Delcath: Peek Of Early Data Of FOCUS Trial Shows Vastly Improved Safety Profile Of Chemosat (NASDAQ:DCTH)


Delcath Systems (DCTH) will be reporting top line results of the pivotal phase 3 trial (FOCUS) evaluating Chemosat in metastatic ocular melanoma in late 2020/early 2021. In a little known video posted by Ocular Melanoma Foundation in Jan 2018 on YouTube (with 350 views as of September 21, 2020), we got a rare chance to see a vastly improved safety profile of Chemosat based on the first 18 patients in the FOCUS trial. Somehow this important information has never been discovered and discussed by investors. Safety profile is the key to the success of FOCUS trial and will be the most critical factor for FDA approval in 2021. We believe this excellent early safety data of FOCUS trial bodes extremely well for the final results of FOCUS. Before we get into details, let us describe the background and history of this biotech company.

A checkered history

Delcath Systems is a late clinical stage biotech company specializing in interventional oncology with lead product, Chemosat, as a potential treatment of liver-associated tumors. It offers a way to isolate liver and deliver high dose chemotherapy drug Melphalan directly to the liver and then filter the chemo drug out of the blood before it returns. The system is well described in many other places (company website, YouTube) so I will not go into detail.

Delcath Systems has gone through FDA review process once. In 2013, FDA Oncologic Drug Advisory Committee panel recommended against approval due to safety concerns. Over 90% patients suffered grade 3-4 adverse events in the study using device with previous generation filter (Clark Cartridge). Particularly, FDA noted that there were 4 treatment related deaths in the pivotal phase 3 trial conducted from 2006 to 2009. Two were associated with bone marrow suppression; one was caused by progressive hepatic failure; one was caused by gastric perforation.

Figure 1. Adverse events in previous studies using old devices and procedure

Source: FDA briefing document

The panel never disputed the unprecedented efficacy though. The overall response rate (ORR) was 27.3% for Chemosat group, which is significantly higher than the control group (4.1%). The progression free survival (“PFS”) was 7 months for Chemosat group and 1.6 months for control group (p<0.0001). The FDA issued a CRL in September 2013 and asked Delcath to conduct another clinical trial to demonstrate clinical benefits of Chemosat outweigh its risks.

Since then, Delcath systems has been struggling to raise additional funds and enroll patients. At one point, Delcath’s stock was delisted from NASDAQ and share price was trading at 2 cents on OTC exchange before numerous reverse splits. Investors have written off Delcath and thought it was game over.

However, the tide has changed since 2019. The enrollment of patients in FOCUS trial accelerated after Delcath amended the trial design to be an 80-subject single arm trial. Rosalind Advisors, a biotech focused fund, led the $51 million recapitalization, culminating in the Company’s recent uplisting to NASDAQ. In the meantime, multiple highly encouraging studies from Europe, where Chemosat was commercially available, were published. Now the FOCUS trial was fully enrolled and we are waiting for the results in late 2020/early 2021.

So why is this time different

The company made many improvements to the device and the medical procedure over the years to enhance the safety profile:

1) 2nd gen filter

The company adopted a 2nd generation filter that can more effectively filter out chemo drug from the blood, which resulted in significantly reduced toxicity, particularly those related to bone marrow suppression. An analysis demonstrated that the Gen 2 filter could remove 86% of melphalan, which compared favorably to the first Gen 1 filter (77%) with greater consistency. All the recent studies have been using 2nd gen filter.

Figure 2. Gen 1 vs. Gen 2 filter

2). Modified procedure protocol

The company modified the procedure protocol to reduce the bone marrow suppression side effects. In the new study protocol, G-CSF (Granulocyte colony stimulating factor) was used as preventative drug in virtually all patients, whereas in the first phase 3 study, G-CSF was administered when indicated. Thrombocytopenia is managed by platelet transfusion.

To avoid gastrointestinal hemorrhage, hepatico-enteric anastomoses (e.g., gastroduodenal and right gastric artery) were embolized to prevent inadvertent leakage of melphalan.

To better manage blood pressure and heart rate during the procedure, instead of giving patients a lot of fluid, beta blocker together with norepinephrine are given to patients. According to Dr. Sanjay Gupta, Anesthesiologist at Spire Southampton Hospital,

…We found beta blocker with norepinephrine we can control the heart rate at a very good rate…but also improves the blood pressure and blood pressure is quite easy to maintain…

3) More careful patient selection

To reduce hepatic failure risks, the new trial only enrolled patients with 50% or less tumor burden.

To reduce bone marrow suppression risks, patients must have healthy blood test at baseline, including a platelet count > 100,000/µL, hemoglobin ≥ 10.0 gm/dL, white blood cell count (“WBC”) > 2,000/uL, absolute neutrophil count (ANC) ≥ 1.5 x 109/L, and a serum creatinine ≤ 1.5 mg/dL unless the measured creatinine clearance is > 40 mL/min/1.73 m2.

To reduce heart attack and stroke risks, the new trial excluded patients with New York Heart Association functional classification II, III or IV active cardiac conditions, including unstable coronary syndromes (unstable or severe angina, recent myocardial infarction), worsening or new-onset congestive heart failure, significant arrhythmias and severe vascular disease.

With all these improvements to the device and procedure, Chemosat has demonstrated a totally different risk-benefit profile. In a video posted on Jan 10th, 2018, Dr. Mark Faries and Dr. Gloria Hwong presented safety data from first 18 patients in FOCUS trial. (pause the video at 15:19) Somehow this important disclosure of the safety data of early FOCUS trial has never been discovered by investors.

Figure 3. Safety profile comparison between early FOCUS trial and historical pooled data

Source: Youtube video Liver-Directed Therapies: Percutaneous Hepatic Perfusion, Dr. Faries & Dr. Hwong

Figure 3 shows a vastly improved safety profile of Chemosat. Grade 3/4 adverse events rate was cut to 55% from 95.9% in historical pooled data based in old version device and procedure. Total number of patients experiencing a serious adverse event was 50% as compared to 84.3% in previous pooled data. Discontinuation rate was 11.1% as compared to 38% in previous data. And most importantly, there are no treatment related deaths. Later on, during August 12’s presentation at Canaccord Genuity 40th Annual Growth Conference, CEO confirmed again that there are no treatment related deaths reported in entire FOCUS trial.

The vastly improved safety and efficacy profile of Chemosat are confirmed in numerous European studies as well. For example, Karydis in 2017 published on Journal of Surgical Oncology, the most common adverse events related to hematological toxicity, grade 3-4 rates are around 30%.

Figure 4. Treatment related adverse events in Karydis 2017 study

Source: Karydis 2017 published on Journal of Surgical Oncology

Below is a summary of findings in recent European studies.

Figure 5. Review of recent clinical trials

Source: corporate presentation.

In this study titled “Chemosaturation with percutaneous hepatic perfusion of melphalan for liver-dominant metastatic uveal melanoma: a single center experience”, the author concluded:

SAEs were frequent, with most limited to grades one and two and not requiring additional intervention. CS-PHP is an efficacious and safe treatment for patients presenting with liver-dominant metastatic uveal melanoma.

In this study titled ” Percutaneous hepatic perfusion with melphalan in uveal melanoma: A safe and effective treatment modality in an orphan disease“, the author concluded that

Our results demonstrate that M‐PHP can be safely employed in appropriately selected UM patients with primarily liver based disease as part of an integrated multi‐disciplinary approach in institutions with appropriate expertise. Outcomes compare favorably to currently available treatment modalities

In this study titled ” Percutaneous Hepatic Perfusion with Melphalan for Unresectable Metastatic Melanoma or Sarcoma to the Liver: A Single Institution Experience“, the author concluded that

Our experience with PHP demonstrates promising results with minimal morbidity and should be considered (pending FDA approval) as a management option for unresectable melanoma or sarcoma hepatic metastasis.

In this prospective study titled ” Safety of Percutaneous Hepatic Perfusion with Melphalan in Patients with Unresectable Liver Metastases from Ocular Melanoma Using the Delcath Systems’ Second-Generation Hemofiltration System: A Prospective Non-randomized Phase II Trial“, the authors concluded that

M-PHP using the GEN 2 filter has an acceptable safety and toxicity profile, and seems to reduce hematologic toxicity when compared to M-PHP with a first-generation filter.

There are also some anecdotal evidences surfaced in recent years. A patient named Brian Carney, posted his experiences with Chemosat on YouTube. He claimed that Chemosat saved his life and said

this procedure is so finely honed, you can have, I am not sure how many, you can have numerous. I had 4. If I get further progression this year, I’ll probably go down with another 2 (procedures), and another 2 if I need it

This anecdotal experience highlights that the tolerability of this procedure has improved a lot. The utilization per patient could be high.

Belinda Honeyman Lynch talked about her experiences w/ Chemosat in this video:

… A day or two later I would have felt I was back to normal, it was that quick, which was really surprising…

To summarize, Chemosat procedure has been well rehearsed, practiced and honed over the past 10 years. The safety profile has been well characterized. Yes, there will be some adverse events, even in grade 3-4. But these adverse events are predictable, manageable, and self-limiting. Treatment related death has been eliminated in both FOCUS trial and European trials. Chemosat demonstrated a very favorable risk-benefit profile. Chemosat’s high objective response rate is sufficient to outweigh the toxicity.

What’s the regulatory risk of single arm trial?

In July 2018, the company filed an amendment with the U.S. Food & Drug Administration to revise the protocol for its Phase 3 clinical trial in ocular melanoma liver metastases. Under the terms of amendment, the new trial will be a single-arm open label study with 80 patients. Under the new protocol, the primary endpoint for the amended FOCUS trial will be objective response rate (ORR). Secondary endpoints will include duration of response, disease control rate, overall survival and progression-free survival. The original SPA agreement with FDA is nullified.

So what’s the regulatory risk of single arm trial with ORR as primary end point? FDA actually has been very supportive of approval of therapeutics based on single arm trial that address high unmet medical needs, with the bar being as low as around 15% response rate in such situations if best alternative cares ORR is in single digit. For example, Keytruda was approved in refractory gastric cancer with response rate of 13%, Tecentriq was approved in refractory urothelial cancer with response rate of 15%, Opdivo was approved in refractory small cell lung cancer with response rate of 12%. Here is the detailed list of other approvals based on ORR in single arm trials.

Figure 6. Examples of FDA approvals based on ORR in single arm trials

Source: corporate presentation

mOM fits this situation perfectly. mOM is an ultra-orphan tumor indication without any approved treatments. The best alternative cares offered as control, including immunotherapy, systemic chemotherapy, Y90 and Chemoembolization, don’t demonstrate the efficacy anywhere close to Chemosat. In this 2019 presentation by Dr. David Eschelman, Dr. Eschelman said, there is no effective systemic therapy for ocular melanoma, including immunotherapy and systemic chemotherapy. Surgery and ablation are rarely useful due to multiplicity of tumors.

Figure 7. Dr. Eschelman discussion of treatment options of ocular melanoma

Source: YouTube video Metastatic Liver Disease: 2019 CURE OM Symposium

In this presentation by Dr. Zager, according to a recent retrospective study in Moffitt cancer center, Chemosat demonstrated much longer hPFS than Y90 and Chemoembolization.

Figure 8. Comparison of Chemosat, Y90 and CE.

Source: YouTube video Delcath Systems: Percutaneous Hepatic Perfusion (Zager)

If you watch Q&A session in the video from 27:00, you will hear the genuine frustrations of mOM patients about the original two-arm randomization trial design. Some patients even flied to Europe to get Chemosat treatment where it’s commercially available. Some patients simply quit the trial if they got assigned to the control arm. One patient said,

…I want to be a woman of integrity, but if I didn’t get Delcath, I don’t want to enroll in this trial for a coin toss, that I am going to tell you that I am not gonna do that the other arm….Delcath is our best hope…

Jonathan Zager MD, Chair of Graduate Medical Education at Moffitt Cancer Center and Professor of Surgery at the University of South Florida School of Medicine, said,

Given the rarity of ocular melanoma and the existing level of global institutional data supporting the use of PHP Therapy in this patient population, I believe this amendment is in the best interests of patients, In my experience, patients in the U.S. in particular have been frustrated by the randomization requirement of the prior protocol and the unavailability of this therapy outside of a clinical trial setting. I believe that the amended, single-arm trial will provide greater access to this therapy for appropriately selected patients while evaluating efficacy and safety in a manner consistent with other recently approved cancer therapies.

Valuation

Delcath’s current share count including preferred and pre-funded warrants is about 6.5 million. The current market cap is $65M at $10/share. If the 4 million warrants are exercised at $10, the totally diluted share count would be 10 million. Cash on hand is $16M as of June 2020. The cash burn is about $4-5M/quarter. The company has enough cash runway till FOCUS read-out in early 2021. Warrant exercise could provide additional $40M cash. We don’t see near term dilution risk.

Figure 9. Capital structure

Source: corporate presentation

Currently Chemosat is being evaluated to treat mOM. Liver dominant mOM is an ultra-orphan indication. Chemosat will be priced as ultra-orphan drug. We expect average 4x treatments per patient and each treatment will cost $50k. mOM peak sale is estimated to be 4 x 50000 x 1500=$300M/year. If we apply 3x peak sale/market cap multiple, that would be over $80/share. That’s for mOM alone.

Figure 10. Chemosat market opportunity Source: corporate presentation

Chemosat also demonstrated excellent efficacy in ICC and mNET. In this phase 2 study, Chemosat showed 70% ORR in 20 mNET patients. ICC peak sale is estimated around $600m/year and mNET is over $1 billion. There are other much larger indications such as mBC and mCRC that Chemosat could be effective. (See below chart for label expansion opportunities).

Figure 11. Label expansion opportunities

Source: corporate presentation

If Chemosat can deliver the high dose chemo drug to liver safely, this will be a game changer for many types of liver tumor treatment. After FDA approves Chemosat for mOM, investors will undoubtedly consider the platform value across multiple much larger indications. Eventually Delcath could be a multi-billion dollar intervention oncology company.

Potential Risks

1). Delcath is very illiquid. Share price could be very volatile.

2). Lack of diversified product portfolio increases risk if Melphalan/HDS failed.

3). Additional financings could dilute shareholder value.

4). COVID-19 could potentially further delay the trial read-out.

Conclusion

At current market cap of $65M, Delcath is significantly undervalued given that overwhelming evidences have essentially de-risked Phase 3 FOCUS trial. There is no approved treatment for metastatic Ocular Melanoma. This is truly an unmet medical need. We believe FOCUS trial will demonstrate a very favorable risk-benefit profile, and Chemosat will be approved by FDA in 2021. Delcath is one of the most impressive turn-around stories in recent years.

Disclosure: I am/we are long DCTH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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