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General | 6 Months Ended
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Jun. 30, 2023
Accounting Policies [Abstract] |
General | General The unaudited interim condensed consolidated financial statements of Delcath Systems, Inc. (“Delcath” or the “Company”) as of and for the three and six months ended June 30, 2023 and 2022 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023 and may also be found on the Company’s website (www.delcath.com). In these notes to the interim condensed consolidated financial statements the terms “us”, “we” or “our” refer to Delcath and its consolidated subsidiaries. Description of Business The Company is an interventional oncology company focused on the treatment of primary and metastatic liver cancers. The Company’s lead product candidate, the HEPZATO® KIT (melphalan hydrochloride for injection/hepatic delivery system), or HEPZATO, is a drug/device combination product designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and associated side effects. In Europe, the hepatic delivery system is a stand-alone medical device having the same device components as HEPZATO but without the melphalan hydrochloride and is approved for sale under the trade name CHEMOSAT Hepatic Delivery System for Melphalan, or CHEMOSAT, where it has been used at major medical centers to treat a wide range of cancers of the liver. In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by the United States Food and Drug Administration (the “FDA”). Primary jurisdiction for regulation of HEPZATO has been assigned to the FDA’s Center for Drug Evaluation and Research. The FDA has granted Delcath six orphan drug designations (five for melphalan in the treatment of patients with ocular (uveal) melanoma, cutaneous melanoma, intrahepatic cholangiocarcinoma, hepatocellular carcinoma, and neuroendocrine tumor indications and one for doxorubicin in the treatment of patients with hepatocellular carcinoma). HEPZATO has not been approved for sale in the United States. The Company’s clinical development program for HEPZATO is comprised of the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (the “FOCUS Trial”), a global registration clinical trial that is investigating objective response rate in metastatic ocular melanoma (“mOM”), a type of primary liver cancer. The Company’s most advanced development program is the treatment of mOM. The Company is currently reviewing the incidence, unmet need, available efficacy data and development requirements for a broad set of liver cancers in order to select a portfolio of follow-on indications that will maximize the value of the HEPZATO platform. In addition to HEPZATO’s use to treat mOM, the Company believes that HEPZATO has the potential to treat other liver dominant cancers, such as Metastatic Colorectal Cancer and Cholangiocarcinoma, and plans to begin the study of HEPZATO to treat such conditions in the near future. The Company believes that the disease states we are investigating and intend to investigate are unmet medical needs that represent significant market opportunities. In December 2021, the Company announced that the FOCUS Trial for HEPZATO met its pre-specified endpoint. For information on the FOCUS Trial, see “Part I, Item 1. Business—Clinical Development Program—The FOCUS Trial” in our Annual Report. On February 14, 2023, the Company filed a New Drug Application (“NDA”) resubmission (the “NDA resubmission”) with the FDA for the HEPZATO KIT (melphalan hydrochloride for Injection/Hepatic Delivery System) seeking approval of the HEPZATO KIT in the treatment of patients with unresectable hepatic-dominant mOM. The NDA resubmission was in response to a September 12, 2013 Complete Response Letter (“CRL”) from the FDA for the NDA the Company submitted in December 2010 seeking approval of its first generation melphalan hydrochloride for injection/hepatic delivery system. The NDA resubmission contains comprehensive data and information on Generation Two HEPZATO KIT relating to the matters identified in the CRL. On March 20, 2023, the FDA determined the NDA resubmission constituted a complete response and set a Prescription Drug User Fee Act (“PDUFA”) target action date of August 14, 2023. The Company continues its expanded access programs (“EAP”) in the United States to make HEPZATO readily available to mOM patients. The Company is focused on continuing to treat these patients with mOM as regulatory approval is sought in the United States. There are currently patients enrolled in the Company’s EAP sites. On February 28, 2022, CHEMOSAT received Medical Device Regulation (“MDR”) certification under the European Medical Devices Regulation [2017/745/EU], which may be considered by jurisdictions when evaluating reimbursement. As of March 1, 2022, the Company has assumed direct responsibility for sales, marketing and distribution of CHEMOSAT in Europe. Risks and Uncertainties The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and commercial success of its drug/device combination products, its ability to obtain regulatory approval of its such products in the United States and other geography markets, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition. In addition, inflation rates have increased recently to levels not seen in decades. As a result, the U.S. Federal Reserve has raised interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. Furthermore, if, in addition to the recent bank failures of Silicon Valley Bank, Signature Bank and First Republic Bank, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our or our partners’ ability to access existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy. Liquidity and Going Concern On June 30, 2023, the Company had cash, cash equivalents and restricted cash totaling $14.6 million, as compared to cash, cash equivalents and restricted cash totaling $11.8 million at December 31, 2022. During the six months ended June 30, 2023, the Company used $13.9 million of cash in its operating activities and $6.3 million for principal payments. The Company’s future results are subject to substantial risks and uncertainties. The Company has operated at a loss for its entire history and there can be no assurance that it will ever achieve or maintain profitability. The Company has historically funded its operations primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security agreements. The Company believes that current cash and cash equivalents will enable the Company to have sufficient cash past our anticipated PDUFA date of August 14, 2023. If there is a substantial delay in the approval of HEPZATO, the Company expects to need to raise additional capital under structures available to the Company, including debt and/or equity offerings, which may not be on favorable terms. In a delayed approval scenario, the Company will not have sufficient funds to meet its obligations within twelve months from the issuance date of these condensed consolidated financial statements. The Company’s capital commitments over the next twelve months include (a) $6.6 million to satisfy accounts payable, accrued expenses and lease liabilities and (b) $5.1 million of loan principal payments. Additional capital commitments beyond the next twelve months include (a) $0.1 million of lease liabilities; (b) $1.0 million for settlement of litigation with medac; (c) $0.5 million of loan principal payments; and (d) $5.0 million of convertible note principal payments, if the holders do not elect to convert the notes into equity. Basis of Presentation These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with generally accepted accounting principles in the United States of America (GAAP) and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation. The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended June 30, 2023 and 2022; however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report have been condensed or omitted as permitted by GAAP. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period. Significant Accounting Policies Other than the policies listed below, there have been no material changes to our significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Warrant Liabilities The Company determined the warrant liability was not in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, which classifies and measures certain financial instruments with characteristics of both liability and equity. Entities must consider whether to classify contracts that may be settled in its own stock, such as warrants, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or a liability at their fair value at issuance with subsequent changes in fair value recorded in earnings. The Company has accounted for the Preferred Warrants as derivative instruments in accordance with ASC 815, Derivatives and Hedging. The Company classified the Preferred Warrants issued in conjunction with the Preferred Purchase Agreement (defined below) and the Common Warrants issued in conjunction with the Common Purchase Agreement as a liability due to the existence of a pre-specified volatility input to the Black-Scholes calculation which would be used to calculate the repurchase price of the Preferred Warrants and Common Warrants in the event of a Fundamental Transaction, as defined. The valuations of the warrant liability and Series F-1 Preferred Stock (defined below) were determined using option pricing models. These models use inputs such as the underlying price of the shares issued at the measurement date, volatility, risk free interest rate and expected life of the instrument. In addition, the Company used probabilities of the FDA approval of the HEPZATO KIT (“FDA Approval”) and of recording at least $10 million in quarterly U.S. revenue from the commercialization of HEPZATO as inputs to determine the fair value of warrants liability and Series F-1 Preferred Stock. The Company intends to adjust the fair value of the warranty liability at the end of each reporting period. Recently Adopted and Issued Accounting Pronouncements We have not been required to adopt any accounting standards that had a significant impact on our consolidated financial statements in the two years ended December 31, 2022. We do not expect any recently issued accounting standards to have a significant impact on our consolidated financial statements. Revision of Previously Issued Quarterly Financial Statements In preparation of the Company’s audited financial statements as of and for year ended December 31, 2022, the Company determined it needed to correct previously reported share-based compensation expense for each quarter during 2022. The correction for share-based compensation increased the net loss in amount of $0.8 million for the first quarter of 2022, $0.5 million for the second quarter of 2022 and $0.4 million for the third quarter of fiscal 2022. The share-based compensation adjustment is a non-cash adjustment and did not have any impact on the cash balances for the Company. The following tables contain the financial information for the periods previously reported and have been updated to reflect the revisions of the Company’s financial statements. The revisions do not have an impact on the Company’s cash position. The Company has not amended its previously filed Quarterly Reports on Form 10-Q for the three quarterly periods ended September 30, 2022. The impact of the revision on the Company’s financial statements for the three and six months ended June 30, 2022 is reflected in the following table:
(In thousands) | As previously reported |  | Adjustment |  | As revised
Balance Sheet for June 30, 2022 (unaudited) |  |  |  |  |
Additional paid-in capital | $ | 435,922 |  |  | $ | 1,299 |  |  | $ | 437,221 |
Accumulated deficit | $ | (438,836) |  |  | $ | (1,299) |  |  | $ | (440,135) |
Consolidated Statement of Operations and Comprehensive Loss for the three months ended June 30, 2022 (unaudited) |  |  |  |  |
Research and development expenses | $ | 5,456 |  |  | $ | 150 |  |  | $ | 5,606 |
Selling, general and administrative expenses | 4,145 |  |  | 352 |  |  | 4,497 |
Total operating expenses | 9,601 |  |  | 502 |  |  | 10,103 |
Operating loss | (8,984) |  |  | (502) |  |  | (9,486) |
Net loss | (9,657) |  |  | (502) |  |  | (10,159) |
Total other comprehensive loss | (9,688) |  |  | (502) |  |  | (10,190) |
Basic and diluted loss per common share | $ | (1.18) |  |  | $ | (0.06) |  |  | $ | (1.24) |
Consolidated Statement of Operations and Comprehensive Loss for the six months June 30, 2022 (unaudited) |  |  |  |  |
Research and development expenses | $ | 9,696 |  |  | $ | 391 |  |  | $ | 10,087 |
Selling, general and administrative expenses | 7,791 |  |  | 908 |  |  | 8,699 |
Total operating expenses | 17,487 |  |  | 1,299 |  |  | 18,786 |
Operating loss | (16,527) |  |  | (1,299) |  |  | (17,826) |
Net loss | (17,860) |  |  | (1,299) |  |  | (19,159) |
Total other comprehensive loss | (17,889) |  |  | (1,299) |  |  | (19,188) |
Basic and diluted loss per common share | $ | (2.18) |  |  | $ | (0.16) |  |  | $ | (2.34) |
Consolidated statement of Stockholders’ Equity (Deficit) for the three months ended June 30, 2022 (unaudited) |  |  |  |  |
Compensation expense for issuance of stock options | $ | 1,617 |  |  | $ | 502 |  |  | $ | 2,119 |
Net loss | $ | (9,657) |  |  | $ | (502) |  |  | $ | (10,159) |
Consolidated statement of Stockholders’ Equity (Deficit) for the six months ended June 30, 2022 (unaudited) |  |  |  |  |
Compensation expense for issuance of stock options | $ | 3,091 |  |  | $ | 1,299 |  |  | $ | 4,390 |
Net loss | $ | (17,860) |  |  | $ | (1,299) |  |  | $ | (19,159) |
Consolidated Statement of Cash Flows for the six months ended June 30, 2022 (unaudited) |  |  |  |  |
Net loss | $ | (17,860) |  |  | $ | (1,299) |  |  | $ | (19,159) |
Stock option compensation expense | $ | 3,091 |  |  | $ | 1,299 |  |  | $ | 4,390 |

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