Litigation, Claims and Assessments

medac Matter

In April 2021, the Company issued an invoice for €1 million (which currently converts to approximately $1.0 million) to medac GmbH, a privately held, multi-national pharmaceutical company based in Germany (“medac”), the Company’s EU product distribution partner, for a milestone payment due under the License, Supply and Marketing Agreement (the “License Agreement”) dated December 10, 2018, between the Company and medac. Pursuant to the License Agreement, a milestone is due upon achieving positive efficacy in the FOCUS Trial as defined by the FOCUS Trial protocol. Per the trial protocol and associated Statistical Analysis Plan, positive efficacy is based on whether the Objective Response Rate (ORR) exceeds a

pre-specified

threshold. A preliminary analysis of the FOCUS Trial data based on 87% of enrolled patients was released on March 31, 2021, and subsequently presented at the American Society of Clinical Oncology (ASCO) Annual Meeting held virtually from the 4th through the 8th of June 2021.

Per that analysis, the ORR exceeded the

pre-specified

threshold. While the final ORR was not known at the time, given the magnitude by which the ORR exceeded the

pre-specified

endpoint and the small number of patients yet to be assessed, the final ORR will be greater than the

pre-specified

endpoint regardless of the responder status of the remaining patients. medac disagreed that the milestone was due and claimed that a full clinical study report is required in addition to the existing ORR analysis. medac has not disputed the accuracy of the ORR analysis or underlying data, but simply asserts that a full clinical study report is required prior to payment. While the Company disagrees with this interpretation, since medac had stated it did not intend to pay the invoice at this time, under revenue recognition criteria set out in ASC 606, the Company did not recognize the revenue

On October 12, 2021, the Company notified medac in writing that it was terminating the License Agreement due to medac’s nonpayment of the milestone payment due under the License Agreement, with the effective date of termination of the License Agreement being April 12, 2022. medac disputed having an obligation to make a milestone payment under the Agreement and demanded withdrawal of the termination notice. The Company declined to withdraw the termination notice and, on December 16, 2021, the Company initiated an arbitration proceeding pursuant to the dispute resolution provisions of the License Agreement.

On December 30, 2021, the Company received a letter from medac stating that, due to the Company’s failure to withdraw the termination notice, medac was terminating the License Agreement with immediate effect. In the letter, medac reserved its rights in full, including a purported claim for damages for wrongful termination. In a separate letter, medac agreed to an orderly transition through February 28, 2022 in order to minimize the impact of any termination on patients and physicians. The Company agreed to purchase inventory held at medac in March 2022 for approximately $0.2 million.

On October 25, 2022, the parties reached a tentative agreement regarding the terms for a final settlement of the matter subject to the execution of a definitive settlement agreement on or before December 31, 2022. Under the agreed on settlement terms, Delcath has agreed pay medac a royalty on sales of CHEMOSAT units over a defined minimum for a period of five years or until a maximum payment has been reached.

The settlement terms also contain a minimum annual payment in the event the annual royalty payment does not reach the agreed on minimum payment amount

. There is no assurance that the parties will enter into a definitive agreement for the settlement of the matter on or before December 31, 2022. As of September 30, 2022, the Company has estimated the settlement to be $1.2 million and recorded it as

other liabilities, non-current

on the condensed consolidated balance sheet and a

charge

in selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.