and TACE work really well in that indication. In other metastatic settings where you likely have multiple tumors, it's like playing whack-a-mole with these other methodologies. We perfuse the entire liver with chemotherapy, an old school chemo called melphalan. It's an alkylating agent that causes cross-links in the DNA. The cells in the liver, hepatocytes, are surprisingly robust. You can put very, very high doses of melphalan in the liver, and you don't lose any liver function whatsoever. With a Y-90, for example, you lose a lot of liver function. We treat the whole liver, and that's the key advantage. Perfect. Since launching the product, you have been getting commercial centers activated over the last two years or a year and a half at this point. Currently, you have about 20 commercial centers that are active across the U.S., and 10 additional sites are accepting referrals at this point or at the last announcement. You also refined your guidance a little bit to $93 million to $96 million as the guidance range for this year. How should we think about how the commercial centers need to get to be active, and at what range of centers do you think you'll hit this guidance range, or is there a connection at all? There's a big connection between the number of active centers and our revenue growth. Most of our growth to date has been coming from adding centers. Eventually, I think the average treatments per center will grow, but right now it's been holding pretty steady at about two a month. We currently have 22 active centers. I'm confident we'll end the year with several, three to six more above that. Next year, we're thinking we will grow to 40 centers. Whether or not we stop with 40 or not is an open question. Right now, we're thinking that's the right number. There are many, many patients being seen by local oncologists who only have, they're the only patient that oncologists have. There's a long tail in terms of physicians to call upon. Any individual patient is worth a lot to the company given our pricing. It makes sense to even chase those individual patients. Whether or not 40 centers will be adequate is an open question. We will have to build referral networks to get those patients into our treating centers. We have structured our regions. We have four right now. We have six right now, excuse me. We have structured the regions so that we have a liver-directed therapy specialist. Their job is to open the centers and to service them and manage them when they're open. We have a clinical specialist. Their job is to be in every procedure and make sure it goes well. There is, I can't say a second set of hands because they're not allowed to touch the patient, but they can offer counsel and advice if something seems to be going a little bit differently than expected. The third part are oncology managers. Their job is to identify a doc who has a patient or two, but not an active center, and build referrals from that doc to a treating center. Our success in that aspect will have a lot to do with how many centers we eventually open. Whether 40 is adequate or not, time will tell. In terms of centers itself, as you're saying, is 40 enough or not is a question. In general, what do you think is the number of centers that potentially could open for this indication? If I did the math and said, look, I don't want centers just to be doing a case every other month or something like that or every third month, you know we could probably open up to, doing this off the top of my head, about 70. Okay. Whether or not that's the most efficient way to run the business is an open question. The other metric which you kind of alluded to a little bit is the procedure volume per site. I believe the current volume per center is about two procedures. What allows for this number to grow? Is there a magic number there as well? Yeah, so right now the average is two. Like almost everything in life, there is kind of a Pareto ratio where I'd say it's not 80-20. It's probably more like 30-60, 35-60 in terms of the number of centers doing the top, doing the bulk of it. We do have centers doing four to six a month. We also have some centers that, you know, a small number that are doing only one every other month or whatever. The issue we have with our top centers is that some of them are tapped out. They have a certain amount of room time they reserve. They can't just call up and say, hey, I need the room next X. Most of them just have a room scheduled and they will fill patients in. We need to do one of three things. One is for the centers that aren't doing that many, when we start doing the referrals that I mentioned before, we need to steer those patients to those centers that have open time. The second thing we need to do is for sites that are, quote, tapped out, help them think through, do I train a second team? We have some centers that people were coming in on their days off to do the treatment. If they can train a second team, you know, is there enough business there for them? Maybe we help them with referrals to do that quantum change, a step change, and get more room time. We've yet to do that anywhere, but there are a couple of centers we're working on doing that. The third thing is, and this is less us doing this and more peer-to-peer, we do have centers that do two in a day. We have a center in the UK that does three a day when they do it. They can do three a day. See if the center is comfortable learning about how to double up in a day, not just do one in the morning or an afternoon, do two. That's another way to try to increase the cap on those heavy users. A combination of changing referral patterns and supporting the centers that are tapped out either by more time, more teams, or doing two in a day is how we'll grow that average rate per center. Yeah, and one other aspect which I think I didn't talk a lot about is the training time itself, you know, with this kit. As you start talking about the second and the third team getting trained, how easy or difficult is it for a team to get? First of all, you have to put a team together. The second is how much training does that team need? The training involves didactic training first, book learning, lecture, whatever. Each member of a team, I should probably start with defining the team. The team is an Interventional Radiologist, an Anesthesiologist, and a Perfusionist. That's a team that doesn't normally work together. That's kind of one hurdle to get them all together. They need to drive more often, fly off, and watch a procedure. That's herding the cats, getting schedules to align. Down the road, if it's a new site and getting through all the administrative approvals, when they have a patient, they need to have a proctor team fly in and watch them do their first procedure. It's a fair amount of scheduling. These docs are all busy. I think the positive is we've gotten 22 to do it. We've got another 10 plus, you know, on the runway, and they're willing to do it. That tells you they want to do this procedure. They want it. Yeah. The other thing that Delcath has started getting involved with is the Medicaid National Drug Rebate Agreement. Can you explain what NDRA is and how do you see this as a help in terms of increasing your patient access? Sure. Quick background. 340B and NDRA was legislation that was passed in the early 1990s. What Congress was trying to do was, without increasing their budget, find a way to help inner-city hospitals that were struggling. The idea was, let's force drug companies to give a rebate, or excuse me, sell at a discount to these hospitals. We'll continue to reimburse them as if they paid full boat, so these inner-city hospitals would get a greater margin. They tied that to Medicaid and Medicare in the original statute, but in practice only said, hey, you need to sign up for this NDRA, Medicaid National Drug Rebate Agreement, if you want Medicaid reimbursement. When we launched, and the discount is 23.1%, there were a very small percentage of hospitals that fell under that. It was mostly for pharmacy drugs, but since that time, tons of hospitals and pharmacies have kind of gerrymandered their footprint so they fall under that because it's a moneymaker. When we launched, we did not fall into the category of drugs that were covered by this. I don't want to get into the guidance documents and everything, why outside counsel reached that conclusion. Since we launched, Centers for Medicare & Medicaid Services issued new guidelines and we fell within it, but we weren't too perturbed by that because we don't have much Medicaid business. They changed their enforcement discretion and started tying Medicare reimbursement to it. All these various dimensions intersected where all of a sudden we had to do it. The downside is now on average about half of our customers fall into it. It's about a, call it a 12%, whatever, roughly 11% to 13% decrease in revenue per kit. That will show up in the Q3 print. Obviously, that takes, on the top line dollar amount, a bit of growth away for a quarter, although our volume is still growing at a reasonable pace. Is there any tailwind to this in terms of will more doctors use this? It's not an orthopedic product. The docs aren't putting this money in their pocket. These are all salaried physicians, but the hospitals do pay attention. I do know that there's probably a number of centers that perhaps were steering patients away from it because like Medi-Cal, for example, is probably the worst of the reimbursements. Maybe they had better use for the room time. I think there may have been some patients being steered away from the product. Whether or not, and we'll never know, whether or not we end up getting, you know, if it's a parallel universe experiment, an extra 5% or 10% out of this, or if it, we will never know. It certainly removes any headwind for some Medicare Advantage plans, Medicare and Medicaid, where the reimbursement wasn't great. It'll remove that headwind and turn it into perhaps a bit of a tailwind, but can't quantify it. Regarding label expansion with HEPZATO KIT, as you said, currently it is approved for metastatic uveal melanoma, especially that liver-dominant one, with any line of therapy. In terms of expansion, as you said, you're looking at the two indications, metastatic colorectal cancer and breast cancer. What are the current clinical programs there? Should we expect any clinical data from these two programs, let's say, in the next 6 to 12 months? A lot of that point, no. That's too soon. The only clinical data that's going to be coming out that I think is of note is ESMO in October, an IIT LaRita out called CHOPIN. That's an important combination trial which is combining with immuno-oncology agents. For CRC and breast, for breast, it's second or third line. For CRC, it's third line. There are 96 patient trials randomized two to one. For both of them, the control arm is standard of care. The experimental arm is two cycles of HEPZATO and then standard of care. Primary endpoint is hepatic free survival. 1997, 1998 is probably when you'll see some interim data, respectively for CRC and breast. Final data, 1998 and probably late 1998 for, again, respectively CRC and breast. In terms of these studies, should we consider these as registration-enabling studies or do we need? No, our hope is that it will be adequate to get on guidelines, which for interventional radiologists is great. We've had some docs already use it in some of these indications on their own, not a lot, but we know there's appetite to use it. Hopefully, the data will be enough to influence guidelines. We'll make a game-time decision or game-day decision whether to push forward into a phase three or just sit pat there. Beyond these two indications, do you foresee yourself or maybe your clinician partners doing any studies? Yeah, we're going to definitely do more besides this. I think there's a fork in the road in front of us with the CHOPIN data. If we can show that there's good safety using checkpoint inhibitors, in this case, it's ipilimumab and nivolumab with its CHEMOSAT in Europe. If we see good safety and we see at least additive efficacy, then I think it opens up the door for a lot of other indications where IO therapy is used and there's a high% of liver metastases. That would include metastatic lung melanoma, that would include metastatic cutaneous melanoma, and a host of others, but those are probably the two larger ones. Okay. Gerard, congratulations on being cash positive in such a short period once you got the company to commercialize HEPZATO KIT. In terms of sustainability of that situation, how confident are you about that? Do you need to do anything additional? Yeah, I don't foresee any need to raise capital anytime in the near to medium timeframe. If we did, it would only be because there were so many really exciting development opportunities that made sense to move forward on. That would be a high-class problem if we ended up going that, you need to raise capital. Fantastic. In terms of the debt, you know, what's the current debt? No debt. No debt. Fantastic. No debt, no warrants, all clean. Very good. Hopefully at the next update, we're going to see the 28 to 30 centers. Knock on wood, yeah. Thank you very much for your time. We'll stop it. Thank you, Art. Appreciate it.