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Optimism on Multiple Fronts

Optimism on Multiple Fronts

We previously highlighted the notable tone shift from Delcath Systems (Nasdaq: DCTH) CEO Gerard Michel on the company’s FY23 earnings call.  We referred to this shift as “Optimism > Caution,” and the optimism was apparent again on the company’s 1Q24 call.  This was the first quarter of U.S. commercial sales for HEPZATO and revenue came in as expected at $2mm.  CEO Michel reiterated previous guidance that the company expects to have 20 treating centers actively using HEPZATO by the end of the year. Not surprisingly, CEO Michel confidently added that he now expects to achieve U.S. revenue of $10mm/quarter this year, which would accelerate the exercise period for the final tranche of warrants (4.2mm shares @ $6) from March 31, 2026, to 21 days post the $10mm/quarter announcement.  With Delcath already trading well above the exercise price, there is reason to believe the exercise process will be more orderly than the previous tranche.  Finally, it is worth noting that Delcath’s CFO stated that with the $25mm from the final tranche in treasury, the company should be financed through cashflow breakeven.

Beyond the early sales numbers, hearing that HEPZATO has been used as a first, second, and third-line treatment, including pre and post Immunocore Holdings’ (Nasdaq: IMCR) KIMMTRAK, was encouraging.  CEO Michel added, “…unfortunately (mUM) patients, all progress. It’s very rare you get someone who has a complete response that lasts for a decade or so. And, unfortunately, for the patients, companies such as us and Immunocore…probably will have a shot at most patients in terms of a line of treatment.”  In other words, HEPZATO is not competing against systemic therapies, like KIMMTRAK, for patients.  These patients will likely cycle through systemic and liver-directed therapies on their treatment journey, as demonstrated by the early use of HEPZATO already as a first, second, and third-line treatment.

Signs of Life in Europe

There’s no question that the encouraging tone surrounding the U.S. commercial launch of HEPZATO is predominantly responsible for the stock’s resurgence.  However, we also found the commentary around Delcath’s European business and the platform potential for HEPZATO highly intriguing. The $1.1mm of quarterly sales of CHEMOSAT (European brand name for the HEPZATO kit without melphalan) from Germany were a nice surprise, but even more encouraging were CEO Michel’s comments that “…we’ll continue to see a fair amount of growth out of Germany, given I think probably at best we have maybe 15% penetration.”  Currently, Germany is the only European country with a sales rep; however, Michel also mentioned that he expects to hire someone for the U.K. territory shortly in anticipation of reimbursement coming later this year. 

Keep Singing That Sweet Platform Music

Signs of life from their European business might be incrementally positive, but unlocking the platform potential for HEPZATO in the U.S. could be a game-changer.  In his prepared remarks, CEO Michel discussed how interest in HEPZATO’s potential benefit in other liver-dominant cancers beyond its approved use for metastatic uveal melanoma (mUM) has historically been high among interventional radiologists but not among oncologists.  He then discussed a recent notable shift in the interest from medical oncologists, stating, “The launch of HEPZATO in major cancer centers is increasing the level of interest from a broader set of oncologists to study HEPZATO use in treating other cancers, such as colorectal, intrahepatic cholangiocarcinoma, and breast cancer.” 

***Delcath May 2024 corporate deck

A HEPZATO procedure is performed by a team led by an interventional radiologist, but oncologists refer patients to these specialists.  In our view, the awareness and interest among oncologists about the potential for HEPZATO beyond mUM was the most encouraging nugget of information from the call.  Delcath can be a successful and profitable company off the mUM market alone, but the big upside for investors will come from the company’s ability to exploit the platform potential of HEPZATO. As the primary source of referrals, oncologists are the gatekeepers to unlocking this potential, underscoring their crucial role in Delcath’s success.  

It is still early innings of the mUM launch, but it might be interesting for an analyst to ask about off-label use of HEPZATO in future calls.  The company will likely be cautious in its response, but CEO Michel’s statement about oncologists’ interest in HEPZATO for other liver-dominant cancers is a thread worth pulling.  The company has already committed to running one or more clinical trials in other liver-dominant tumor types. Still, with interest already piqued among interventional radiologists and oncologists, we suspect that “experimentation” with HEPZATO beyond mUM could be a near-term phenomenon.  

In our opinion, the path to Delcath achieving a $2.5b valuation like its peer Immunocore Holdings (Nasdaq: IMCR) or for a Boston Scientific (NYSE: BSX) acquisition lies less so in its commercial success in mUM, and more so on its ability to demonstrate and exploit HEPZATO’s platform potential.  So when CEO Michel openly discusses interest from interventional radiologists and oncologists for tumor types beyond mUM, that should be music to investors’ ears.

Hypoparathyroidism: Production, PDUFAs, and Partners

Last week, Entera Bio (Nasdaq: ENTX) announced they would be presenting clinical data at the ENDO 2024 scientific symposium on a new formulation of their oral parathyroid hormone (PTH 1-34) peptide, EB612 for the treatment of hypoparathyroidism (HP).  HP is a rare endocrine disorder characterized by deficient or absent parathyroid hormone.  There is currently only one FDA-approved treatment for HP, Takeda Pharmaceutical’s (NYSE: TAK) Natpara, but it has been discontinued due to ongoing manufacturing issues.

Ascendis Pharma (Nasdaq: ASND) has the most advanced development-stage asset for HP with their daily injectable pro-drug of PTH 1-34, TransCon PTH, currently in front of FDA. Last week FDA pushed the company’s PDUFA date three months from May 14th to August 14th.  The only other late-stage asset in development is another daily injectable peptide, eneboparatide, from Amolyt Pharma. In March of this year, Amolyt was acquired for $1.05b ($800mm upfront) by Astra Zeneca (Nasdaq: AZN).

To the best of our knowledge, Entera has the only oral peptide in development for HP.  The company previously ran a successful Phase 2 study with a QID (4x daily) of EB612 in HP patients. Although the data were encouraging, QID dosing is far from ideal, even with oral vs. injectable advantages. Therefore, the company decided to work on an improved formulation using their next-generation N-Tab technology, which could achieve improved bioavailability to allow for BID (2x daily) dosing.  The Phase 1 data with BID dosing are what the company will be presenting at ENDO in June (abstract here).  

In parallel to its EB612 efforts, CEO Miranda Toledano, in her March Oppenheimer conference webcast, referred to an “undisclosed” hypoparathyroidism collaboration. Digging through the company’s filings with the SEC, in their March 10-K this language appeared, “…we are also collaborating with a third party to combine our N-Tab™ Technology with another peptide for hypoparathyroidism”.  Entera appears to have internal (EB612) and collaborative programs ongoing in HP.  Something to keep an eye on.

Drama in the Rearview Mirror

In our last note, we discussed how Lyra Therapeutics’ (Nasdaq: LYRA) Phase 3 chronic rhinosinusitis (CRS) failure may have been necessary for Optinose (Nasdaq: OPTN) to put its financial affairs in order.  The day after we published our note, Optinose announced a $55mm financing, while also revising their debt terms with their lender.

We initially highlighted the company because of the high-stakes PDUFA drama on the backdrop of a tenuous balance sheet.  With the PDUFA in the rearview mirror and the balance sheet in better health, the drama around Optinose should be done, and the company can now focus on growing XHANCE as the only FDA-approved treatment for CRS. 

NMIBC a “Big Tent” Indication

In contrast to the indications discussed above, like mUM, HP, or CRS with limited commercial or development-stage competition, non-muscle invasive bladder cancer (NMIBC) seems like a hyper-competitive indication.  FDA’s 2018 guidance that single-arm studies were sufficient for approval for BCG-unresponsive NMIBC kick-started a race to develop new drugs for the indication, and many of those drugs are now in late-stage clinical trials. At the recent American Urological Association’s (AUA) annual conference, late-stage NMIBC data was presented by Johnson & Johnson (NYSE: JNJ), CG Oncology (Nasdaq: CGON) and ImmunityBio (Nasdaq: IBRX), among others.  Given the indication’s competitive nature, the question that naturally arises is whether the NMIBC market can support multiple drugs. This is especially relevant for Protara Therapeutics (Nasdaq: TARA), a small NMIBC company we have previously highlighted that is likely 9-12 months behind its NMIBC peers. We found this quote from a well-respected sell-side analyst in their report on CG Oncology after their AUA NMIBC data release comforting and encouraging, “The critical point to re-emphasize is that these patients generally are not rapidly progressive to metastatic disease, which means they will likely cycle through multiple lines of therapy – creating significant TAMs in 2L (post-BCG) and 3L and even 4L NMIBC….we expect blockbuster product opportunities well into the 4L setting – so plenty of room for all these emerging NMIBC players.

As we noted above, NMIBC has become a heated race. ImmunityBio has the early lead with their recent ANKTIVA approval, but several others are close behind. Fortunately, as the analyst quote above highlights, given the slow progression of NMIBC, this race could yield many winners as patients cycle through multiple therapies/modalities.  Protara may be behind its NMIBC peers (reflected in its modest $100mm market cap), but its drug TARA-002 has several differentiating features that could definitely make it one of the winners in the NMIBC race.

***Protara May 2024 Corporate Deck 

Investors likely want to see more data before officially considering Protara, a contender in the NMIBC race. Fortunately, the company should have a steady cadence of fresh NMIBC data starting 2H24 and continuing through next year for investors to digest.