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Delcath(DCTH) - 2023 Q4 - Annual Report

Part I Business Delcath Systems is an interventional oncology company focused on treating liver cancers with its primary product, the FDA-approved HEPZATO KIT, and expanding its European CHEMOSAT sales and clinical development for other liver-dominant cancers - The company's lead product, HEPZATO KIT, was approved by the US FDA on August 14, 2023, for treating adult patients with uveal melanoma with unresectable hepatic metastases24 - The first commercial use of HEPZATO in the United States took place in January 2024, marking the beginning of the product's commercial launch2453 - In Europe, the device-only version, CHEMOSAT, received Medical Device Regulation (MDR) certification in February 2022, and Delcath assumed direct responsibility for its sales, marketing, and distribution as of March 1, 20222665105 - The company plans to initiate studies in 2024 to explore HEPZATO's potential in treating other liver cancers, including metastatic colorectal cancer, neuroendocrine tumors, breast cancer, and intrahepatic cholangiocarcinoma28 Estimated Annual Addressable Patient Populations and Market | Cancer Type | U.S. & Europe Patient Candidates | Estimated Annual Market (mUM only) | | :--- | :--- | :--- | | Uveal Melanoma (mUM) | 2,000 | ~$600 million | | Colorectal Cancer (CRC) | 98,000 | N/A | | Breast Cancer (BC) | 6,000 - 16,000 | N/A | | Neuroendocrine Tumors (NETs) | 12,000 | N/A | | Intrahepatic Cholangiocarcinoma (ICC) | 2,000 | N/A | - As of March 1, 2024, the company had approximately 76 full-time employees, with 66 in the United States and 10 in Europe126 Risk Factors The company faces substantial risks including going concern doubts, commercialization challenges for HEPZATO, supply chain reliance, reimbursement uncertainties, intense competition, and stock price volatility - The company's independent registered public accounting firm has expressed substantial doubt about its ability to continue as a going concern due to a significant working capital deficiency, recurring losses, and the need to raise additional funds136 - Delcath requires additional capital to fund the commercialization of HEPZATO and CHEMOSAT and for future product development; failure to raise capital could significantly limit operations139140 Net Loss History | Year | Net Loss (in millions) | | :--- | :--- | | 2023 | $47.7 | | 2022 | $36.5 | - The company has limited experience as a commercial entity, and the success of the HEPZATO launch is critical; failure to generate significant revenue could prevent the company from ever becoming profitable156 - There is a significant risk related to the supply of melphalan and other critical components, as the company relies on single contracted suppliers and must maintain compliance with manufacturing regulations (cGMPs)158161 - Market success is heavily dependent on obtaining adequate coverage and reimbursement from third-party payors like CMS and private insurers in both the U.S. and Europe, which is uncertain205207 - The market price of the company's common stock (DCTH) has been highly volatile, with a 52-week range between $2.25 and $7.96, posing a risk to investors251 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable279 Cybersecurity Delcath manages cybersecurity risks through a program led by finance and IT, with technical safeguards, employee training, third-party management, and Board oversight - The company's cybersecurity risk management is led by the Senior Vice President of Finance and the Director of Information Technology281284 - Cybersecurity measures include technical controls (e.g., encryption, access controls), disaster recovery planning, and mandatory annual cybersecurity training for all employees282 - The Board of Directors provides oversight for cybersecurity, reviewing risks, policies, and emerging threats on an annual basis with senior management286 Properties The company owns corporate and manufacturing facilities in Queensbury, New York, and subleases a facility in Galway, Ireland, for European operations, with recent expansion in Queensbury - The company owns its corporate office (10,320 sq ft) and another building (6,000 sq ft) in Queensbury, New York, which house manufacturing, R&D, and office functions289 - In January 2024, the company entered into a new five-year lease for approximately 18,000 square feet of space in Queensbury, New York289 - The company sub-leases a 2,409 square foot facility in Galway, Ireland, for office and manufacturing, with the lease expiring in August 2026289 Legal Proceedings The company is subject to ordinary course claims, with a specific dispute with former European distributor medac GmbH settled in December 2022 involving royalty or minimum annual payments - A dispute with former European distributor medac GmbH regarding a €1 million milestone payment was settled on December 30, 2022465467 - The settlement terms require Delcath to pay medac either a royalty on CHEMOSAT sales or a minimum annual payment of $0.2 million for five years, or until a maximum payment is reached467 Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable292 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Delcath's common stock trades on Nasdaq, has approximately 57 record holders, has never paid dividends, and made no share repurchases in 2023 - The company's common stock trades on The Nasdaq Capital Market under the symbol "DCTH"295 - As of February 29, 2024, there were approximately 57 holders of record of the common stock295 - The company has never paid cash dividends and does not intend to in the foreseeable future; its loan agreement with Avenue also prohibits cash dividends296 - No shares of common stock were repurchased during the fiscal year ended December 31, 2023299 Reserved. This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Delcath, an interventional oncology company with FDA-approved HEPZATO, faces going concern doubts due to losses and capital needs, reporting a $47.7 million net loss in 2023 on $2.1 million revenue Overview Delcath is an interventional oncology company with FDA-approved HEPZATO KIT, planning to expand its use to other liver cancers and directly managing CHEMOSAT sales in Europe - Delcath is an interventional oncology company whose lead product, HEPZATO KIT, was approved by the FDA on August 14, 2023, for treating uveal melanoma with unresectable hepatic metastases301 - The company plans to study HEPZATO for other liver dominant cancers, such as metastatic colorectal cancer and neuroendocrine tumors, viewing them as significant market opportunities303304 - As of March 1, 2022, Delcath assumed direct responsibility for sales, marketing, and distribution of its device-only product, CHEMOSAT, in Europe305 Liquidity and Capital Resources The company holds $12.7 million in cash and $19.8 million in short-term investments, but faces substantial doubt about its going concern ability due to capital needs and a maturing term loan - As of December 31, 2023, the company had $12.7 million in cash, cash equivalents, and restricted cash, and $19.8 million in short-term investments306 - The company's ability to continue as a going concern is in substantial doubt, as it may not have sufficient funds to meet obligations within the next twelve months if there are significant delays in the commercial ramp-up of HEPZATO308 - In 2023, the company raised capital through a private placement of preferred stock and warrants, generating approximately $25 million in initial proceeds and an additional $35 million from the exercise of Tranche A warrants314316 - The company has a term loan with Avenue, which matures on August 1, 2024; principal payments of approximately $1.0 million per month began in January 2024313 Results of Operations In 2023, revenue decreased to $2.1 million, while SG&A expenses increased by $4.8 million for HEPZATO's U.S. launch, and R&D expenses decreased by $1.1 million Comparison of Operations for Years Ended December 31 | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total revenues | $2,065 | $2,719 | | Gross profit | $1,430 | $2,033 | | R&D expenses | $17,502 | $18,583 | | SG&A expenses | $22,110 | $17,303 | | Operating loss | $(38,182) | $(33,853) | | Net loss | $(47,678) | $(36,508) | - Revenue decreased by $0.6 million in 2023 compared to 2022, primarily due to the transition to direct selling of CHEMOSAT in Europe starting in March 2022319 - Selling, general and administrative (SG&A) expenses increased by $4.8 million (28%) in 2023, mainly due to increased headcount and costs to prepare for the commercialization of HEPZATO in the U.S322 - Research and development (R&D) expenses decreased by $1.1 million (6%) in 2023, as 2022 included higher costs related to the preparation and resubmission of the New Drug Application (NDA) for HEPZATO321 Critical Accounting Estimates Key accounting estimates involve fair value measurements for contingent liabilities, warrant liabilities, and stock-based compensation, requiring significant judgment and model inputs - Key accounting estimates involve fair value measurements for contingent liabilities, warrant liabilities, and stock-based compensation326 - The valuation of warrant liability is determined using option pricing models with significant inputs such as stock price, volatility, and probabilities of achieving revenue milestones328 - Stock-based compensation is valued using the Black-Scholes model, which requires assumptions about expected term, volatility, and risk-free interest rates329 Quantitative and Qualitative Disclosure About Market Risk This item is not required for smaller reporting companies - Not required331 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2023 and 2022, including an auditor's going concern doubt, balance sheets, income statements, equity statements, cash flows, and notes - The independent auditor's report includes an explanatory paragraph highlighting conditions that raise substantial doubt about the company's ability to continue as a going concern, citing its significant working capital deficiency and recurring losses336 Consolidated Balance Sheet Highlights (as of Dec 31, 2023) | (In thousands) | Amount | | :--- | :--- | | Cash, cash equivalents, and restricted cash | $12,696 | | Short-term investments | $19,808 | | Total Assets | $38,613 | | Total Current Liabilities | $16,448 | | Total Liabilities | $22,836 | | Total Stockholders' Equity | $15,777 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2023) | (In thousands) | Amount | | :--- | :--- | | Total Revenues | $2,065 | | Operating Loss | $(38,182) | | Net Loss | $(47,678) | | Basic and Diluted Loss Per Share | $(2.94) | - Net cash used in operating activities was $31.3 million for the year ended December 31, 2023, compared to $25.0 million in 2022306356 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on any accounting or financial disclosure matters - None489 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, having remediated a prior material weakness in share-based compensation - Management concluded that disclosure controls and procedures were effective as of December 31, 2023490 - Management concluded that internal control over financial reporting was effective as of December 31, 2023492 - A previously disclosed material weakness in internal control over financial reporting related to share-based compensation was remediated as of December 31, 2023493494 Other Information No Director or Officer adopted, modified, or terminated a Rule 10b5-1 trading plan during the fiscal year ended December 31, 2023 - No Director or Officer of the Company adopted, modified, or terminated a Rule 10b5-1 trading plan during the year ended December 31, 2023496 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable497 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance will be provided in the company's 2024 proxy statement and is incorporated by reference - Information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders499 Executive Compensation Executive compensation details will be included in the company's 2024 proxy statement, which is incorporated by reference into this report - Information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders501 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership by beneficial owners and management, along with related stockholder matters, will be provided in the company's 2024 proxy statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders502 Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related party transactions, and director independence will be presented in the company's 2024 proxy statement, incorporated by reference - Information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders503 Principal Accountant Fees and Services Disclosure of fees paid to the principal accountant and services rendered will be included in the company's 2024 proxy statement and is incorporated by reference - Information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders504 Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements and an index of all exhibits - This item lists the consolidated financial statements and provides an index of all exhibits filed with the report, such as the Certificate of Incorporation, material contracts, and certifications506508 Form 10-K Summary The company has not provided a summary for this item - None506