Add
DCTH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| DCTH > SEC Filings for DCTH > Form 10-Q on 28-Jul-2009 | All Recent SEC Filings |
28-Jul-2009
Quarterly Report
This Form 10-Q, including the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2008. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "anticipate" and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements speak only as of the date of this Form 10-Q. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.
Overview
We are a medical technology company that develops and manufactures an innovative device designed to administer high dose chemotherapy and other therapeutic agents directly to diseased organs or regions of the body. We are currently focusing on the development of a single product, the Delcath PHP System™, for the treatment of tumors of the liver. Based on human clinical data, we believe that the Delcath PHP System™ allows physicians to deliver significantly higher chemotherapy doses to the liver than could be administered by conventional intravenous delivery.
The Delcath PHP System™ is a disposable kit consisting of various catheters, filters, and a tubing circuit used during cancer treatment to isolate the liver from the patient's general circulatory system. Our system allows for ultra-high doses of chemotherapy agents to be directed at a patient's liver while at the same time limiting the exposure of healthy tissue and organs to the harmful effects of those chemotherapeutic agents. By providing higher dosing of chemotherapy agents than would otherwise be possible through conventional chemotherapy, we believe that treatment with the Delcath PHP System™ is more effective than conventional treatment at killing cancer cells and preventing new cancer cell formation.
In 2006, we began a Phase III clinical trial to support a pre-market approval application for use of the Delcath PHP System™ with melphalan, a chemotherapy agent, for the treatment of metastatic melanoma that has spread to the liver. The trial is being conducted under an FDA Special Protocol Assessment ("SPA") with the National Cancer Institute (the "NCI") serving as the coordinating center. The trial is currently approved for expansion to a maximum of 28 centers. Until April 2008, the NCI was the sole participating center in the trial. Since then, eleven centers have joined the trial, bringing the total number of participating centers to twelve:
2008, 2nd Quarter
University of Maryland Medical Center
St. Luke's Cancer Center
Albany Medical Center
Atlantic Melanoma Center of Atlantic Health
University of Texas Medical Branch
2008, 3rd Quarter
Swedish Medical Center
John Wayne Cancer Institute
Providence Health Systems
Moffitt Cancer Center
2008, 4th Quarter
University of Pittsburgh Medical Center
2009, 1st Quarter
Ohio State University Comprehensive Cancer Center
Each participating center's Institutional Review Board ("IRB") has approved our treatment protocol. Critical to expediting completion of this trial, the Western Institutional Review Board ("WIRB") has also approved our protocol. The WIRB, which provides review services for more than 100 institutions (academic centers, hospitals, networks and in-house biotech research) in all 50 states and internationally, will help accelerate the internal review process at a number of the hospitals currently participating in the study. As of June 30, 2009, we had enrolled a total of 72 patients of the expected 92-patient trial. Between July 1, 2009 and July 27, 2009 we have enrolled an additional 7 patients, bringing total enrollment to 79 patients. We expect to complete patient enrollment in this study in 2009. In 2004, we began a multi-arm Phase II clinical trial for the use of the Delcath PHP System™ with melphalan in the treatment of hepatocellular carcinomas as well as neuroendocrine and adenocarcinoma cancers that have spread to the liver. In 2007, an additional arm was added to the Phase II trial to treat patients with metastatic melanomas that have spread to the liver who have received prior surgical isolated hepatic perfusion. Based on promising initial clinical results, we plan to focus our efforts on enrolling patients for the treatment of metastatic neuroendocrine cancer. We have currently enrolled 23 of the 25 patients required for the neuroendocrine arm of the trial and we anticipate that we will complete patient enrollment in this arm of the study in 2009.
As indicated above, the Company is focusing on enrolling patients in the neuroendocrine arm of the Phase II study. The other two arms treating adenocarcinoma and primary liver cancer will be refocused so as to optimize the progress of those arms of the trial. In September 2008, the Company received approval from the FDA to begin a clinical trial that will focus on the effectiveness of the Delcath PHP System™ in administering high-dose doxorubicin as compared with standard systemic treatment with sorafenib for the treatment of primary liver cancer.
The successful development of the Delcath PHP System™ is highly uncertain, and development costs and timelines can vary significantly and are difficult to accurately predict. Various statutes and regulations also impact the manufacturing, safety, labeling, storage, record keeping and marketing of our system. The lengthy process of completing clinical trials, seeking FDA approval and subsequent compliance with applicable statutes and regulations require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially, adversely affect our business. To date, we have not received approval for the sale of our system in any market and, therefore, have not generated any revenues. The Delcath PHP System™ has not yet been approved by the FDA and may not be marketed in the United States without FDA pre-market approval.
Our expenses generally include costs for clinical studies, securing patents, regulatory activities, manufacturing, personnel, rent for our facilities, and general corporate and working capital, including general and administrative expenses. Because we have no FDA-approved product and no commercial sales, we will continue to be dependent upon existing cash, the sale of equity or debt securities, or establishing a strategic alliance with appropriate partners to fund future activities. We cannot be assured that the pace of patient enrollment will meet our projections, that we will obtain FDA approval for our Delcath PHP System™, that we will have, or could raise, sufficient financial resources to sustain our operations pending FDA approval, or that, if and when the required approvals are obtained, there will be a market for our product.
The Company's expenditures are highly variable and are dependent upon the number and pace of patients enrolled in our clinical trials. We expect that the amount of capital required for our trials will continue to increase over the coming months due to the increased number of patients enrolled at newly added clinical trial centers. We believe that we have sufficient capital for operations through 2009 and to complete enrollment of our ongoing Phase III trial.
We are a development stage company, and since our inception we have raised approximately $55.3 million (net of fundraising expenses). We have financed our operations primarily through public and private placements of equity securities. We have incurred net losses since we were founded and we expect to continue to incur significant and increasing net losses over the year.
As previously reported in our Current Report on Form 8-K filed with the SEC on July 7, 2009, effective July 6, 2009, Eamonn Hobbs was appointed President and Chief Executive Officer of the Company. Mr. Hobbs has been a director of the Company since October 2008. He has over 25 years of experience in the interventional radiology, interventional cardiology and gastroenterology medical device industries. Mr. Hobbs replaces Richard Taney, who resigned effective July 6, 2009, as President and Chief Executive Officer of the Company. Mr. Taney will continue as a member of the Board of Directors of the Company.
Results of Operations
Three Months Ended June 30, 2009 and June 30, 2008
We have operated at a loss for our entire history. We had a net loss for the three months ended June 30, 2009, of $6,327,626, which is a $3,907,352 increase in the net loss for the same period in 2008. The increase in net loss in 2009 is due to a $3,232,727 increase in derivative instrument expense related to the Warrants, as well as an increase of $1,095,548 in research and development costs related to the Phase III clinical trial.
General and administrative expenses decreased by 22.1%, from $699,136 during the three months ended June 30, 2008 to $544,913 for the three months ended June 30, 2009, a reduction of $154,223. This decrease is primarily due to a reduction in fees paid to outside consultants.
For the three months ended June 30, 2009, research and development expenses increased by 100%, from $1,099,488 during the second quarter of 2008 to $2,195,036, an increase of $1,095,548. This increase is attributed to the continued expansion and acceleration of our Phase III clinical trial. During the second quarter of 2008 we had one center (the NCI) performing PHP™ treatments. For the same period of 2009 we have twelve centers participating in our Phase III clinical trial. The continued expansion of our Phase III clinical trial has created additional expenses related to patient treatment costs, IRB approvals, and other clinical expenses.
Interest income shown is from our money market account and investment in various certificates of deposit. During the three months ended June 30, 2009, the Company had interest income of $18,167, as compared to $50,002 for the same period in 2008. This decrease is due to our reduced cash position as we continue to direct our funds towards the completion of our Phase III clinical trial, as well as the overall market conditions which continue to yield a lower percentage of return on our investments than the same period last year.
Six Months Ended June 30, 2009 and June 30, 2008
We had a net loss of $8,773,107 for the six months ended June 30, 2009. This compares to a net loss of $3,478,020 for the same period of 2008. The increase of $5,295,087 in net loss is related to a nearly $3,992,756 increase in derivative instrument expense related to the Warrants, as well as a $1,567,782 increase in research and development costs.
For the six months ended June 30, 2009, we incurred $1,019,876 in expenses related to our general and administrative operations. This is a 10.5% decrease from the same period in 2008, when we incurred $1,140,140 in general and administrative expenses. This decrease is primarily related to a reduction in fees paid to outside consultants.
For the six months ended June 30, 2009, research and development costs increased by 75.1%, from $2,088,444 for the first six months of 2008 to $3,656,226 for the six months ended June 30, 2009, a $1,567,782 increase. This change is due to the increasing pace of enrollment in our Phase III clinical trial. As the Company gets closer to full enrollment of the trial we anticipate expenses related to the clinical trial and the Company's preparations for FDA submission to continue their acceleration.
Interest income shown is from our money market account and investment in various certificates of deposit. During the six months ended June 30, 2009, the Company had interest income of $68,928, as compared to interest income of $223,965 for the same period in 2008. As discussed above, this decrease is due to our reduced cash position as we continue to direct our funds towards the completion of our Phase III trial, as well as the overall market conditions which continue to yield a lower percentage of return on our investments than the same period last year.
Liquidity and Capital Resources
Our future results are subject to substantial risks and uncertainties. We have operated at a loss for our entire history and we anticipate that losses will continue for the foreseeable future. There can be no assurance that we will ever generate significant revenues or achieve profitability. We expect to use cash, cash equivalents and investment proceeds to fund our operating activities. Our future liquidity and capital requirements will depend on numerous factors, including the progress of our research and product development programs, including our ongoing Phase II and Phase III clinical trials; the timing and costs of making various United States and foreign regulatory filings, obtaining approvals and complying with regulations; the timing and effectiveness of product commercialization activities, including marketing arrangements overseas; the timing and costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; and the effect of competing technological and market developments. We continue to move forward aggressively, most notably by adding new sites to our ongoing clinical trials and increasing our efforts to enroll additional patients in these trials. As we seek FDA approval and get our product to market we expect that our capital expenditures will increase significantly.
At June 30, 2009, we had cash and cash equivalents of $7,435,673, as compared to $6,939,233 at December 31, 2008. Nearly all of our available funds are invested in money market accounts and certificates of deposit.
During the six months ended June 30, 2009, we used $4,786,573 of cash in our operating activities. This amount compares to $2,744,829 used in our operating activities during the comparable six month period in 2008. The increase of $2,041,744, or 74%, is primarily due to accelerated clinical development costs related to all facets of the Phase III clinical trials
and the Delcath PHP System™. We expect that our cash allocated to operating activities will continually increase as we aggressively move toward the full enrollment and completion of our first Phase III clinical trial, and continue to navigate the extensive FDA approval process. We believe we have sufficient capital to fund our current clinical trials through 2009.
At June 30, 2009, the Company's accumulated deficit was approximately $56.1 million. Because our business does not generate any positive cash flow from operating activities, we will likely need to continue raising additional capital in order to develop our product beyond the current clinical trials or to fund development efforts relating to new products. We anticipate that we could raise additional capital in the event that we find it in our best interest to do so. We anticipate raising such additional capital by either borrowing money, selling shares of our capital stock, or entering into strategic alliances with appropriate partners. To the extent additional capital is not available when we need it, we may be forced to abandon some or all of our development and commercialization efforts, which would have a material adverse effect on the prospects of our business. Further, our assumptions relating to our cash requirements may differ materially from those planned because of a number of factors, including significant unforeseen delays in the regulatory approval process, changes in the focus and direction of our clinical trials and costs related to commercializing our product.
We have funded our operations through a combination of private placements of our securities and through the proceeds of our public offerings in 2000 and 2003 along with our registered direct offerings in 2007 and 2009. Please see the detailed discussion of our various sales of securities described in Note 3 to the Company's audited financial statements contained in the 2008 Form 10-K and in Note 6 to the Company's condensed financial statements contained in this Form 10-Q.
In June 2009, the Company completed the sale of 869,565 shares of its common stock and the issuance of warrants to purchase 1,043,478 common shares (the 2009 Warrants) pursuant to a subscription agreement with a single investor. The Company received gross proceeds of $2,999,999 and estimates the net cash proceeds after related expenses from this transaction will be $2,674,399. Of those proceeds, the Company allocated an estimated fair value of $2,190,979 to the 2009 Warrants (see below), resulting in estimated net proceeds of $483,420. The fair value of the 2009 Warrants on June 15, 2009 was determined by using the Black-Scholes model assuming a risk free interest rate of 2.75%, volatility of 72.93% and an expected life equal to the contractual life of the warrants (June 2014). The 2009 Warrants are exercisable at $3.99 per share and have a five-year term. The shares and warrants were offered pursuant to an effective registration statement on Form S-3 filed with the SEC on May 25, 2007 (333-143280), effective June 7, 2007, as amended by a registration statement on Form S-3 filed with the SEC and effective on June 10, 2009 (333-159857).
In June 2009, the Company filed a registration statement on Form S-3 with the SEC, which will allow the Company to offer and sell, from time to time in one or more offerings up to $60,000,000 of common stock, preferred stock, stock purchase contracts, warrants and debt securities as it deems prudent or necessary to raise capital at a later date. The registration statement became effective on June 23, 2009 (333-159913). The Company intends to use the net proceeds from any future offerings under the registration for general corporate purposes, including, but not limited to, funding our clinical trials, capital expenditures, working capital, repayment of debt and investments. Because the maximum aggregate offering price of all securities registered is $60,000,000, the Company's issuance of any securities will reduce the amount of other securities that it can issue pursuant to the registration statement on Form S-3.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with GAAP. Certain accounting policies have a significant impact on amounts reported in the financial statements. A summary of those significant accounting policies can be found in Note 1 to the Company's financial statements contained in the 2008 Form 10-K. We are still in the development stage and have no revenues, trade receivables, inventories, or significant fixed or intangible assets, and therefore have very limited opportunities to choose among accounting policies or methods. In many cases, we must use an accounting policy or method because it is the only policy or method permitted under GAAP.
Additionally, we devote substantial resources to clinical trials and other research and development activities related to obtaining FDA and other approvals for the Delcath PHP System™, the cost of which is required to be charged to expense as incurred. This further limits our choice of accounting policies and methods. Similarly, management believes there are very limited circumstances in which our financial statement estimates are significant or critical.
We consider the valuation allowance for the deferred tax assets to be a significant accounting estimate. In applying SFAS 109, "Accounting for Income Taxes," management estimates future taxable income from operations and tax planning strategies in determining if it is more likely than not that we will realize the benefits of our deferred tax assets. Management believes the Company does not have any uncertain tax positions as defined under FIN 48.
The Company has adopted the provisions of SFAS 123R. SFAS 123R establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123R, share-based compensation is measured at the grant date, based upon the fair value of the award, and is recognized as an expense over the option holders' requisite service period (generally the vesting period of the equity grant). Effective January 1, 2006, the Company adopted the modified prospective approach and, accordingly, prior period amounts have not been restated. Under this approach, the Company is required to record compensation cost for all share-based payments granted after the date of adoption based upon the grant date fair value, estimated in accordance with the provisions of SFAS 123R, and for the unvested portion of all share-based payments previously granted that remain outstanding based on the grant date fair value, estimated in accordance with the original provisions of SFAS 123. The Company has expensed its share-based compensation for share-based payments granted after January 1, 2006 under the ratable method, which treats each vesting tranche as if it were an individual grant.
On January 1, 2008, the Company adopted SFAS 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. The adoption of SFAS 157 did not have a material effect on the carrying values of the Company's assets.
SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity's own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. See Note 8 to the Company's condensed financial statements contained in this Form 10-Q for assets and liabilities the Company has evaluated under SFAS 157.
|
|