Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x
o
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2023
for the transition period from __________ to __________
Commission file number: 001-16133
DELCATH SYSTEMS, INC.
Delaware
(State or other jurisdiction of incorporation or organization)
566 Queensbury Avenue, Queensbury, NY
(Address of principal executive offices)
06-1245881
(I.R.S. Employer Identification No.)
12804
(Zip Code)
212-489-2100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value per share
Trading
Symbol(s)
DCTH
Name of each exchange
on which registered
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None.
_________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
o
x
Accelerated filer
o
Smaller reporting company x
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing sale price on the Nasdaq Capital Market of $5.83 per share, as of
June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter was $81,667,153.
On March 18, 2024, the registrant had outstanding 24,562,692 shares of common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2024 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K to the
extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2023.
Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
Table of Contents
PART I
TABLE OF CONTENTS
Page
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Properties
Item 3.
Item 4.
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
[Reserved.]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
4
19
44
45
46
46
46
47
47
47
51
52
55
55
55
55
56
56
56
56
56
56
56
61
Table of Contents
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K for the period ended December 31, 2023, contains certain “forward-looking statements”
within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect to
our business, financial condition, liquidity, and results of operations. Words such as “anticipates,” “expects,” “intends,”
“plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,”
“should,” and the negative of these terms or other comparable terminology often identify forward-looking statements.
Statements in this Annual Report on Form 10-K for the period ending December 31, 2023 that are not historical facts are
hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as
amended, or the Securities Act. These forward-looking statements are not guarantees of future performance and are subject
to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-
looking statements, including the risks discussed in this Annual Report on Form 10-K for the fiscal year ended
December 31, 2023 in Item 1A under “Risk Factors” and the risks detailed from time to time in our future SEC reports.
These forward-looking statements include, but are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
our estimates regarding sufficiency of our cash resources, anticipated capital requirements, future revenue and
our need for additional financing;
the commencement of future clinical trials, if any, and the results and timing of those clinical trials;
our ability to successfully commercialize CHEMOSAT, HEPZATO, and future products, if any, generate
revenue and successfully obtain reimbursement for the products and/or the associated procedures;
our sales, marketing and distribution capabilities and strategies, including for the commercialization and
manufacturing of CHEMOSAT, HEPZATO, and future products, if any;
the rate and degree of market acceptance and clinical utility of CHEMOSAT, HEPZATO, and future
products, if any;
developments relating to our competitors and our industry;
the initiation and success of our research and development programs;
submission and timing of applications for regulatory approval and approval thereof;
our ability to successfully source components of CHEMOSAT, HEPZATO, and future products, if any, and
enter into supplier contracts;
our ability to source melphalan for use in HEPZATO;
our ability to successfully manufacture CHEMOSAT and HEPZATO;
our ability to successfully negotiate and enter into agreements with distribution, strategic and corporate
partners; and
our estimates of potential market opportunities and our ability to successfully realize these opportunities.
Many of the important factors that will determine these results are beyond our ability to control or predict. You are
cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. Except as otherwise required by law, we do not assume any obligation to publicly update or release
any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report on
Form 10-K or to reflect the occurrence of unanticipated events.
This Annual Report on Form 10-K and the information incorporated herein by reference may include trademarks, service
marks and trade names owned or licensed by us, including CHEMOFUSE, CHEMOSAT, CHEMOSATURATION,
DELCATH, HEPZATO, HEPZATO KIT, PHP and THE DELCATH PHP SYSTEM. Solely for convenience and
readability, trademarks, service marks and trade names, including logos, artwork and other visual displays, may appear in a
non-traditional trademark usage manner, including without the ® or TM symbols, but such references are not intended to
indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the
applicable licensor to these trademarks, service marks and trade names. All trademarks, service marks and trade names
included or incorporated by reference into this Annual Report on Form 10-K are the property of the Company or the
Company’s licensor, as applicable.
1
Table of Contents
SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Our independent registered public accounting firm has expressed substantial doubt on our ability to continue
as a going concern.
We will need additional capital to maintain our operations. If we cannot raise additional capital, our potential
to generate future revenues will be significantly limited since we will not be able to further commercialize
CHEMOSAT and HEPZATO, or conduct future product development, including clinical trials, if any.
If we are not in compliance with the terms and conditions of our existing debt agreement, our business and
financial condition may be adversely affected.
We have incurred significant losses since inception, expect to incur significant and increasing losses for at
least this year, and continuing losses may exhaust our capital resources. We may not generate significant
revenue for the foreseeable future.
We have only recently obtained regulatory approval for HEPZATO in the United States and commenced the
commercial launch of HEPZATO. We have limited experience as a commercial company and generating
revenue from product sales. If the commercial launch of HEPZATO is unsuccessful or any future approved
products are unsuccessful, we may never be profitable.
Our failure to obtain, or delays in obtaining, regulatory approvals may have a material adverse effect on our
business, financial condition and results of operations.
We must maintain or enter into acceptable arrangements for the supply of melphalan and other critical
components of HEPZATO and CHEMOSAT and we may not be able to ensure adequate supply impacting
our ability to successfully commercialize HEPZATO in the United States and CHEMOSAT in the EU or
complete any future clinical trials.
If we cannot successfully manufacture CHEMOSAT and HEPZATO, our ability to develop and
commercialize the system would be impaired.
We do not have written contracts with all of our suppliers for the manufacture of components for
CHEMOSAT and HEPZATO.
We may be unsuccessful in commercializing CHEMOSAT and HEPZATO because of inadequate
infrastructure or an ineffective commercialization strategy.
The development and approval process in the United States and abroad could take many years, require
substantial resources and may never lead to the approval of our product candidates by the FDA for use in the
United States or by foreign regulators in their respective jurisdictions.
Our ability to market HEPZATO is limited to those uses that are approved.
If future clinical trials are unsuccessful, significantly delayed or not completed, we may not be able to market
HEPZATO for other indications.
We have obtained the right to affix the CE Mark for the CHEMOSAT Hepatic Delivery System as a medical
device for the delivery of melphalan. Since we may only promote the device within this specific indication, if
physicians are unwilling to obtain melphalan separately for use with CHEMOSAT, our ability to
commercialize CHEMOSAT in the EU/UK will be significantly limited.
We relied and may continue to rely on third parties to conduct certain elements of our clinical trials for
CHEMOSAT and HEPZATO, should we seek to obtain regulatory approval for use of these products to treat
additional indications for which we do not currently have regulatory approval, or for any future product
candidates, if any, and if these third parties do not perform their obligations to us, we may not be able to
obtain the necessary regulatory approvals for our products or product candidates, as applicable.
Purchasers of CHEMOSAT in Europe may not receive third-party reimbursement or such reimbursement may
be inadequate. Without adequate reimbursement, commercialization of CHEMOSAT in Europe may not be
successful.
CHEMOSAT and HEPZATO may not achieve sufficient acceptance by the medical community to sustain our
business.
2
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims
laws and health information privacy and security laws. If we are unable to comply, or have not fully
complied, with such laws, we could face substantial penalties.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations,
industry standards, policies and other obligations related to information privacy and security. Our actual or
perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation
(including class claims) and arbitration demands; fines and penalties; disruptions of our business operations;
reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business
consequences.
Changes in healthcare law and implementing regulations, including government restrictions on pricing and
reimbursement, as well as healthcare policy and other healthcare payor cost-containment initiatives, may have
a material adverse effect on us.
Consolidation in the healthcare industry could lead to demands for price concessions.
Intellectual property rights may not provide adequate protection, which may permit third parties to compete
against us more effectively.
We have not and may not be able to adequately protect our intellectual property rights throughout the world.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent
protection could be reduced or eliminated for non-compliance with these requirements.
The market price of our common stock has been volatile, and may continue to fluctuate significantly, which
could result in substantial losses for investors.
Because of volatility in our trading price and trading volume, we may incur significant costs from class action
securities litigation.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such
sales may occur, could adversely affect the market price of our common stock and could impair our ability to
raise additional equity capital.
The loss of key personnel could adversely affect our business.
3
Table of Contents
Item 1.
Business.
Unless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company”, “Delcath”,
“Delcath Systems”, “we”, “our”, and “us” refers to Delcath Systems, Inc., a Delaware corporation, incorporated in August
1988, and all entities included in our consolidated financial statements. Our corporate offices are located at 566
Queensbury Avenue, Queensbury, New York 12804. Our telephone number is (212) 489-2100 and our internet address is
www.delcath.com.
Company Overview
We are an interventional oncology company focused on the treatment of primary and cancers metastatic to the liver. Our
lead product, the HEPZATOTM KIT (“HEPZATO” melphalan for Injection/Hepatic Delivery System), a drug/device
combination product, was approved by the US Food and Drug Administration (the “FDA”) on August 14, 2023, indicated
as a liver-directed treatment for adult patients with uveal melanoma with unresectable hepatic metastases affecting less than
50% of the liver and no extrahepatic disease, or extrahepatic disease limited to the bone, lymph nodes, subcutaneous
tissues, or lung that is amenable to resection, or radiation. In Europe, the hepatic delivery system is a stand-alone medical
device having the same device components as HEPZATO KIT, 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 in the liver. The first commercial use of HEPZATO for the
treatment of metastatic hepatic dominant uveal melanoma (“mUM”) took place in January 2024.
In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by 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 us 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).
We have sufficient raw material and component constituent parts of HEPZATO KIT to meet the first year of our
anticipated demand and we intend to manage supply chain risk through stockpiled inventory and contracting with multiple
suppliers for critical components.
On February 28, 2022, CHEMOSAT received Medical Device Regulation (MDR) certification under the European
Medical Devices Regulation (EU) 2017/745, which may be considered by jurisdictions when evaluating reimbursement. As
of March 1, 2022, we have assumed direct responsibility for sales, marketing and distribution of CHEMOSAT in Europe.
Clinical Development Program
Our clinical development program for HEPZATO was comprised of the FOCUS Clinical Trial for Patients with metastatic
hepatic dominant Uveal Melanoma (the “FOCUS Trial”), a global registration clinical trial that investigated objective
response rate in patients with mUM. The current focus of our clinical development program is to generate clinical data for
CHEMOSAT and HEPZATO in patients with mUM, either as monotherapy or in combination with immunotherapy. We
expect that this data will support increased clinical adoption of and reimbursement for CHEMOSAT in Europe, and to
support reimbursement in various jurisdictions, including the United States.
In addition to HEPZATO’s use to treat mUM, we believe that HEPZATO has the potential to treat other cancers in the
liver, such as metastatic colorectal cancer, metastatic neuroendocrine tumors, metastatic breast cancer and intrahepatic
cholangiocarcinoma, and plan to begin one or more studies of HEPZATO KIT to treat such conditions in 2024. We believe
that those and similar disease states are areas of unmet medical needs that represent significant market opportunities.
Cancers in the Liver—A Significant Unmet Medical Need
According to the American Cancer Society’s, or ACS, Cancer Facts & Figures 2023 report, cancer is the second leading
cause of death in the United States, with an estimated 609,820 deaths and over 1.9 million new cases expected to be
diagnosed in 2023. Cancer is one of the leading causes of death worldwide, accounting for approximately 10 million deaths
and 19.3 million new cases in 2020 according to GLOBOCAN, the database of the International Association of Cancer
Registries. The financial burden of cancer is enormous for patients, their families and society. The Agency for Healthcare
Quality and Research estimates that the direct medical costs (total of all healthcare expenditures) for cancer in the United
States in 2018 was $112.5 billion. The liver is often the life-limiting organ for cancer patients and cancer that spreads to the
liver is one of the leading causes of cancer death. Cancer that begins in one area of the body often metastasizes to the liver.
4
Table of Contents
Patient prognosis is generally poor once cancer has spread to the liver. Consequently, cancers in the liver remain a major
unmet medical need globally.
Liver Cancers—Incidence and Mortality
Cancers in the liver consist of primary liver cancer and cancers metastatic to the liver. Primary liver cancers (hepatocellular
carcinoma, or HCC, and Intrahepatic Cholangiocarcinoma or ICC) originates in the liver or biliary tract and is particularly
prevalent in populations where the primary risk factors for the disease, such as hepatitis-B, hepatitis-C, high levels of
alcohol consumption, aflatoxin, cigarette smoking and exposure to industrial pollutants, are present. Cancers metastatic to
the liver, also called liver metastasis, or secondary liver cancer, result from the spread or “metastases” of a primary cancer
into the liver. These metastases often continue to grow even after the primary cancer in another part of the body has been
removed or successfully treated. Given the vital biological functions of the liver, including processing nutrients from food
and filtering toxins from the blood, it is not uncommon for metastases to settle in the liver. In many cases patients die not
as a result of their primary cancer, but from the tumors that metastasize to their liver. In the United States, metastatic liver
disease is more prevalent than primary liver cancer. The estimated total potentially addressable market for liver cancer
(primary and metastatic) is approximately 200,000 in the United States per year. It is estimated the total addressable market
in the United States for mUM, ICC, HCC breast cancer, neuroendocrine, pancreatic, and colorectal, is well over $1.0
billion.
Treatment of liver cancer is difficult. Current liver cancer treatment options include surgery, systemic treatment with
anticancer drugs, and liver directed treatment options. Surgery options include surgical resection, liver transplant, and
isolated hepatic perfusion (“IHP”). While surgical resection and liver transplant, when feasible, offer best possible
outcomes for liver cancer patients, the percentage of patients that qualify for these procedures is low, generally 10% or less
of the total liver cancer population. Clinical efficacy observed with IHP provided the rationale for using percutaneous
hepatic profusion (“PHP”) in mUM, as well as other tumor types, including colorectal cancer. Systemic options include
systemic chemotherapy and immunotherapy agents. Minimally invasive options include external beam radiation therapy
and liver directed procedures.
Procedures in the liver, and liver directed treatments (interventional oncology) are performed by an interventional
radiologist. These procedures include trans-arterial chemoembolization (TACE, DEBTACE) and Radioembolization
(SIRT, TARE, or Y90). TACE is used in approximately 50,000 to 60,000 treatments per year and Y90 is used in 10,000 to
15,000 treatments per year. We believe that CHEMOSAT and HEPZATO represent an important advancement in the
potential liver-directed treatment of primary liver cancer and other cancers metastatic to the liver. Two key factors
differentiate PHP with HEPZATO KIT and CHEMOSAT from other liver directed therapies; the ability to treat the entire
liver, including radiologically invisible micrometastases, and the repeatability of the procedure. We believe PHP with
HEPZATO KIT and CHEMOSAT is uniquely positioned either as a standalone therapy or as a complement to other
therapies. In clinical studies with HEPZATO KIT and CHEMOSAT, both treatment-naive and pretreated patients have
benefited from the treatment, thus expanding the use to multiple lines of treatment.
Uveal Melanoma
Uveal melanoma frequently metastasizes to the liver. Based on third party research that we commissioned approximately
5,000-6,200 cases of uveal melanoma are diagnosed in the United States and Europe annually, and approximately 50% of
these patients will develop metastatic disease. Of metastatic cases of uveal melanoma, approximately 90% of patients
develop liver involvement. According to Lane et al., JAMA Ophthalmol. 2018 Sep 1;136(9):981-98, once uveal melanoma
has spread to the liver, median overall survival for these patients is up to 12 months. There is no one standard of care for
patients with uveal melanoma liver metastases. Based on our research, an estimated 800 patients with uveal melanoma liver
metastases in the United States, and 1,200 patients in Europe may be eligible for treatment with HEPZATO KIT or
CHEMOSAT annually. Currently 55% of the patients are not eligible for KIMMTRAK, the only approved uveal
melanoma systemic therapy, and most patients are treated with multiple lines of therapy. We estimate the annual
addressable market for this indication in the United States and Europe is approximately $600 million per year.
Colorectal Cancer
Colorectal cancer or CRC is one of the most prevalent cancers in the United States and Europe and has a high metastatic
rate to the liver. GLOBOCAN 2020 estimates 288,230 colorectal cancer diagnosis per year in the United States and
Europe. According to the American Cancer Society, in the United States approximately 151,030 diagnoses leading to
52,580 deaths.
Recent advances in the treatment of primary colorectal cancer have shown encouraging increases in 5-year survival;
however, the presence of metastasis is an indicator for increased mortality probability. We estimate approximately 98,000
5
Table of Contents
CRC patients in the United States, the United Kingdom and the European Union annually could be candidates for treatment
with HEPZATO (if it received FDA approval for such treatment) and CHEMOSAT.
Breast Cancer
Breast cancer or BC is the most diagnosed cancer in women in the United States and worldwide. The American Cancer
Society estimates that 287,850 women will be diagnosed with BC in the United States annually. BC is the second leading
cancer-related cause of death for women (behind lung cancer) in the United States. GLOBOCAN 2020 estimates that there
are, annually, 726,259 women diagnosed with breast cancer in the United States, the European Union and the United
Kingdom. Recent advances in primary breast cancer treatments have given patients a high 5-year survival rate. The
prognosis for patients with breast cancer liver metastasis, however, remains poor.
Approximately 18% of all women diagnosed with breast cancer will also have distant metastatic disease, in which 5% of
these patients will have liver only metastasis. Eventually 50% of all metastatic patients will see their disease progress to the
liver in addition to their initial diagnosed metastatic site and in 20% of these patient’s liver progression is the cause of
mortality. Deipolyi AR, et al.J Vasc Inter Radiol. 2018;29(9):1226-1235. Treatment options for patients with multiple sites
of metastatic disease vary. We estimate that approximately 6,000 breast cancer patients with hepatic involvement in the
United States and the European Union could be candidates for treatment with HEPZATO KIT and CHEMOSAT. An
additional 10,000 patients could benefit from treatment with HEPZATO (if it received FDA approval for such treatment)
and CHEMOSAT in the palliative setting based on local treatment guidelines.
Neuroendocrine Cancer
Neuroendocrine Tumors or NETs or neuroendocrine neoplasia are a rare group of cancers that originate from
neuroendocrine cells. NETs can originate anywhere in the body, the most common sites include the digestive tract, rectum,
lungs, pancreas, or appendix. The American Society of Clinical Oncology estimates that there are 12,000 new diagnosis of
neuroendocrine tumors each year in the United States, and a total of 21,500 in the United States and Europe.
According to Pape et al. 2008. Endocrine-Related Cancer. 15(4), 1083-1097 NETs have a metastasis rate of between
60-80% and the majority of these accrue in the liver (85%). We estimate that approximately 12,000 NETs patients in the
United States, the United Kingdom and the European Union each year could be candidates for treatment with HEPZATO
(if it received FDA approval for such treatment) and CHEMOSAT.
Pancreatic Cancer
Pancreatic adenocarcinoma has a poor prognosis. The American Cancer Society estimates that pancreatic cancer will affect
62,210 patients annually, with 49,830 annual deaths in the United States. Along with GLOBOCAN estimates for Western
Europe, pancreatic cancer affects a total of 132,442 patients annually with 105,638 annual deaths.
Upon diagnosis, nearly 75% of patients will have liver metastasis and 58% of those patients will have liver only metastasis.
Metastatic pancreatic cancer leaves the patient with limited treatment options. Oweira, et al. World J Gastroenterol.
2017;23(10):1872-1880. We estimate there are approximately 57,600 new pancreatic cancer patients each year in the
United States and European Union with hepatic only involvement. Given the rapid progression of the disease and rapid
decline in the overall patient status it is unknown at this time the estimated number of candidates for treatment with
HEPZATO KIT (if it received FDA approval for such treatment) and CHEMOSAT.
Intrahepatic Cholangiocarcinoma
Primary liver cancers include HCC and ICC. According to GLOBOCAN 2020, an estimated 68,500 new cases of primary
liver cancer are diagnosed in the United States and Europe annually. According to the ACS, approximately 41,260 new
cases of these cancers are expected to be diagnosed in the United States, leading to approximately 30,520 deaths.
ICC is the second most common form of primary liver cancer and according to Wang et al., 2013 J Clin Oncol
31:1188-1195 accounts for 5-30% of primary liver cancers diagnosed in the United States and Europe annually. We believe
that 80% of ICC patients are not candidates for surgical resection, and that approximately 20-30% of these may be
candidates for certain local treatments. According to third party research that we commissioned, we estimate that
approximately 2,000 ICC patients in the United States, the United Kingdom and the EU annually could be candidates for
treatment with HEPZATO KIT (if it received FDA approval for such treatment) and CHEMOSAT.
6
Table of Contents
About HEPZATO KIT and CHEMOSAT
HEPZATO KIT is a drug/device combination product designed to administer high-dose chemotherapy directly into the
liver while limiting systemic exposure and associated side effects. This “whole organ” therapy is performed by isolating the
circulatory system of the liver, infusing the liver with a chemotherapeutic agent, and then filtering the blood prior to
returning it to the patient’s circulatory system. During the PHP procedure, two catheters are placed percutaneously through
standard interventional radiology techniques. The catheters temporarily isolate the liver from the body’s circulatory system,
allow administration of the chemotherapeutic agent melphalan hydrochloride directly to the liver, and collect blood exiting
the liver for filtration by our proprietary filters. The filters adsorb melphalan from the blood before the filtered blood is
returned to the patient’s circulatory system thereby reducing systemic exposure to the drug and related side effects.
PHP therapy is performed in an interventional radiology suite in approximately two to three hours. Patients remain in an
intensive care or step-down unit overnight for observation following the procedure. Treatment with CHEMOSAT and
HEPZATO KIT is repeatable, and a new disposable system is used for each treatment. Patients treated in clinical trial
settings were permitted up to six treatments. In commercial treatment settings, patients have received up to eight
treatments. HEPZATO KIT received regulatory approval by the FDA in August 2023 for adult uveal melanoma patients
with unresectable liver metastases only, and patients with unresectable liver metastases and extrahepatic disease limited to
the bone, lymph nodes, subcutaneous tissue or lung that is amenable to resection or radiation. HEPZATO KIT’s indication
is not limited to specific HLA phenotypes or to a specific line of treatment. The HEPZATO KIT consists of the medical
device constituent part and the drug melphalan hydrochloride for injection. Whereas, CHEMOSAT is the medical device-
only configuration that is sold separately and used in conjunction with melphalan hydrochloride commercially available
from a third party secured by practitioners.
The FOCUS Trial
The FOCUS Trial evaluated the safety and efficacy of treatment with the HEPZATO KIT for patients with mUM. The
primary endpoint of overall response rate (ORR) was assessed by an Independent Review Committee per RECIST v1.1.
The primary endpoint of the trial, ORR was met with a wide margin and the safety profile was acceptable. Results from the
FOCUS Trial were reviewed by the FDA and were the basis for approval of HEPZATO KIT on August 14, 2023. Detailed
results from the FOCUS Trial are submitted for publication and will be presented at upcoming scientific meetings.
CHOPIN Trial
The Leiden University Medical Center completed the Phase 1b portion of a Phase 1b/2 trial (CHOPIN trial) on the use of
CHEMOSAT in combination with the immune checkpoint inhibitors (ICI) ipilimumab and nivolumab to treat patients with
metastatic uveal melanoma with liver metastases.
The goal of the CHOPIN trial is to evaluate the safety and efficacy of systemic ICI therapy with ipilimumab plus
nivolumab (IPI+NIVO) when combined with Delcath’s liver-targeted percutaneous hepatic perfusion treatment in
metastatic uveal melanoma patients. Published results from the Phase 1b portion of the trial include updated safety and
efficacy results which were presented in June 2022 at the American Society of Clinical Oncology Annual Meeting. The
Phase 1b portion of the trial enrolled seven patients each of which were treated with two cycles of PHP (melphalan 3mg/
kg, max 220 mg per cycle) combined with four cycles of IPI+NIVO, escalating the dosing from 1mg/kg each IPI+NIVO
(cohort 1) to IPI 1mg/kg + NIVO 3mg/kg (cohort 2). In the seven patients, best tumor responses included 1 complete
response, 5 partial responses and 1 stable disease accounting for an Objective Response Rate of 85.7% and a Disease
Control Rate of 100%. At the cut-off date of November 15, 2022, the median follow-up was 29.1 months (range 8.9 –
30.2), the median Progression Free Survival (PFS) was 29.1 months (95% CI 11.9 – 46.3) and the median Duration Of
Response (DOR) was 27.1 months (range 7.4 – 28.5). At the time of the cut-off date all patients were still alive and three of
four patients who subsequently experienced progressive disease continued with treatment in the form of repeated PHP
cycles.
The ongoing randomized phase 2 part of the CHOPIN trial comparing PHP alone with PHP plus IPI/NIVO, which will
include another 76 patients (38 per arm), is expected to complete patient enrollment by end of 2024. Presentation of Phase
2 results of the CHOPIN trial is expected in 2025.
7
Table of Contents
Market Access and Commercial Clinical Adoption
United States
The first commercial use of HEPZATO KIT for the treatment of mUM occurred in January 2024. We are working with
numerous leading cancer centers across the United States which have indicated interest in HEPZATO to treat patients and
provide access to the treatment for patients nationwide. HEPZATO is available for cancer centers to treat patients upon
completion of required training as documented in our Risk Evaluation and Mitigation Strategy (“REMS”). REMS focuses
on preventing, monitoring, and/or managing specific risks associated with a product.
Our field team is comprised of liver directed therapy managers, clinical specialist representatives, oncology area managers
and medical science liaisons who work directly with the cancer centers to obtain the required training. In conjunction with
the first commercial treatment, we also launched websites relating to the HEPZATO KIT, including
www.HEPZATOKIT.com, www.HEPZATOKITREMS.com, and www.HEPZATOKITACCESS.com, to support the
commercial launch. On www.HEPZATOKIT.com, we have a healthcare setting locator which identifies certified
healthcare facilities that have expressed an interest in performing the HEPZATO KIT procedure and given us permission to
list its facility. In addition, www.HEPZATOKITREMS.com contains a healthcare setting locator that lists facilities that
have completed and filed all documentation required under REMS.
Upon activation of the cancer center, the center is able to commercially treat patients with HEPZATO. We have identified
over 30 cancer centers with the potential to treat mUM patients, however, there is no guarantee that we ever offer
HEPZATO to any of these sites.
U.S. Reimbursement
Usage of HEPZATO by the cancer centers will depend on the availability of coverage and reimbursement from third-party
payors, such as government health administration authorities, private health insurers and managed care organizations. For
products administered under the supervision of a physician, particularly in a hospital setting, the ability of a treating facility
to obtain adequate reimbursement can be challenging and dependent on the type of health insurance a patient is covered
and the treating facility’s agreement (or lack of agreement) with such insurance. Additionally, separate reimbursement for
the product itself or the treatment or procedure in which the product is used may not be available, which may impact
physician utilization. Furthermore, the classification, as either outpatient or inpatient, of the treatment procedure associated
with the administering of a product will impact a treating facility’s reimbursement. Many U.S. hospitals receive a fixed
reimbursement amount per procedure for certain surgeries and other treatment therapies they perform, or a predetermined
rate for all hospital inpatient care provided as payment in full. Because this amount may not be based on the actual
expenses the hospital incurs, hospitals may choose to use therapies which are less expensive when compared to
HEPZATO.
The Company expects that payors will follow decisions made by the Centers for Medicare and Medicaid Services
(“CMS”), as the administrator for the Medicare program, regarding HEPATO reimbursement. A facility at which
HEPZATO is used will seek reimbursement for the cost of the HEPZATO and the attendant procedure.
Even if a cancer center obtains coverage for a given product by a third-party payor, the third-party payor’s reimbursement
rates may not be adequate to make the product affordable to patients or profitable, or the third-party payors may require co-
payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their
conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs
associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided, and
reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and
adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic
standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already
available or subsequently become available. Additionally, reimbursement by a third-party payor may depend upon a
number of factors including the third-party payor’s determination that use of a product is:
•
•
•
•
•
a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
8
Table of Contents
For many third party payors, the Company expects that each patient candidate for treatment with HEPZATO will likely
have to go through a medical pre-authorization process, which may require the Company to provide scientific, clinical and
cost effectiveness data for the use of our products to the payor. Further, no uniform policy requirement for coverage and
reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and
reimbursement for drug products can differ significantly from payor to payor. The coverage determination process may
require providing scientific and clinical support for the use of our products to each payor separately. As such, in order to
assess available benefits and coordinate the treatment pathway before a patient is treated with HEPZATO, the Company
has engaged a third-party benefits coordinator to guide the patient and a treating healthcare provider through the pre-
authorization and reimbursement process.
On January 30, 2024, CMS announced an established permanent and product-specific J-Code for HEPTAZO KIT. The J-
Code (J9248) will become effective on April 1, 2024. We expect that, beginning on April 1, 2024, treating facilities will
utilize J9248 when billing for the outpatient use of HEPZATO.
Although private third-party payors often use CMS as a model for their coverage and reimbursement decisions, they also
have their own methods and approval process apart from CMS’s determinations. Therefore, even if the cancer center
obtains coverage for a given product by a third-party payor, the third-party payor’s reimbursement rates may not be
adequate to make the product affordable to patients or profitable to us, or the third-party payors may require co-payments
that patients find unacceptably high.
Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling
healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a
condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive
classes and are challenging the prices charged for medical products.
Europe
Since the launch of CHEMOSAT in Europe, there have been over 1,475 commercial treatments and CHEMOSAT is
currently available in over 23 European cancer centers in 7 European countries. Physicians in Europe have used
CHEMOSAT to treat patients with a variety of cancers in the liver, primarily ocular melanoma liver metastases, and other
tumor types, including cutaneous melanoma, hepatocellular carcinoma, cholangiocarcinoma, and liver metastases from
colorectal, breast, and pancreatic cancer, as well as neuroendocrine tumors.
For the period of December 2018 through February 2022, medac GmbH was the Company’s exclusive distributor for
CHEMOSAT in Europe and had the exclusive right to market and sell CHEMOSAT in all member states of the European
Union, Norway, Liechtenstein, Switzerland, and the United Kingdom. On March 1, 2022, we assumed direct responsibility
for sales, marketing and distribution of CHEMOSAT in Europe. UK Interventional Procedures Advisory Committee
(IPAC) upgraded the recommendation from “Research Only” to “Special”.
European Reimbursement
A critical driver of utilization growth for CHEMOSAT in Europe is the expansion of reimbursement mechanisms for the
procedure in our priority markets. In most European countries, the government provides healthcare and controls
reimbursement levels. Since the European Union has no jurisdiction over patient reimbursement or pricing matters in its
member states, the methodologies for determining reimbursement rates and the actual rates may vary by country.
Reimbursement is administered on a regional and national basis. A medical device is typically reimbursed under a
Diagnosis Related Groups, or DRG, as part of a procedure. Prior to obtaining permanent DRG reimbursement codes, in
certain jurisdictions, we are actively seeking interim reimbursement from existing mechanisms that include specific interim
reimbursement schemes, new technology payment programs as well as existing DRG codes. Currently we have an interim
level of reimbursement in Germany.
On February 28, 2022, CHEMOSAT received Medical Device Regulation certification under the European Medical
Devices Regulation (EU) 2017/745, which may be considered by jurisdictions when evaluating reimbursement.
The release of the clinical study report from the FOCUS Trial will create the opportunity to apply for National Level
reimbursement in each European country in regard to metastatic uveal melanoma (mUM). These applications must be
made by us on a country-by-country basis, with priority placed on markets where CHEMOSAT is currently used.
Currently, CHEMOSAT is approved for reimbursement in Germany. The results from the FOCUS Trial may also support
existing reimbursement mechanisms, allowing more hospitals to secure funding to utilize CHEMOSAT. This increased
level of evidence will ultimately support securing full funding for the treatment under DRG codes and other mechanisms.
9
Table of Contents
Government Regulation
Our products are subject to extensive and rigorous government regulation by foreign regulatory agencies and the FDA.
Foreign regulatory agencies, the FDA and comparable regulatory agencies in state and local jurisdictions impose extensive
requirements upon the clinical development, pre-market clearance and approval, manufacturing, labeling, marketing,
advertising and promotion, pricing, storage, and distribution of pharmaceutical and medical device products. Failure to
comply with applicable requirements may result in warning letters, fines, civil or criminal penalties, suspensions, delays in
clinical development, recall or seizure of products, partial or total suspension of production, or withdrawal of a product
from the market.
U.S. Regulatory Environment
In the United States, the FDA regulates drug and device products under the Food, Drug and Cosmetic Act (FDCA), and its
implementing regulations. HEPZATO is subject to regulation as a combination product, which means it is composed of
both a drug product and a device product. In the case of HEPZATO, the primary mode of action is attributable to the drug
component of the product, which means that the Center for Drug Evaluation and Research had primary jurisdiction over its
pre-market development and review.
The process required by the FDA before drug product candidates may be marketed in the United States generally involves
the following:
•
•
•
•
•
•
•
submission to the FDA of an Investigational New Drug (IND) application, which must become effective before
human clinical trials may begin and must be updated periodically, but at least annually;
completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance
with the FDA’s good laboratory practice, or GLP, regulations;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the
product candidate for each proposed indication;
submission to the FDA of an NDA after completion of all pivotal clinical trials;
a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the product is
produced and tested to assess compliance with current good manufacturing practice, or cGMP, regulations; and
FDA review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.
The development and approval process requires substantial time, effort and financial resources, and we cannot be certain
that the FDA will approve any of our product candidates on a timely basis, if at all.
The results of preclinical tests (which include laboratory evaluation as well as GLP studies to evaluate toxicity in animals)
for a particular product candidate, together with related manufacturing information and analytical data, are submitted as
part of an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA,
within the 30-day time period, raises concerns or questions about the conduct of the proposed clinical trial, including
concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and
the FDA must resolve any outstanding concerns before the clinical trial can begin. IND submissions may not result in FDA
authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive
clinical trial conducted during product development. Further, an independent institutional review board, or IRB, for each
medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it
commences at that center, and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend a
clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Clinical testing also must satisfy extensive good clinical practice regulations and regulations for
informed consent and privacy of individually identifiable information. Similar requirements to the U.S.’ IND are required
in the European Union and other jurisdictions in which we may conduct clinical trials.
10
Table of Contents
Clinical Trials
For purposes of NDA submission and approval, clinical trials are typically conducted in the following sequential phases,
which may overlap:
•
•
•
•
Phase 1 Clinical Trials. Studies are initially conducted in a limited population to test the product candidate for
safety, dose tolerance, absorption, distribution, metabolism, and excretion, typically in healthy humans, but in
some cases in patients.
Phase 2 Clinical Trials. Studies are generally conducted in a limited patient population to identify possible adverse
effects and safety risks, explore the initial efficacy of the product for specific targeted indications and to determine
dose range or pharmacodynamics. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain
information prior to beginning larger and more expensive Phase 3 clinical trials.
Phase 3 Clinical Trials. These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate
that a dose range of the product is effective and has an acceptable safety profile, Phase 3 clinical trials are
undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy
and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed
clinical trial centers.
Phase 4 Clinical Trials. The FDA may approve an NDA for a product candidate but require that the sponsor
conduct additional clinical trials to further assess the drug after NDA approval under a post-approval commitment.
In addition, a sponsor may decide to conduct additional clinical trials after the FDA has approved an NDA. Post-
approval trials are typically referred to as Phase 4 clinical trials.
New Drug Applications
The results of drug development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA. An
NDA must contain extensive chemistry, manufacturing, and control information and be accompanied by a significant user
fee, which may be waived in certain circumstances. Once the submission has been accepted for filing, the FDA should
review NDAs within ten months of submission or, if the NDA relates to an unmet medical need in a serious or life-
threatening indication, six months from submission. The review process is often significantly extended by FDA requests
for additional information or clarification. The FDA may refer the NDA to an advisory committee for review, evaluation,
and recommendation as to whether the NDA should be approved. For new oncology products, the FDA will often solicit an
opinion from an Oncology Drug Advisory Committee, or ODAC, which is a panel of expert authorities knowledgeable in
the fields of general oncology, pediatric oncology, hematologic oncology, immunologic oncology, biostatistics, and other
related professions. The ODAC panel reviews and evaluates data concerning the safety and effectiveness of marketed and
investigational human drug products for use in the treatment of cancer and makes appropriate recommendations to the
Commissioner of the FDA. However, the FDA is not bound by the recommendation of an advisory committee and may
deny approval of an NDA by issuing a Complete Response Letter, or CRL, if the applicable regulatory criteria are not
satisfied. A CRL may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other
significant, expensive, and time-consuming requirements related to clinical trials, preclinical studies, or manufacturing.
Approval may be contingent on the implementation and adherence to a Risk Evaluation and Mitigation Strategy, or REMS,
that focuses on preventing, monitoring, and/or managing specific risks associated with a product. Once issued, the FDA
may withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after the
product reaches the market. In addition, the FDA may require testing, including Phase 4 clinical trials, and surveillance
programs to monitor the safety and efficacy of approved products which have been commercialized. The FDA has the
power to prevent or limit further marketing of a product based on the results of these post-marketing programs or other
information.
There are three primary regulatory pathways for a NDA under Section 505 of the FDCA: Section 505 (b)(1), Section 505
(b)(2) and Section 505(j). A Section 505 (b)(1) NDA is used for approval of a new drug (for clinical use) whose active
ingredients have not been previously approved. A Section 505 (b)(2) application is used for a new drug that relies on data
not developed by the applicant. Section 505(b)(2) of the FDCA was enacted as part of the Drug Price Competition and
Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act. This statutory provision permits the approval
of an NDA where at least some of the information required for approval comes from studies not conducted by or for the
applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Act permits the applicant to
11
Table of Contents
rely, in part, upon the FDA’s findings of safety and effectiveness for previously approved products. A Section 505(j) NDA,
also known as an abbreviated NDA, is used for a generic version of a drug that has already been approved.
Orphan Drug Exclusivity
Some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan
drugs. Pursuant to the U.S. Orphan Drug Act, the FDA grants orphan drug designation to drugs intended to treat a rare
disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United
States. The orphan designation is granted for a combination of a drug entity and an indication and, therefore, it can be
granted for an existing drug with a new (orphan) indication. Applications are made to the FDA’s Office of Orphan
Products Development and a decision or request for more information is rendered in 60 days. NDAs for designated orphan
drugs are exempt from user fees, obtain additional clinical protocol assistance, are eligible for tax credits for up to 50% of
research and development costs, and are granted a seven-year period of exclusivity upon approval. The FDA cannot
approve the same drug for the same condition during this period of exclusivity, except in certain circumstances where a
new product demonstrates superiority to the original treatment. Exclusivity begins on the date that the marketing
application is approved by the FDA for the designated orphan drug, and an orphan designation does not limit the use of that
drug in other applications outside the approved designation in either a commercial or investigational setting.
Other Regulatory Requirements
Products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA,
including recordkeeping, annual product quality review and reporting requirements. Adverse event experience with the
product must be reported to the FDA in a timely fashion and pharmacovigilance programs to proactively look for these
adverse events are mandated by the FDA. Drug manufacturers and their subcontractors must register their establishments
with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state
agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and
documentation requirements upon drug manufacturers. Following such inspections, the FDA may issue notices on Form
483 and Untitled Letters or Warning Letters that could require the drug manufacturer to modify certain activities. A Form
483 Notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA investigators believe may have
violated cGMP or other FDA regulations or guidelines. In addition to Form 483 Notices and Untitled Letters or Warning
Letters, failure to comply with the statutory and regulatory requirements can subject a drug manufacturer to possible legal
or regulatory action, such as suspension of manufacturing, seizure of product, injunctive action or possible civil penalties.
If Delcath or its present or future third-party manufacturers or suppliers are not able to comply with these requirements, the
FDA may require the recall of our product from distribution or may withdraw approval for that product.
The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for
direct-to-consumer advertising, dissemination of off-label information, industry-sponsored scientific and educational
activities. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved
label. Further, any product modifications may require a submission to the FDA for its approval of a new or supplemental
NDA, which may require the development of additional data or the conduct of additional preclinical studies and clinical
trials. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, and
potential civil and criminal penalties.
Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ
from those that have been tested by the drug manufacturer and approved by the FDA. Such off-label uses are common
across medical specialties, in particular in oncology. Physicians may believe that such off-label uses are the best treatment
for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of
treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label
use.
U.S. Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare
laws apply to certain business practices in the biopharmaceutical industry. These laws include anti-kickback statutes, false
claims statutes, data privacy and security laws, as well as transparency laws regarding payments or other items of value
provided to healthcare providers.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or
receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or
order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare
programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example, gifts,
12
Table of Contents
discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership
interests and providing anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply
to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers
on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common
activities from prosecution, the exemptions and safe harbors are drawn narrowly, and our practices may not in all cases
meet all of the criteria for statutory exemptions or safe harbor protection. Practices that involve remuneration that may be
alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not
qualify for an exemption or safe harbor.
The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for
payment to the federal government. Recently, several pharmaceutical and other healthcare companies have been prosecuted
under these laws for allegedly providing free product to customers with the expectation that the customers would bill
federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because
of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses. Additionally, the statute
imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal
health program that the person knows or should know is for an item or service that was not provided as claimed or is false
or fraudulent.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal
statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including
private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services.
The federal Physician Payments Sunshine Act its implementing regulations, require certain manufacturers of drugs,
devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other
transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors),
other healthcare professionals (such as physicians assistants and nurse practitioners), and teaching hospitals, as well as
certain ownership and investment interests held by physicians and their immediate family members.
In addition to the aforementioned federal fraud and abuse laws, the majority of states also have statutes or regulations
similar to these laws, some of which are broader in scope and apply to items and services reimbursed under Medicaid and
other state programs, or, in several states, apply regardless of the payor. Further, some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related
to payments or other transfers of value provided to physicians and other health care providers and entities, marketing
expenditures, and drug pricing. Certain state and local laws also require the registration of pharmaceutical sales
representatives.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its
implementing regulations, imposes certain requirements on covered entities, including certain healthcare providers, health
plans, and healthcare clearinghouses, and their respective business associates that create, receive, maintain or transmit
individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors
relating to the privacy, security and transmission of individually identifiable health information. Among other things,
HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates”. HITECH also
increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly
other persons, and gave states the authority to file civil actions for damages or injunctions in federal courts to enforce the
federal HIPAA laws and to seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state
laws govern the privacy and security of health information in certain circumstances, many of which differ from each other
in significant ways and may not have the same effect, thus complicating compliance efforts.
These federal and state laws may impact, among other things, our proposed sales, marketing and education programs. If
our operations are found to be in violation of any of the federal and state laws described above or any other governmental
regulations that apply to us, we may be subject to significant penalties, including administrative, criminal and civil
monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare programs, and
the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate its business and
our results of operations.
13
Table of Contents
Health Reform
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and
proposed changes regarding the health care system and efforts to control health care costs, including drug prices, that could
have a significant negative impact on our business, including preventing, limiting or delaying regulatory approval of our
drug candidates and reducing the sales and profits derived from our products once they are approved.
For example, in the United States, the Patient Protection and Affordable Care Act of 2010, or ACA, substantially changed
the way health care is financed by both governmental and private insurers and has had a significant impact on the
pharmaceutical industry. The ACA, among other things, subjected manufacturers to new annual fees and taxes for specified
branded prescription drugs, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid
Drug Rebate Program, expanded health care fraud and abuse laws, revised the methodology by which rebates owed by
manufacturers to the state and federal government for covered outpatient drugs under the Medicaid Drug Rebate Program
are calculated, imposed an additional rebate similar to an inflation penalty on new formulations of drugs, extended the
Medicaid Drug Rebate Program to Medicaid managed care organizations, expanded the 340B program, which caps the
price at which manufacturers can sell covered outpatient pharmaceuticals to specified hospitals, clinics and community
health centers, and provided incentives to programs that increase the federal government’s comparative effectiveness
research.
Since its enactment, there have been judicial and Congressional challenges and amendments to certain aspects of ACA.
While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes
under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision repealing,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail
to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.”
Congressional actions to repeal and replace provisions of the law and litigation and legislation over the ACA are likely to
continue with unpredictable and uncertain results.
More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law by President Biden.
The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to
Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient
prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price
negotiations with Medicare (and the maximum prices as a result of the negotiations becoming effective beginning on
January 1, 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare
Part D for price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program
with a new discounting program (beginning in 2025). The IRA permits the Department of Health and Human Services, or
HHS, to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Orphan drugs, even if covered by Part B or Part D, are not subject to the IRA’s provisions regarding direct price
negotiation, although the exemption arguably only applies to orphan drugs with a single approved indication. Therefore, it
is currently unclear about the potential long-term impact on the pricing of orphan drugs’ with planned follow-on or
supplemental indications.
On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the
Medicare drug price negotiation program is currently subject to legal challenges. Further, the legislation subjects drug
manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a
price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that
exceed inflation.
The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning
in 2025, at $2,000 a year. In response to the Biden administration’s October 2022 executive order, on February 14, 2023,
HHS released a report outlining three new models for testing by the CMS Innovation Center which will be evaluated on
their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models
will be utilized in any health reform measures in the future. Further, on December 7, 2023, the Biden administration
announced an initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole
Act. On December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency
Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a
product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not
previously been exercised, it is uncertain if that will continue under the new framework.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed
to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts,
14
Table of Contents
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
European Regulatory Environment
In the European Union, the CHEMOSAT system is subject to regulation as a medical device. The European Union is
composed of the 27 Member States of the EU plus Norway, Iceland, and Liechtenstein. Under the EU Medical Device
Directive (Directive No 93/42/EEC of 14 June 1993), as last amended, drug delivery products such as the CHEMOSAT
system are governed by the EU laws on pharmaceutical products only if they are (i) placed on the market in such a way that
the device and the pharmaceutical product form a single integral unit which is intended exclusively for use in the given
combination, and (ii) the product is not reusable. In such cases, the drug delivery product is governed by the EU Code on
Medicinal Products for Human Use (Directive 2001/83/EC, as last amended), while the essential requirements of the EU
Medical Device Directive apply to the safety and performance-related device features of the product. Because we do not
intend to place the CHEMOSAT system on the EU market as a single integral unit with melphalan, the product has been
governed solely by the EU Medical Device Directive, while the separately marketed drug is governed by the EU Code
relating to Medicinal Products for Human Use and other EU legislation applicable to drugs for human use.
In order to commercialize a medical device in the EU, we must comply with the essential requirements of the EU Medical
Device Directive and more recently, the EU Medical Device Regulation. Compliance with these requirements entitles a
manufacturer to affix a CE conformity mark, without which the products cannot be commercialized in the EU. To
demonstrate compliance with the essential requirements and obtain the right to affix the CE conformity mark, medical
device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical
device and its classification. In April 2011, we obtained authorization to affix a CE Mark for the Generation One
CHEMOSAT system and began European commercialization with this version of the CHEMOSAT system in early 2012.
In April 2012, the Company obtained authorization to affix a CE Mark for the Generation Two CHEMOSAT system, and
since this time all procedures in Europe have been performed with this version of the system.
The EU Medical Device Directive establishes a classification system placing devices into Class I, IIa, IIb, or III, depending
on the risks and characteristics of the medical device. For certain types of low-risk medical devices (i.e., Class I devices
which are non-sterile and do not have a measuring function), the manufacturer may issue an EC Declaration of Conformity
based on a self-assessment of the conformity of its products with the essential requirements of the EU Medical Device
Directives. Other devices are subject to a conformity assessment procedure requiring the intervention of a Notified Body,
which is an organization designated by a Member State of the EU to conduct conformity assessments.
A manufacturer without a registered place of business in a Member State of the EU that places a medical device on the
market under its own name must designate an authorized representative established in the EU who can act before, and be
addressed by a Competent Authority on the manufacturer’s behalf with regard to the manufacturer’s obligations under the
EU Medical Device Directive and, more recently, the EU Medical Device Regulation. The Company’s wholly-owned
subsidiary, Delcath Systems Ltd. located in Galway, Ireland, serves as the authorized representative of the Company.
The European Commission undertook a review of the EU Medical Device Directive legislative framework and
promulgated REGULATION (EU) 2017/745 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 April
2017 on medical devices, amending Directive 2001/83/EC, Regulation EC) No 178/2002 and Regulation (EC) No
1223/2009 and repealing Council Directives 90/385/EEC and 93/42/EEC. This EU Medical Device Regulation became
effective on May 25, 2017, and governs all facets of medical devices. Due to COVID-related delays experienced by the
medical device industry and Notified Bodies alike, on April 17, 2020, the European Parliament adopted the European
Commission’s proposal to postpone the implementation of (EU) 2017/745 by 12 months or until May 26, 2021. Delcath
did not achieve EU Medical Device Regulation certification by that date due to COVID-related delays; however, our CE
Mark under the EU Medical Device Directive remained effective and allowed us to fully operate in Europe.
On February 28, 2022, CHEMOSAT received medical device certification under the new EU Medical Device Regulation,
which replaced CHEMOSAT’s prior certification under the EU Medical Device Directive. Achieving EU Medical Device
Regulation certification entailed a detailed evaluation from a designated EU Notified Body, including an audit of quality
systems and a review of documentation supporting safety and performance claims for the device. The EU Medical Device
Regulation greatly expands upon existing EU Medical Device Directive requirements, including the level of clinical
evidence supporting claims, post-marketing surveillance, database traceability, unique device identification or UDI and
increased supply chain oversight. Under the EU Medical Device Regulation, CHEMOSAT’s designation has changed from
a Class IIb to a Class III medical device.
In the EU, we must also comply with the Medical Device Vigilance System, which is designed to improve the protection of
the health and safety of patients, users, and others by reducing the likelihood of recurrence of incidents related to the use of
a medical device. Under this system, incidents are defined as any malfunction or deterioration in the characteristics and/or
15
Table of Contents
performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly,
might lead to or might have led to the death of a patient, user or other persons or to a serious deterioration in their state of
health. When a medical device is suspected to be a contributory cause of an incident, its manufacturer or authorized
representative in the EU must report it to the Competent Authority of the Member State where the incident occurred.
Incidents are generally investigated by the manufacturer. The manufacturer’s investigation is monitored by the Competent
Authority, which may intervene, or initiate an independent investigation if considered appropriate. An investigation may
conclude in the adoption of a Field Safety Corrective Action, or FSCA. An FSCA is an action taken by a manufacturer to
reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is
already placed on the market. An FSCA may include device recall, modification exchange and destruction.
The manufacturer or its authorized representative must notify its customers and/or the end users of the medical device of
the FSCA via a Field Safety Notice.
In the EU, the off-label promotion of a pharmaceutical product is strictly prohibited under the EU Community Code on
Medicinal Products, which provides that all information provided within the context of the promotion of a drug must
comply with the information contained in its approved summary of product characteristics. Our product instructions and
indication reference the chemotherapeutic agent melphalan hydrochloride. However, no melphalan labels in the EU
reference our product, and the labels vary from country to country with respect to the approved indication of the drug and
its mode of administration. In the exercise of their professional judgment in the practice of medicine, physicians are
generally allowed, under certain conditions, to use or prescribe a product in ways not approved by regulatory authorities.
Physicians intending to use our device must obtain melphalan separately for use with the CHEMOSAT system and must
use melphalan independently at their discretion.
In the EU, the advertising and promotion of our products is also subject to EU Member States laws implementing the EU
Medical Device Directive, Directive 2006/114/EC concerning misleading and comparative advertising and Directive
2005/29/EC on unfair commercial practices, as well as other EU Member State legislation governing the advertising and
promotion of medical devices. These laws may further limit or restrict the advertising and promotion of our products to the
general public and may also impose limitations on our promotional activities with health care professionals.
Failure to comply with the EU Member State laws implementing the Medical Device Directive and, more recently, the EU
Medical Device Regulation, the EU and EU Member State laws on the promotion of medicinal products or with other
applicable regulatory requirements can result in enforcement action by the EU Member State authorities. An enforcement
action may result in any of the following: fines, imprisonment, orders forfeiting products or prohibiting or suspending their
supply to the market, or requiring the manufacturer to issue public warnings, or to conduct a product recall.
Other International Regulations
We continue to evaluate commercial opportunities in select markets when resources are available and at an appropriate
time.
Intellectual Property
Our success depends in part on our ability to obtain patents and trademarks, maintain trade secret and know-how
protection, enforce our proprietary rights against infringers, and operate without infringing on the proprietary rights of third
parties. Because of the length of time and expense associated with developing new products and bringing them through the
regulatory approval process, the health care industry places considerable emphasis on obtaining patent protection and
maintaining trade secret protection for new technologies, products, processes, know-how, and methods. We hold rights in
twelve U.S. utility patents, one U.S. design patent, three pending U.S. utility patent applications, nine issued foreign
counterpart utility patents (including the validations of European Patents with claims directed to our filter and frame
apparatus in 19 European countries, a European patent with claims directed to our filter apparatus and media in nine
countries, and a European patent with claims to a kit of parts, directed to CHEMOSAT®, in 18 countries), four issued
foreign counterpart design patents, and one pending foreign counterpart patent application. Patents to our chemotherapy
filtration apparatus “Apparatus for Removing Chemotherapy Compounds from Blood”, including claims directed to
apparatus, methods, kits, and filter media, were issued by the U.S. Patent and Trademark Office (USPTO) in July 2017,
October 2018, August 2019, February 2020, February 2022, and April 2023. The patent issued in August 2019 has claims
to a kit of parts capable of being assembled for delivering a small molecule chemotherapeutic agent to a subject. These
claims are directed to HEPZATO® KIT. The patent that issued in February 2020 has claims directed to our methods of
treatment. The patent issued in April 2023 has claims directed to a percutaneous hepatic perfusion procedure and our filter
media. Patents directed to our Filter and Frame Apparatus “Filter and Frame Apparatus and Method of Use” were issued by
the USPTO in April 2016, February 2021, August 2021, and December 2023. In April 2016 and August 2021 patents were
issued by the USPTO with claims directed to our filter and frame apparatus. In February 2019, a patent was issued by the
16
Table of Contents
USPTO with claims directed to a method of using our filter and frame apparatus and in December 2023, a patent was
issued by the USPTO with kit claims that comprise our filter and frame apparatus and that are directed to delivering a
chemotherapeutic agent to the liver of a patient. These claims are directed to HEPZATO® KIT. A Hong Kong patent
directed to our Filter and Frame Apparatus was issued in March 2018. A Hong Kong patent directed to our chemotherapy
filtration apparatus was issued in September 2023. European patents were granted by the European Patent Office for our
chemotherapy filtration apparatus in December 2018 and 2023 and in July 2019 a European patent was granted by the
European Patent Office with claims to a kit of parts comprising our chemotherapy filtration apparatus and directed to
CHEMOSAT®. A European patent directed to a method of using our filter and frame apparatus was granted in April 2019
by the European Patent Office. In April 2017 and August 2019, European patents were granted by the European Patent
Office with claims directed to our filter and frame apparatus, the August 2019 patent was validated in eleven countries to
provide additional European patent coverage for our filter and frame apparatus to the European patent directed to the filter
and frame apparatus that was granted in April 2017. In March 2022, a European patent was granted by the European Patent
Office and validated in eight countries with kit claims comprising our filter and frame apparatus and directed to
CHEMOSAT®. When appropriate, we actively pursue protection of our proprietary products, technologies, processes, and
methods by filing United States and international patent and trademark applications. We seek to pursue additional patent
protection for technology invented through research and development, manufacturing, and clinical use of CHEMOSAT®
and HEPZATO® that will enable us to expand our patent portfolio around advances to our current systems, technology, and
methods for our current applications as well as beyond the treatment of cancers in the liver.
There can be no assurance that the pending patent applications will result in the issuance of patents, that patents issued to or
licensed by us will not be challenged or circumvented by competitors, or that these patents will be found to be valid or
sufficiently broad to protect our technology or provide us with a competitive advantage.
To maintain our proprietary position, we also rely on trade secrets and proprietary technological experience to protect
proprietary manufacturing processes, technology, and know-how relating to our business. We rely, in part, on
confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade
secrets and proprietary technological expertise. In addition, we also seek to maintain our trade secrets through maintenance
of the physical security of the premises where our trade secrets are located. There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently
develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and
proprietary knowledge.
In certain circumstances, U.S. patent law allows for the extension of a patent’s duration for a period of up to five years after
FDA approval. In October 2023, after receiving FDA approval for the HEPZATO KIT, we requested an extension of the
term for one of our patents. In addition to our proprietary protections, the FDA has granted us six orphan drug designations
that provide us a seven-year period of exclusive marketing beginning on the date that our NDA is approved by the FDA for
the designated orphan drug. While the exclusivity only applies to the indication for which the drug has been approved, we
believe that this exclusivity will provide us with added protection.
There has been and continues to be substantial litigation regarding patent and other intellectual property rights in the
pharmaceutical and medical device areas. If a third party asserts a claim against us, we may be forced to expend significant
time and money defending such actions and an adverse determination in any patent litigation could subject us to significant
liabilities to third parties, require us to redesign our product, require us to seek licenses from third parties and, if licenses
are not available, prevent us from manufacturing, selling, or using our product. Additionally, we plan to enforce our
intellectual property rights vigorously and may find it necessary to initiate litigation to enforce our patent rights or to
protect our trade secrets or know-how. Patent litigation can be costly and time consuming and there can be no assurance
that the outcome will be favorable to us.
Competition
The healthcare industry is characterized by extensive research, rapid technological progress and significant competition
from numerous healthcare companies and academic institutions. Competition in the cancer treatment industry is intense.
We believe that the primary competitive factors for products addressing cancer include safety, efficacy, ease of use,
reliability, price, and patient’s quality of life. We also believe that physician relationships, especially relationships with
leaders in the medical, surgical, and oncology communities, are important competitive factors. We also believe that the
current global economic conditions and new healthcare reforms could put competitive pressure on us, including reduced
selling prices and potential reimbursement rates, and overall procedure rates. Certain markets in Europe are experiencing
the effects of continued economic weakness, which is affecting healthcare budgets and reimbursement.
CHEMOSAT and HEPZATO compete with all forms of liver cancer treatments, including surgery, systemic
chemotherapy, focal therapies, and palliative care. In the disease states we are targeting there are also numerous clinical
17
Table of Contents
trials sponsored by third parties, which can compete for potential patients in the near term and may ultimately lead to new
competitive therapies.
In January 2022, Immunocore Holdings plc announced FDA approval for KIMMTRAK (tebentafusp-tebn) for the
treatment of HLA-A *02:01-positive adult patients with unresectable or metastatic uveal melanoma. This is the first drug
approved specifically for patients with mUM. HLA-A *02:01 patients represent approximately 45% of patients with uveal
melanoma. HEPZATO is approved to treat all mUM patients and is the only approved drug to treat the remaining 55% of
patients. Traditionally, mUM patients have been treated with both systemic and a variety of local regional techniques.
There are numerous companies developing and marketing devices for the performance of local regional procedures,
including Boston Scientific Corporation, the Covidien Products division of Medtronic plc, Merit Medical Systems, Inc.,
Varian Medical Systems, Inc., Sirtex Medical Limited, AngioDynamics, Inc., and many others. These procedures include
trans-arterial chemoembolization (TACE, DEBTACE) and Radioembolization (SIRT, TARE, or Y90). Neither of these
procedures are approved for the treatment of mUM.
Many of our competitors have substantially greater financial, technological, research and development, marketing, and
personnel resources. In addition, some of our competitors have considerable experience in conducting clinical trials,
regulatory, manufacturing and commercialization capabilities. Our competitors may develop alternative treatment methods,
or achieve earlier product development, in which case the likelihood of us achieving meaningful revenues or profitability
will be substantially reduced.
Manufacturing and Quality Assurance
We manufacture certain critical medical device components, including our proprietary filter media and double balloon
catheter and assemble and package CHEMOSAT and HEPZATO at our facility in Queensbury, New York. Our European
headquarters and distribution facility in Galway, Ireland conducts final manufacturing, processing, and assembly. We use
third parties to manufacture most of the components of CHEMOSAT and HEPZATO. CHEMOSAT and HEPZATO and
their components must be manufactured and sterilized in accordance with approved manufacturing and pre-determined
performance specifications. In addition, certain components will require sterilization prior to distribution, and we use third-
party vendors to perform the sterilization process.
We are required to comply with cGMP regulations and quality system regulations relating to our manufacturing of
HEPZATO KIT for distribution in the United States. We are also required to comply with the FDA’s cGMP regulations
and international quality system regulations, including those established by the International Standards Organization (ISO),
with respect to products sold in the EU. We are required to maintain ISO 13485 certification for medical devices to be sold
in the EU, which requires, among other items, an implemented quality system that applies to component quality, supplier
control, product design and manufacturing operations. Our facilities are ISO 13485:2016 certified.
Human Capital Management
Our management team is comprised of highly experienced pharmaceutical and biotechnology executives with successful
track records in researching, developing, gaining approval for and commercializing novel medicines to treat serious
diseases. Each member of our management team has over 10 to 30 years of industry experience. Additionally, the team has
significant experience in capital raises, mergers/acquisitions, business development, and sales and marketing in the
pharmaceutical industry. Our Board also consists of individuals with significant experience in the pharmaceutical and
biotechnology industries. As of March 1, 2024, including our management team, we had approximately 76 full time
employees, of which 66 are located in the United States and 10 are located in Europe. On March 18, 2024, we appointed
Martha S. Rook, Ph.D., as Chief Operating Officer. We intend to hire additional employees as needed and if funds allow.
None of our employees are represented by a labor union or covered by a collective bargaining agreement, nor have we
experienced any work stoppages. We believe our relationship with our employees is good.
As required, we also engage consultants to provide services to the Company, including those related to marketing, quality
assurance, manufacturing, and corporate services.
We are committed to growing our business over the long-term and increasing value to our stockholders. We believe that
our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel and to
motivate such individuals to perform to the best of their abilities. As a result of the competitive nature of the industry in
which we operate, employees have significant career mobility and competition for experienced employees is great. The
existence of this competition, and our need for experienced and talented employees to achieve our business objectives,
underlies the design and implementation of our compensation programs. We provide our employees base salaries and leave
and benefits programs that we believe are competitive and consistent with industry standards. In addition, we grant stock
18
Table of Contents
options to permanent employees, both upon initial hiring and thereafter, and pay cash bonuses to permanent employees
based on the achievement of corporate and/or personal performance objectives.
We have developed corporate policies and guidelines to define our expectations regarding professional behavior. The
Company’s policies and practices apply to all employees, regardless of title. These guidelines include our Code of Business
Conduct and Ethics, policies for corporate disclosure, insider trading and whistle-blowers.
We value diversity of backgrounds and perspectives in our workforce and we do not discriminate based on race, religion,
creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital
status, sex, gender, gender identity, gender expression, age, military and veteran status, sexual orientation or any other
protected characteristic as established by federal, state or local laws.
We are committed to the health and safety of our employees, patients and other partners in the healthcare community. We
work to promote an environment of awareness and shared responsibility for safety and regulatory compliance throughout
our organization, in order to minimize risks of injury, exposure, or business impact.
During the COVID-19 pandemic, we allowed our employees to work remotely where needed and if practicable to ensure
the health and safety of our team members. Many of our employees have transitioned back to working on-site, but we
continue to provide our employees, depending on their role, with the option to work from home. We have consolidated our
offices to Queensbury, New York, but many of our employees work remotely outside of the Queensbury, New York area.
Available Information
Our website address is www.delcath.com. The information found on, or otherwise accessible through, our website is not
incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K or any other report or
document we file with or furnish to the SEC. We make available, free of charge, on or through the SEC Filings section of
our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We have also posted on our
website the Audit Committee Charter, the Compensation and Stock Option Committee Charter, the Nominating and
Corporate Governance Committee Charter, the Code of Business Conduct and Ethics and Whistleblower Policy.
Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. You should carefully consider the following risks, in
conjunction with the financial and other information contained in this Annual Report on Form 10-K. As previously
discussed, our actual results could differ materially from our forward-looking statements. These risks include those
described below and may include additional risks and uncertainties not presently known to us or that we currently deem
immaterial. If any of the events or circumstances described in the following risk factors occur, our business operations,
performance, financial condition and prospects could be materially and adversely affected and the trading price of our
common stock could decline, and you may lose all or part of your investment. We cannot assure you that any of the events
discussed below will not occur.
Risks Related to Our Business and Financial Condition
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a
going concern.
Our independent registered public accounting firm issued a report dated March 26, 2024 in connection with the audit of our
financial statements as of December 31, 2023, which included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about our ability to continue as a going concern including our significant working
capital deficiency, significant losses and need to raise additional funds to meet our obligations and sustain our operations.
In addition, the notes to our financial statements for the year ended December 31, 2023, included in this Annual Report on
Form 10-K, contain a disclosure describing the existence of conditions that raise substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern was dependent upon our ability to obtain
substantial additional funding in connection with our continuing operations. If we are unable to raise sufficient capital or
otherwise when needed, our business, financial condition and results of operations will be materially and adversely
affected, and we will need to significantly modify our operational plans to continue as a going concern. If we are not able
to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those
19
Table of Contents
assets are carried on our consolidated financial statements and/or seek protection under federal bankruptcy law or enter into
a receivership, and it is likely that holders of our common stock and holders of securities convertible into our common
stock will lose all of their investment. If we seek additional financing to fund our business activities in the future and there
remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be
unwilling to provide additional funding on commercially reasonable terms or at all.
As such, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which
raises substantial doubt about our ability to continue as a going concern.
We will need additional capital to maintain our operations. If we cannot raise additional capital, our potential to
generate future revenues will be significantly limited since we will not be able to further commercialize CHEMOSAT
and HEPZATO, or conduct future product development, including clinical trials, if any.
Developing and commercializing pharmaceutical products, including conducting preclinical testing and clinical trials and
preparing for and commencing commercial launch are long, expensive, and highly uncertain processes and failure can
unexpectedly occur at any stage of clinical development, including following commercial launch.
Our expenses will increase, particularly as we commercialize HEPZATO in the United States, including expenses related to
product sales, marketing, manufacturing and distribution. If we are not able to generate significant revenue from either or
both of HEPZATO and CHEMOSAT, we will require additional substantial financing to further commercialize our
products in the United States and the European Union and any other jurisdictions where we may receive regulatory
approval for our products, and in order to conduct future product development, if any, including clinical trials for new
product candidates or for HEPZATO or CHEMOSAT in additional indications for which we do not currently have
regulatory approval. In the absence of potential proceeds from cash exercises of currently outstanding warrants and
convertible notes and/or significant revenue from either or both of HEPZATO and CHEMOSAT, we may require
substantial additional funding to continue the launch and commercialization of HEPZATO in the U.S., complete product
development projects or clinical trials. If we are unable to raise additional capital or generate significant revenue from
either or both of HEPZATO and CHEMOSAT, our ability to complete product development projects or clinical trials,
including trials for HEPZATO and CHEMOSAT, in additional indications, may be impaired, which could have a material
adverse effect on our business, financial condition and results of operations. If we are not successful in generating product
revenue, we do not know if additional financing will be available on commercially reasonable terms or at all. In addition,
we may not be able to access a portion of our existing cash, cash equivalents and investments due to market conditions or
contractual obligations, such as restrictive covenants that are sometimes included in debt financing.
Our liquidity and capital requirements will depend on numerous factors, including:
•
•
•
•
•
•
•
our ability to successfully sell HEPZATO in the United States and CHEMOSAT in Europe;
the outcome of any of our future clinical studies;
the timing and costs of our various United States and foreign regulatory filings, obtaining approvals and
complying with regulations;
our ability to secure the continuous supply of melphalan and other critical components of HEPZATO and
CHEMOSAT from facilities in compliance with applicable manufacturing regulations;
our ability to secure commercially reasonable terms for the supply of melphalan and other critical components of
HEPZATO and CHEMOSAT;
the timing, costs and regulatory approval processes associated with developing our and/or our partners’
manufacturing operations;
the cost and ability to effectively establish and maintain the commercial infrastructure and manufacturing
capabilities required to support the commercialization of HEPZATO, CHEMOSAT and any other products for
which we receive marketing approval including product sales, medical affairs, marketing, manufacturing and
distribution;
• market acceptance of any approved product candidates, including product pricing and product reimbursement by
third-party payors;
•
•
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
executive compensation, including the cost of attracting senior executives;
20
Table of Contents
•
•
•
•
our headcount growth and associated costs as we expand our research and development and further establish a
commercial infrastructure;
our debt requirements, including contractual obligations under such agreements;
the timing and costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property
rights; and
the impact of competing technological and market developments.
Insufficient capital may require us to curtail or stop our commercialization activities, regulatory submissions or ongoing
activities for regulatory approval, research and development and clinical trials, which will significantly limit our potential
to generate future revenues.
If we are not in compliance with the terms and conditions of our existing debt agreement, our business and financial
condition may be adversely affected.
On August 6, 2021, we entered into the Loan and Security Agreement with Avenue Venture Opportunities Fund, L.P., as
amended on March 31, 2023 (the “Avenue Loan Agreement”). The Avenue Loan Agreement provides for a term loan in an
aggregate principal amount of up to $20.0 million, pursuant to which, we have borrowed $15 million. Pursuant to the
Avenue Loan Agreement, we made monthly interest-only payments during the first fifteen months of the term of the
Avenue Loan Agreement and began principal payments in December 2022. On March 31, 2023, we reached an agreement
to amend the Avenue Loan Agreement to allow us to make interest only payments until September 30, 2023, with an
additional extension option upon FDA approval for the HEPZATO KIT and subsequent receipt of $10 million from the
sale and issuance of equity securities. After the additional extension requirements were met, we elected to extend the
interest only payment period to December 31, 2023 and principal payments began in January 2024.
The Avenue Loan Agreement bears interest at an annual rate equal to the greater of (a) the sum of 7.7% plus the prime rate
as reported in The Wall Street Journal and (b) 10.95%. The interest rate pursuant to the Avenue Loan Agreement on
December 31, 2023 was 16.20%. The Avenue Loan Agreement is secured by all of our assets globally, including
intellectual property. The amount borrowed pursuant to the Avenue Loan Agreement matures on August 1, 2024.
The Avenue Loan Agreement contains customary events of default, including, among other things, our failure to fulfill
certain of our obligations under the Avenue Loan Agreement and the occurrence of a material adverse change in our
business, operations or condition (financial or otherwise), a material impairment of the prospect of repayment of any
portion of the loan, the failure to deliver an unqualified audit report and board approved financial projections within time
periods set forth in the Avenue Loan Agreement, or a material impairment in the perfection or priority of Lender’s lien in
the collateral or in the value of such collateral. In the event of default by us under the Avenue Loan Agreement, the Lender
would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be
required to repay all amounts then outstanding under the Avenue Loan Agreement, which could harm our business,
operations and financial condition.
If we do not make our required monthly repayments beginning on January 1, 2024, in accordance with the March 2023
amendment to the Avenue Loan Agreement, we would be in default of the Avenue Loan Agreement. If we were to be in
default of the Avenue Loan Agreement, our business and financial condition may be adversely impacted and result in us
losing rights to certain or our assets, including intellectual property that is secured by the Avenue Loan Agreement.
Furthermore, if we default on any installment under the Avenue Loan Agreement, we will not be eligible to use Form S-3
registration statements for an extended period of time, which could further adversely impact our ability to raise additional
financing.
Raising additional capital, or the exercise or conversion of securities exercisable or convertible into shares of common
stock, may cause dilution to our existing stockholders and raising funds through lending and licensing arrangements
may restrict our operations or require us to relinquish proprietary rights.
Significant additional capital will be needed in the future to continue our planned operations. Until such time, if ever, as we
can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings,
debt financings, exercise of our outstanding warrants and conversion of outstanding preferred stock, strategic alliances and
license and development agreements in connection with any collaborations. To the extent that we raise additional capital by
issuing equity securities, existing stockholders’ ownership may experience substantial dilution, and the terms of these
securities may include liquidation or other preferences that adversely affect the rights of a common stockholder. In
addition, the exercise of outstanding warrants and options will also cause dilution. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
21
Table of Contents
actions, such as incurring additional debt, making capital expenditures, declaring dividends, creating liens, redeeming its
stock or making investments.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements
with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs
or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds
through equity or debt financings when needed, or through collaborations, strategic alliances or marketing, distribution or
licensing arrangements with third parties on acceptable terms, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant rights to develop and market product candidates that we
would otherwise develop and market.
We have incurred significant losses since inception, expect to incur significant and increasing losses for at least this
year, and continuing losses may exhaust our capital resources.
As of December 31, 2023, we had $12.7 million in cash and cash equivalents and $19.8 million in short-term investments.
We have had minimal revenue to date, and have a substantial accumulated deficit, recurring operating losses and negative
cash flow. We are not profitable and have incurred losses in each year since commencing operations. For the years ended
December 31, 2023, and 2022, we incurred net losses of approximately $47.7 million and $36.5 million, respectively, and
expect to continue to incur losses in 2024. To date, we have funded operations through a combination of private placements
and public offerings of our securities and debt financing, including convertible notes. If we continue to incur losses, we
may exhaust our capital resources, and as a result may be unable to further commercialize our products in the United States
and the European Union and any other jurisdictions where we may receive regulatory approval for our products or conduct
future product development, if any, including clinical trials for new product candidates or for HEPZATO or CHEMOSAT
in additional indications for which we do not currently have regulatory approval.
Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’
equity and working capital. Our ability to generate any product revenue from HEPZATO and CHEMOSAT or future
product candidates, if any, also depends on a number of additional factors, including our ability to:
•
•
•
•
•
•
•
•
•
successfully commercialize and sell HEPZATO in the United States pursuant to our existing FDA approval;
successfully complete research and clinical development of future product candidates, if any, including
clinical trials for new product candidates or for HEPZATO or CHEMOSAT in additional indications for
which we do not currently have regulatory approval, and obtain regulatory approval for those product
candidates and indications, as applicable;
establish and maintain supply and manufacturing relationships, under commercially reasonable terms, with
third parties, and ensure adequate, scaled up and legally compliant manufacturing of necessary components,
including melphalan, bulk drug substances and drug products to maintain sufficient supply;
launch and commercialize any product candidates for which FDA approval is obtained;
demonstrate the necessary safety data (and, if accelerated approval is obtained, verify the clinical benefit)
post-approval to ensure continued regulatory approval;
obtain coverage and adequate product reimbursement from third-party payors, including government payors,
for any approved products;
achieve market acceptance for any approved products;
establish, maintain, protect and enforce our intellectual property rights; and
attract, hire and retain qualified personnel.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, including that our
product candidates may not advance through development or be approved for commercial sale, we are unable to predict if
or when we will generate significant product revenue or achieve or maintain profitability. Even if we successfully complete
development and regulatory processes for any product candidates that we take forward, we anticipate incurring significant
costs associated with launching and commercializing any products. If we fail to become profitable or do not sustain
profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce
or cease our operations.
We have in the past, and may in the future, become subject to litigation or claims arising in or outside the ordinary
course of business that could negatively affect our business operations and financial condition.
We have in the past, and may in the future, become subject to litigation or claims arising in or outside the ordinary course
of business (other than intellectual property infringement actions) that could negatively affect our business operations and
22
Table of Contents
financial condition, including securities class actions and shareholder derivative actions, both of which are typically
expensive to defend. Such claims and litigation proceedings may be brought by third parties, including our competitors,
advisors, service providers, partners or collaborators, employees, and governmental or regulatory bodies. For information
on past legal proceedings, please see “Item 3. Legal Proceedings.” Any claims and lawsuits, and the disposition of such
claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention and resources, and
lead to attempts on the part of other parties to pursue similar claims. We may not be able to determine the amount of any
potential losses and other costs we may incur due to the inherent uncertainties of litigation and settlement negotiations. In
the event we are required or decide to pay amounts in connection with any claims or lawsuits, such amounts could be
significant and could have a material adverse impact on our liquidity, business, financial condition and results of
operations. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could
materially affect our future operating results, our cash flows or both. Additionally, we may be unable to maintain our
existing directors’ and officers’ liability insurance in the future at satisfactory rates or adequate coverage amounts and may
incur significant increases in insurance costs.
We may be the subject of product liability claims or product recalls, and we may be unable to maintain insurance
adequate to cover potential liabilities.
Our business exposes us to potential liability risks that may arise from clinical trials and the testing, manufacture,
marketing, sale and use of CHEMOSAT and HEPZATO. In addition, because CHEMOSAT and HEPZATO are intended
for use in patients with cancer, there is an increased risk of death among the patients treated with our product, which may
increase the risk of product liability lawsuits related to clinical trials or commercial sales. We may be subject to claims
against us even if the injury is due to the actions of others. For example, if the medical personnel that use our product on
patients are not properly trained or are negligent in the use of the system, the patient may be injured, which may subject us
to claims. Were such a claim asserted, we would likely incur substantial legal and related expenses even if we prevail on
the merits. Claims for damages, whether or not successful, could result in the loss of physician endorsement, adverse
publicity and/or limit our ability to market and sell our products, resulting in loss of revenue. In addition, it may be
necessary for us to recall products that do not meet approved specifications, which would also result in adverse publicity
and costs connected to the recall and loss of revenue. A successful products liability claim or product recall would have a
material adverse effect on our business, financial condition, and results of operations. While we currently carry insurance,
it may be insufficient to cover one or more large claims.
Risks Related to Manufacturing, Commercialization and Market Acceptance of CHEMOSAT and HEPZATO
We have only recently obtained regulatory approval for HEPZATO in the United States and commenced the
commercial launch of HEPZATO. We have limited experience as a commercial company and generating revenue from
product sales. If the commercial launch of HEPZATO is unsuccessful or any future approved products are
unsuccessful, we may never be profitable.
We received approval by the FDA for HEPZATO in the United States in August 2023 and began generating revenue from
product sales during the first quarter of 2024. Our ability to become and remain profitable is heavily dependent on our
ability to generate revenue from HEPZATO for the treatment of mUM. The success of our commercialization will depend
on a number of factors, including, among others, the continued development of our commercial organization, including our
internal sales and marketing team and distribution capabilities, our ability to navigate the significant expenses and risks
involved with the development and management of such capabilities, satisfying any post-marketing regulatory
requirements, our ability to secure adequate healthcare coverage and the acceptance of HEPZATO by patients and third-
party payors. If HEPZATO, or any other future approved product, does not achieve an adequate level of acceptance,
coverage, pricing or reimbursement, we may not generate significant revenue from product sales and we may not be
profitable. Even if we successfully commercialize HEPZATO in the United States, we may be unable to achieve or
maintain profitability, unless HEPZATO is approved in other jurisdictions or for additional indications. Because of the
uncertainties and risks associated with these activities, we are unable to accurately and precisely predict the timing and
amount of revenues from product sales of HEPZATO, or any future approved products, or if or when we might achieve
profitability.
If we are unsuccessful in accomplishing our objectives, or if our commercialization efforts do not develop as planned, we
may not be able to successfully commercialize HEPZATO or any future approved products, we may require significant
additional capital and financial resources, we may not become profitable, and we may not be able to compete against more
established companies in our industry. Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
23
Table of Contents
We must maintain or enter into acceptable arrangements for the supply of melphalan and other critical components of
HEPZATO and CHEMOSAT and we may not be able to ensure adequate supply impacting our ability to successfully
commercialize HEPZATO in the United States and CHEMOSAT in the EU or complete any future clinical trials.
Each manufacturer/supplier of components for the production of HEPZATO and CHEMOSAT must be in compliance with
cGMPs. Our supply of critical components of HEPZATO and CHEMOSAT includes the use of one contracted supplier. In
order to successfully commercialize HEPZATO, we also must be able to enter into long-term supply agreements for critical
components, including melphalan, under commercially reasonable terms.
Under the current regulatory scheme in the European Union, CHEMOSAT is approved for marketing as a device only, and
doctors will separately obtain melphalan for use with CHEMOSAT. Although melphalan has been approved in the
European Union for over a decade, we are aware that there are currently three approved manufacturers of melphalan in
certain countries in the European Union. If any of these manufacturers fails to provide end-users with adequate supplies of
melphalan or fails to comply with the requirements of regulatory authorities, we may be unable to successfully
commercialize our product in the European Union. Additionally, melphalan is not available in certain foreign countries
outside the European Union where we may seek to market CHEMOSAT. If supply of melphalan remains limited or
unavailable, we will be unable to commercialize CHEMOSAT in these markets, thereby limiting future sales opportunities.
FDA inspections of our suppliers/manufacturers, even for products other than those supplied to us, may result in the
supplier/manufacturer being shut down or unable to deliver critical components to us in a timely manner. Such risks are
increased for those components for which we have one contractual supplier.
We currently have an agreement with one supplier of melphalan and, with the goal of minimizing the risk of a supply
interruption, are in discussions with several melphalan ANDA holders who have indicated interest in supplying melphalan
to us. We are aware that in 2023, the FDA issued our current melphalan manufacturer 483 observations as a result of an
inspection unrelated to the HEPZATO and the manufacturer is working to address these observations.
Although we are pursuing a variety of strategies to mitigate the risk of a supply interruption of commercial supply for our
product, we cannot assure you that such shutdown and related matters will not result in a loss of supply in the event the
shutdown is longer than anticipated or in the event regulatory action is taken against the supplier. In any such situation, this
could have a material adverse impact on our business, operations and financial condition.
We may pursue agreements with additional contract manufacturers to produce melphalan and other critical components for
use in any future clinical trial programs and for the production of CHEMOSAT and HEPZATO, as well as for labeling and
finishing services. We may not be able to enter into such arrangements on commercially reasonable terms or at all. To
manufacture melphalan or other chemotherapeutic agents on our own, we would have to develop a manufacturing facility
that complies with FDA regulations for the production of melphalan and each other chemotherapeutic agent we choose to
manufacture for use with our system. Developing these resources would be an expensive and lengthy process and would
have a material adverse effect on our revenues and profitability. If we are unable to obtain sufficient melphalan and
labeling services on acceptable terms or encounter delays or difficulties in our relationships with current and future
suppliers or if current and future suppliers of melphalan do not comply with applicable regulations for the manufacturing
and production of melphalan, our business, financial condition and results of operations may be materially harmed.
If we cannot successfully manufacture CHEMOSAT and HEPZATO, our ability to develop and commercialize the
system would be impaired.
We manufacture certain components of our products, including our proprietary filter media, and assemble and package
CHEMOSAT and HEPZATO at our facility in Queensbury, New York. We have established our European headquarters in
Galway, Ireland and conduct finishing operations, assembly, packaging, labeling and distribution for CHEMOSAT at this
facility. We currently utilize third parties to manufacture some components of CHEMOSAT and HEPZATO. We may have
difficulty obtaining components for our products from our third-party suppliers in a timely manner or at all, which may
adversely affect our ability to deliver CHEMOSAT and HEPZATO to purchasers.
In addition to limiting sales opportunities, delays in manufacturing CHEMOSAT and HEPZATO may adversely affect our
ability to obtain regulatory approval for other indications in the United States and other jurisdictions. Our ability to conduct
timely clinical trials in the United States and abroad depends on our ability to manufacture the product, including sourcing
the chemotherapeutic agents or other compounds through third parties in accordance with FDA and other regulatory
requirements. If we are unable to manufacture CHEMOSAT and HEPZATO in a timely manner, we may not be able to
conduct additional clinical trials required to obtain regulatory approval and commercialize our product for other
indications.
We have implemented quality systems throughout our organization designed to enable us to satisfy the various
international quality system regulations, including those of the FDA with respect to products sold in the United States and
24
Table of Contents
those established by the International Standards Organization (“ISO”) with respect to products sold in the European Union.
We are required to maintain ISO 13485 certification for medical devices to be sold in the European Union, which requires,
among other items, an implemented quality system that applies to component quality, supplier control, product design and
manufacturing operations. All of our facilities are presently ISO 13485:2016 certified. If our Queensbury, New York
facility fails to maintain compliance with ISO 13485 and FDA cGMP or fails to pass facility inspection or audits, our
ability to manufacture at the facility could be limited or terminated. In the future, we may manufacture and assemble
CHEMOSAT and HEPZATO in our Galway, Ireland facility or elsewhere in the European Union, and any facilities in the
European Union would have to obtain and maintain similar approvals or certifications of compliance.
Although we are not aware of any direct impacts of the war between the Ukraine and the Russian Federation, the conflicts
in the Middle East, or any other global conflict on our supply chain, such current or future conflicts could adversely impact
our ability to obtain components and/or significantly increase the cost of obtaining such components for our products from
third-party suppliers in a timely manner or at all.
We do not have written contracts with all of our suppliers for the manufacture of components for CHEMOSAT and
HEPZATO.
While we have written contracts and supply agreements for key components for CHEMOSAT and HEPZATO, we do not
have written contracts with all suppliers for the manufacture of components for CHEMOSAT and HEPZATO. If we are
unable to obtain an adequate supply of the necessary components or negotiate acceptable terms, we may not be able to
manufacture CHEMOSAT and HEPZATO in commercial quantities or in a cost-effective manner, and commercialization
of CHEMOSAT and HEPZATO in the United States, the European Union and elsewhere may be adversely impacted. In
addition, certain components are available from only a limited number of sources. Components of CHEMOSAT and
HEPZATO are currently manufactured for us in small quantities. We may require significantly greater quantities to further
commercialize the product. We may not be able to find alternate sources of comparable components. If we are unable to
obtain adequate supplies of components from existing suppliers or need to switch to an alternate supplier and obtain FDA
or other regulatory agency approval of that supplier, commercialization of CHEMOSAT and HEPZATO may be delayed.
We may be unsuccessful in commercializing CHEMOSAT and HEPZATO because of inadequate infrastructure or an
ineffective commercialization strategy.
Our ability to commercialize CHEMOSAT and HEPZATO may be limited due to our inexperience in developing a sales,
marketing and distribution infrastructure. If we are unable to develop this infrastructure in the United States or elsewhere or
to collaborate with an alliance partner to market our products in the United States or foreign countries, particularly in Asia,
our efforts to commercialize CHEMOSAT and HEPZATO or any other product may not succeed.
We may not be successful in our efforts to expand the commercialization of CHEMOSAT in the European Union or United
Kingdom, and we may not be successful in commercializing HEPZATO in the United States and CHEMOSAT or
HEPZATO in other foreign countries. Each country requires a different commercialization strategy. Without a successful
commercialization strategy tailored for each market, our efforts to promote and market CHEMOSAT and HEPZATO in
each of our target markets may fail in any or all of those markets. If we are unsuccessful in accomplishing our objectives,
or if our commercialization efforts do not develop as planned, we may not be able to successfully commercialize
HEPZATO or any future approved products, we may require significant additional capital and financial resources, we may
not become profitable, and we may not be able to compete against more established companies in our industry. Even if
we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
If we are unable to establish, maintain and, if necessary, expand sales and marketing capabilities or enter into
agreements with third parties to sell and market HEPZATO in the United States or other product candidates, we may
not be successful in commercializing HEPZATO in the United States or any other of our product candidates if they are
approved.
We have limited experience in the sale, marketing and distribution of pharmaceutical products in the United States. To
achieve commercial success for HEPZATO and any other product candidates, if approved, for which we retain sales and
marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to other
third parties. We have established sales and marketing capabilities to support our commercial launch of HEPZATO for the
treatment of adult patients with unresectable hepatic-dominant metastatic uveal melanoma in the United States. We may
need to further build our sales and marketing infrastructure, either directly or with third-party partners, to maintain our
ongoing commercialization efforts and to commercialize HEPZATO in other indications or to commercialize any of our
other product candidates for which we obtain marketing approval.
There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements
with third parties to perform these services. For example, recruiting and training a sales force is expensive and time
25
Table of Contents
consuming. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these
commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our
sales and marketing personnel.
Factors that may inhibit our efforts to commercialize HEPZATO and other product candidates on our own include:
•
•
•
•
our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or educate physicians on the benefits of our products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive or integrated product offerings; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue
or the profitability of product revenue to us is likely to be lower than if we were to market and sell any products that we
develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market
our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over
such third parties and any of them may fail to devote the necessary resources and attention to sell and market our products
effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with
third parties, we will not be successful in commercializing HEPZATO in the United States or any of our product candidates
for which we obtain marketing approval.
We may use collaborative arrangements with third parties to help finance and to market and sell CHEMOSAT and
HEPZATO, but it may not be successful.
We may be unable to enter into collaborative agreements without additional clinical data or unable to continue a
collaborative agreement as a result of unsuccessful future clinical trials. Additionally, we may face competition in the
search for alliances. As a result, we may not be able to enter into alliances on acceptable terms, if at all. Our collaborative
relationships may never result in the successful development or commercialization of CHEMOSAT and HEPZATO or any
other product. The success of any collaboration will depend upon our ability to perform our obligations under any
agreements as well as factors beyond our control, such as the commitment of our collaborators and the timely performance
of their obligations. The terms of any such collaboration may permit our collaborators to abandon the alliance at any time
for any reason or prevent us from terminating arrangements with collaborators who do not perform in accordance with our
expectations, or our collaborators may breach their agreements with us. In addition, any third parties with whom we
collaborate may have significant control over important aspects of the development and commercialization of our products,
including research and development, market identification, marketing methods, pricing, composition of sales force and
promotional activities. We will not control the amount and timing of resources that any collaborator may devote to our
research and development programs or the commercialization, marketing or distribution of our products. We may not be
able to prevent any collaborators from pursuing alternative technologies or products that could result in the development of
products that compete with CHEMOSAT and HEPZATO or the withdrawal of their support for our products. The failure of
any such collaboration could have a material adverse effect on our business.
If we fail to overcome the challenges inherent in international operations, our business and results of operations may be
materially adversely affected.
Currently we have only received authorization to market CHEMOSAT in the European Union and the United Kingdom. If
we seek similar authorization or approvals in other foreign countries, we will need to further invest financial and
management resources to develop an international infrastructure that will meet the needs of our customers. Accordingly,
we will face additional risks resulting from our international operations including:
•
•
•
•
•
difficulties in enforcing agreements and collecting receivables in a timely manner through the legal systems of
many countries outside the United States;
the failure to satisfy foreign regulatory requirements to market our products on a timely basis or at all;
availability of, and changes in, reimbursement within prevailing foreign healthcare payment systems;
difficulties in managing foreign relationships and operations, including any relationships that we establish with
foreign sales or marketing employees and agents;
limited protection for intellectual property rights in some countries;
26
Table of Contents
•
•
•
•
•
•
fluctuations in currency exchange rates;
the possibility that foreign countries may impose additional withholding taxes or otherwise tax our foreign
income, impose tariffs or adopt other restrictions on foreign trade;
the possibility of any material shipping delays;
significant changes in the political, regulatory, safety or economic conditions in a country or region;
protectionist laws and business practices that favor local competitors; and
trade restrictions, including the imposition of, or significant changes to, the level of tariffs, customs duties and
export quotas.
If we fail to overcome the challenges inherent in international operations, our business and results of operations may be
materially adversely affected.
Rapid technological developments in treatment methods for liver cancer and competition with other forms of liver
cancer treatments could affect our ability to achieve meaningful revenues or profit.
Competition in the cancer treatment industry is intense. CHEMOSAT and HEPZATO compete with all forms of liver
cancer treatments that are alternatives to surgical resection. Many of our competitors have substantially greater resources
and considerable experience in conducting clinical trials and obtaining regulatory approvals. If these competitors develop
more effective or more affordable products or treatment methods, or achieve earlier product development, our revenues or
profitability will be substantially reduced.
If another company has orphan drug designations for the same drug and indication as us and receives marketing approval
before we do, then we will be blocked from marketing approval for seven years from the date of its approval for the same
indication of use unless we can make a showing of the clinical superiority of our drug.
We may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the
medical community necessary for the commercial success of CHEMOSAT or HEPZATO, in which case we may not
generate significant revenue for the foreseeable future.
Our entire focus has been on developing, commercializing, and obtaining regulatory authorizations and approvals of
CHEMOSAT and HEPZATO. We may fail to gain sufficient market acceptance by physicians, patients, third-party payors
and others in the medical community necessary for the commercial success of CHEMOSAT and HEPZATO. Physicians
are often reluctant to switch their patients from existing therapies even when new and potentially more effective or
convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do
not want to switch unless their physicians recommend switching products or they are required to switch therapies due to
lack of reimbursement for existing therapies. In addition, since CHEMOSAT currently is approved for commercialization
solely in the EU and limited other jurisdictions (including the United Kingdom), and HEPZATO is approved only in the
United States, if we are unsuccessful in commercializing the products in the EU and the United States, we will have no
means of generating revenue.
In addition, the potential market opportunity for CHEMOSAT and HEPZATO is difficult to precisely estimate. Our
estimates of the potential market opportunity for CHEMOSAT and HEPZATO for their approved indications, or in other
indications include several key assumptions based on our industry knowledge, industry publications, third-party research
reports and other surveys. However, no independent source has verified such assumptions. If any of these assumptions
proves to be inaccurate, then the actual market for CHEMOSAT and HEPZATO could be smaller than our estimates of
potential market opportunity. If the actual market for CHEMOSAT and HEPZATO is smaller than we expect, our product
revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.
The sizes of the market opportunities for our product or product candidates, particularly HEPZATO for the treatment of
mUM and CHEMOSAT for the treatment of cancers of the liver, have not been established with precision and may be
smaller than we estimate, possibly materially. If our estimates of the sizes overestimate these markets, our sales growth
may be adversely affected. We may also not be able to grow the markets for our product candidates as intended or at all.
Our assessment of the potential market opportunity for HEPZATO and other product candidates that we develop is based
on industry and market data that we obtained from industry publications and research, surveys and studies conducted by
third parties and our own internal market research studies. Industry publications and third-party research, surveys and
studies generally indicate that their information has been obtained from sources believed to be reliable, although they do
not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-
party research, surveys and studies are reliable, we have not independently verified such data. Similarly, although the
27
Table of Contents
studies we have conducted are based on information that we believe to be complete and reliable, we cannot guarantee that
such information is accurate or complete. Therefore, our estimates of the potential market opportunities for our product
candidates include several key assumptions based on our industry knowledge, industry publications, third-party research
and our own studies and market research, which may be based on a small sample size and fail to accurately reflect market
opportunities. While we believe that our internal assumptions and the bases of the studies and research, we have conducted
are reasonable, no independent source has verified such assumptions or bases. If any of our assumptions or estimates, or
these publications, research, surveys or studies prove to be inaccurate, then the actual market for HEPZATO, CHEMOSAT
or any of our other product candidates may be smaller than we expect, and as a result our revenue from product sales may
be limited and it may be more difficult for us to achieve or maintain profitability.
Risks Related to FDA and Foreign Regulatory Approvals and Regulatory Matters
The development and approval process in the United States and abroad could take many years, require substantial
resources and may never lead to the approval of our product candidates by the FDA for use in the United States or by
foreign regulators in their respective jurisdictions.
We cannot commercialize, sell or market any products in the United States without prior FDA approval. Foreign regulatory
authorities, such as the European Medicines Agency (the “EMA”), impose similar requirements. We have received
regulatory approval for HEPZATO for the treatment of adult patients with unresectable hepatic-dominant mUM in the
United States, but there is no assurance that we will receive regulatory approvals for HEPZATO for the treatment in other
jurisdictions, or for other indications in any jurisdiction. Similarly, we have received approval for CHEMOSAT in Europe,
but there is no assurance that we will receive regulatory approvals for CHEMOSAT in other jurisdictions. Securing
regulatory approval requires the submission of extensive pre-clinical and clinical data and other supporting information for
each proposed therapeutic indication in order to establish to the FDA’s satisfaction the product’s safety, efficacy, potency
and purity for each intended use. Clinical development is a long, expensive and uncertain process and is subject to delays.
The start or end of a clinical trial is often delayed or halted due to changing regulatory requirements, manufacturing
challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of
care, availability, or prevalence of use of a comparator treatment or required prior therapy, clinical outcomes including
insufficient efficacy, safety concerns, or our own financial constraints. If we commence additional clinical trials in the
future, we may encounter delays or rejections for various reasons.
If we do not maintain regulatory approval for HEPZATO, our business, results of operations, financial condition and
prospects would be materially and adversely affected. In addition, our failure to successfully complete clinical trials of our
product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our
product candidates would significantly harm our business.
Our ability to market HEPZATO is limited to those uses that are approved.
The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for
direct-to-consumer advertising, dissemination of off-label information, industry-sponsored scientific and educational
activities and promotional activities involving the Internet. Drugs may be marketed only for the approved indications and in
accordance with the provisions of the approved label. Our ability to market and promote HEPZATO is limited to the
approved indication. Physicians may prescribe legally available drugs for uses that are not described in the product’s
labeling and that differ from those tested by us and approved by the FDA within their own medical judgment. The FDA
does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent
restrictions on manufacturers’ communications regarding off-label use. Thus, we may only market HEPZATO for its
approved indication and could be subject to enforcement action for off-label marketing. Further, if there are any
modifications to the product, including changes to product, labeling or manufacturing processes or facilities, we may be
required to submit and obtain prior FDA approval, which may require us to develop additional data or conduct additional
studies. Failure to comply with these requirements can result in adverse publicity, FDA warning letters, corrective
advertising and potential civil and criminal penalties.
If future clinical trials are unsuccessful, significantly delayed or not completed, we may not be able to market
HEPZATO for other indications.
HEPZATO is now approved for the treatment of adult patients with unresectable hepatic-dominant metastatic uveal
melanoma. The approval was based primarily on the results of the FOCUS Trial, a Phase 3, single arm, multicenter, open
label study.
We plan to begin the study of HEPZATO for other indications in the future and failure can occur at any stage of
development, for many reasons, including:
28
Table of Contents
•
any pre-clinical or clinical test may fail to produce results satisfactory to the FDA or foreign regulatory
authorities;
• we may not be able to establish and maintain the supply of necessary components, including melphalan, bulk drug
substances and drug products to maintain sufficient supply to conduct such clinical studies;
•
•
pre-clinical or clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory
approval;
negative or inconclusive results from a pre-clinical study or clinical trial or adverse medical events during a
clinical trial could cause a pre-clinical study or clinical trial to be repeated or a program to be terminated, even if
other studies or trials relating to the program are successful;
•
the FDA or foreign regulatory authorities can place a clinical hold on a trial if, among other reasons, it finds that
patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury;
• we may encounter delays or rejections based on changes in regulatory agency policies during the period in which
we are developing a system, or the period required for review of any application for regulatory agency approval;
•
•
enrollment in any additional clinical trials may proceed more slowly than expected; and
the FDA or a foreign regulatory authority may change its approval policies or adopt new regulations that may
negatively affect or delay our ability to bring a product to market or require additional clinical trials;
The failure or delay of clinical trials could cause an increase in the cost of product development, delay filing of an NDA for
marketing approval or cause us to cease the development of HEPZATO for other indications. If we are unable to develop
HEPZATO for other indications, the future growth of our business could be negatively impacted.
We have obtained the right to affix the CE Mark for the CHEMOSAT Hepatic Delivery System as a medical device for
the delivery of melphalan in the EU. Since we may only promote the device within this specific indication, if physicians
are unable or unwilling to obtain melphalan separately for use with CHEMOSAT, our ability to commercialize
CHEMOSAT in the EU will be significantly limited.
In the EU, CHEMOSAT is regulated as a Class III medical device indicated for the intra-arterial administration of a
chemotherapeutic agent, melphalan hydrochloride, to the liver with additional extracorporeal filtration of the venous blood
return. Our ability to market and promote CHEMOSAT is limited to this approved indication. To the extent that our
promotion of CHEMOSAT is found to be outside the scope of its approved indication, we may be subject to fines or other
regulatory action, limiting our ability to commercialize CHEMOSAT in the EU.
If physicians are unable or unwilling to obtain melphalan separately for use with CHEMOSAT, our ability to
commercialize CHEMOSAT in the EU will be significantly limited. Our product instructions and indication reference the
chemotherapeutic agent melphalan. However, no melphalan labels in the EU reference our product, and the labels vary
from country to country with respect to the approved indication of the drug and its mode of administration. As a result, the
delivery of melphalan with our device may not be within the applicable label with respect to some indications in some
Member States of the EU where the drugs are authorized for marketing. Physicians intending to use CHEMOSAT must
obtain melphalan separately for use with CHEMOSAT and must use melphalan independently at their discretion. If
physicians are unable or unwilling to obtain melphalan separately from CHEMOSAT and/or to prescribe the use of
melphalan independently, our sales opportunities in the EU will be significantly limited.
We are subject to significant ongoing regulatory obligations and oversight in the EU and the United States and will be
in any other country where we receive marketing authorization or approval.
We are subject to ongoing regulatory obligations and oversight in the countries where HEPZATO and CHEMOSAT have
been approved. For example, we may be subject to limitations on the approved indicated uses for which the product may be
marketed or to the conditions of approval, or requirements for potentially costly post-marketing testing, including Phase IV
clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. With HEPZATO’s approval, the
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and
recordkeeping for the product are subject to extensive and ongoing regulatory requirements. In addition, post-marketing
requirements for HEPZATO include implementation of a REMS program to ensure that the benefits of the product
outweigh its risks. We must implement and ensure compliance with the HEPZATO REMS.
29
Table of Contents
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or
frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
•
•
•
•
•
•
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or
voluntary or mandatory product recalls or seizures;
fines, FDA warning letters or untitled letters, or holds on clinical trials;
import or export restrictions;
injunctions or the imposition of civil or criminal penalties;
restrictions on product administration, requirements for additional clinical trials or changes to product labeling or
REMS programs; or
recommendations by regulatory authorities against entering into governmental contracts with us.
If we are not able to maintain regulatory compliance, we may lose any marketing approval that we obtained and may not
achieve or sustain profitability, which would have a material adverse effect on our business, results of operations, financial
condition and prospects.
We may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates.
The FDA has granted us six orphan drug designations and we may seek additional orphan drug designations in the future.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively
small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan
drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer
than 200,000 individuals in the United States.
Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the
indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes
the FDA or the EMA, from approving another marketing application for the same indication for that drug during that time
period. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period
can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently
profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA
determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantity of the drug to meet the needs of patients with the rare disease or condition.
We cannot assure you that any future application for orphan drug designation with respect to any product candidate will be
granted. If we are unable to obtain or maintain orphan drug designation in the United States, we will not be eligible to
obtain the period of market exclusivity that could result from orphan drug designation or be afforded the financial
incentives associated with orphan drug designation. Even if we obtain orphan drug exclusivity for a product, that
exclusivity may not effectively protect the product from competition because different drugs can be approved for the same
condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition
if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a
major contribution to patient care.
We relied and may continue to rely on third parties to conduct certain elements of clinical trials for CHEMOSAT and
HEPZATO, should we seek to obtain regulatory approval for use of these products to treat additional indications for
which we do not currently have regulatory approval, or for any future product candidates, if any, and if these third
parties do not perform their obligations to us, we may not be able to obtain the necessary regulatory approval for our
products or product candidates, as applicable.
We design the clinical trials for our products, but rely on academic institutions, corporate partners, contract research
organizations and other third parties to assist in managing, monitoring and otherwise carrying out these trials. We also plan
on relying heavily on these parties for the execution of our clinical studies and control only certain aspects of their
activities. Accordingly, we may have less control over the timing and other aspects of these clinical trials than if we
conducted them entirely on our own. We intend to rely on third parties to conduct monitoring and data collection of our
future clinical trials, however, we are ultimately responsible for confirming that each of our clinical trials is conducted in
accordance with our general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require
us to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and
results are credible and accurate and that the trial participants are adequately protected. The FDA enforces these GCP
30
Table of Contents
regulations through periodic inspections of trial sponsors, principal investigators and trial sites. Our reliance on third
parties does not relieve us of these responsibilities and requirements and if we or the third parties upon whom we rely for
our clinical trials fail to comply with the applicable GCPs, the data generated in our clinical trials may be deemed
unreliable and the FDA or other foreign regulatory agencies may require us to perform additional trials before approving
our marketing application. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical
trials comply or complied with GCPs. In addition, our clinical trials must be conducted with product that complies with the
FDA’s cGMP requirements and we are dependent on third-party manufacturing and supply of critical components
necessary for such clinical trial supply. To the extent a critical component relies on a single-sourced manufacture/supplier
our ability to mitigate this risk decreases. Our failure, or any failure by such third-party partners, to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process, and may result in a
failure to obtain regulatory approval for product candidates then being studied.
Purchasers of CHEMOSAT in Europe may not receive third-party reimbursement or such reimbursement may be
inadequate. Without adequate reimbursement, commercialization of CHEMOSAT in Europe may not be successful.
We have obtained the right to affix the CE Mark for CHEMOSAT, and we intend to seek third-party or government
reimbursement within those countries in Europe where we expect to market and sell CHEMOSAT. In Germany, we had
received a ZE diagnostic-related group code (“ZE Code”) which, beginning in 2016, permits hospitals in Germany to
obtain reimbursement for CHEMOSAT procedures. Negotiations on the amount of reimbursement to be received under the
ZE Code were concluded in 2016 and the procedure was reimbursed under the ZE Code in 2017. Reimbursement
negotiations under the ZE system are conducted annually. Consequently, reimbursement obtained may not be for the full
amount sought. In countries where we are able to obtain reimbursement, local policy could limit our ability to obtain
adequate and consistent reimbursement and limit other sales opportunities in those countries.
In other countries, until we obtain government reimbursement, we will rely on private payors or local pre-approved funds
where available. There are also no assurances that third-party payors or government health agencies in Europe will
reimburse use of CHEMOSAT in the long term or at all. Further, each country has its own protocols regarding
reimbursement, so successfully obtaining third party or government health agency reimbursement in one country does not
necessarily translate to similar reimbursement in another European country. Physicians, hospitals and other health care
providers may be reluctant to purchase CHEMOSAT if they do not receive substantial reimbursement for the cost of using
the product from third-party payors or government entities. The lack of adequate reimbursement may significantly limit
sales opportunities in Europe.
The success of our products may be harmed if the government, private health insurers or other third-party payors do not
provide sufficient coverage or reimbursement.
Our ability to commercialize CHEMOSAT and HEPZATO successfully will depend in part on the extent to which
reimbursement for the costs of such products and related treatments will be available from government health
administration authorities, private health insurers and other third-party payors. For products administered under the
supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the
higher prices often associated with such products. Additionally, separate reimbursement for the product itself or the
treatment or procedure in which the product is used may not be available, which may impact physician utilization. We will
seek reimbursement by third-party payors of the cost of HEPZATO, but there are no assurances that adequate third-party
coverage will be adequate for us to realize an appropriate return on our investment in developing new therapies.
Government, private health insurers and other third-party payors are increasingly attempting to contain healthcare costs by
limiting both coverage and the level of reimbursement for new therapeutic products approved for marketing. Accordingly,
even if coverage and reimbursement are provided by government, private health insurers and third-party payors for uses of
our products, market acceptance of these products would be adversely affected if the reimbursement available proves to be
unprofitable for healthcare providers. Even if favorable coverage and reimbursement status is attained for any of our
products or product candidates that receive regulatory approval, less favorable coverage policies and reimbursement rates
may be implemented in the future.
In the United States, decisions about reimbursement for new medicines under Medicare are made by CMS, as the
administrator for the Medicare program. On January 30, 2024, CMS announced an established permanent and product-
specific J-Code for HEPTAZO. The J-Code (J9248) will become effective on April 1, 2024. J-Codes are part of the
Healthcare Common Procedure Coding System, or HCPCS, as maintained by CMS. However, there is no guarantee that
these billing codes, or the payment amounts, if any, associated with such codes will not change in the future.
Further implementation of healthcare reforms in the United States and in significant overseas markets may limit the ability
to commercialize CHEMOSAT and HEPZATO and the demand for CHEMOSAT and HEPZATO.
Healthcare providers may respond to such cost-containment pressures by choosing lower cost products or other therapies.
31
Table of Contents
CHEMOSAT and HEPZATO may not achieve sufficient acceptance by the medical community to sustain our business.
The commercial success of CHEMOSAT and HEPZATO will depend upon their acceptance by the medical community
and third-party payors as clinically useful, cost effective and safe. Acceptance by the medical community may depend on
the extent to which leaders in the scientific and medical communities publish scientific papers in reputable academic
journals. If testing and clinical practice do not confirm the safety and efficacy of CHEMOSAT and HEPZATO or even if
further testing and clinical practice produce positive results but the medical community does not view these favorably, our
efforts to market CHEMOSAT and HEPZATO may fail, which would cause us to cease operation.
We may be subject, directly or indirectly, to federal and state health care fraud and abuse laws, false claims laws and
health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we
could face substantial penalties.
Our operations are directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws.
These laws may affect, among other things, our proposed sales, marketing and education programs. In addition, we may be
subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The
laws that may affect our ability to operate include, but are not limited to:
•
•
•
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully
soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the
purchase or recommendation of an item or service reimbursable under a federal health care program, such as
Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare,
Medicaid or other third-party payors that are false or fraudulent;
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional
federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare
benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or
HITECH, and its implementing regulations, which impose certain requirements on covered entities, their
respective business associates and covered subcontractors, and others relating to the privacy, security and
transmission of individually identifiable health information;
• Washington’s My Health My Data Act, or MHMD, which broadly defines consumer health data, places
restrictions on processing consumer health data (including imposing stringent requirements for consents), provides
consumers certain rights with respect to their health data, and creates a private right of action to allow individuals
to sue for violations of the law. Other states are considering and may adopt similar laws;
•
•
the federal transparency requirements under the Patient Protection and Affordable Care Act of 2010, which
requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and
Human Services information related to certain payments and other transfers of value provided to physicians,
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals
(such as physicians assistants and nurse practitioners), and teaching hospitals, as well as certain ownership and
investment interests held by physicians and their immediate family members; and
state law and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers,
and state laws governing the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks
cannot be entirely eliminated. If our operations are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to significant penalties, including exclusion from payment by
federal health care programs, civil and criminal penalties, damages, fines and the curtailment or restructuring of our
operations, any of which could adversely affect our ability to operate our business and our results of operations. Moreover,
achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
32
Table of Contents
We are subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations, industry
standards, policies and other obligations related to information privacy and security. Our actual or perceived failure to
comply with such obligations could lead to regulatory investigations or actions; litigation (including class claims) and
mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of
revenue or profits; loss of customers or sales; and other adverse business consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible,
protect, secure, dispose of, transmit, and share (collectively, “process”) personal data and other sensitive information,
including proprietary and confidential business data, trade secrets, intellectual property and data.
Our data processing is subject to numerous domestic and foreign information privacy and security obligations such as
various laws, regulations, guidance, industry standards, external and internal information privacy and security policies,
contractual requirements, and other obligations relating to information privacy and security. The confidentiality, collection,
use and disclosure of personal data, including clinical trial patient-specific information, are subject to governmental
regulation generally in the country where the personal data were collected or used. In the United States we are subject to
various state and federal information privacy and security regulations, including but not limited to, HIPAA as amended by
HITECH, which mandates, among other things, the adoption of uniform standards for the electronic exchange of
information in common health care transactions, as well as standards relating to the privacy and security of individually
identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect
such information. For more information regarding risks associated with HIPAA, please refer to the section above that
discusses risks associated with federal and state healthcare laws and regulations.
Moreover, in the United States, federal, state, and local governments have enacted numerous information privacy and
security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5
of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). In the past few years, numerous
U.S. states - including California, Virginia, Colorado, Connecticut, and Utah - have enacted comprehensive information
privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy
notices and affording residents with certain rights concerning their personal data. These state laws allow for statutory fines
for noncompliance. For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy
Rights Act of 2020, (collectively, “CCPA”) applies to personal data of consumers, business representatives, and employees
who are California residents, and requires businesses to provide specific disclosures in privacy notices and honor requests
of such individuals to exercise certain privacy rights. The CCPA provides for fines of up to $7,500 per intentional violation
and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws are
being considered in several other states, as well as at the federal and local levels, and we expect more states to pass similar
laws in the future. These developments further complicate compliance efforts, and increase legal risk and compliance costs
for us, and the third parties upon whom we rely.
Outside the United States, an increasing number of laws, regulations, and industry standards govern information privacy
and security. For example, both the European Union’s General Data Protection Regulation (“EU GDPR”) and the United
Kingdom’s GDPR (“UK GDPR”) define personal data to include any information that relates to an identified or
identifiable natural person with identifiable health information carrying additional obligations, including obtaining the
explicit consent from the individual for collection, use or disclosure of their information. Under the GDPR, companies may
face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros under the
EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue, whichever is
greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer
protection organizations authorized at law to represent their interests. In addition, we may transfer personal data from
Europe and other jurisdictions to the United States or other countries and may be subject to EU regulation with respect to
limiting the cross-border transfers of such data out of the European Economic Area (“EEA”) to the United States or other
countries. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and
UK to the United States in compliance with law, such as the EEA standard contractual clauses, the UK’s International Data
Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows
for transfers to relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these
mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to
lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the
EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too
onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the
need to relocate part of or all of our business or data processing activities to other jurisdictions (such as Europe) at
significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data
33
Table of Contents
and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal
data necessary to operate our business.
We are also bound by contractual obligations related to information privacy and security, and our efforts to comply with
such obligations may not be successful. We publish privacy policies, marketing materials and other statements, such as
compliance with certain certifications or self-regulatory principles, regarding information privacy and security. If these
policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative
of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Furthermore, the legislative and regulatory landscape for information privacy and security continues to evolve, and there
has been an increasing amount of focus on privacy and security issues. The United States and the European Union and its
member states continue to issue new privacy and data protection rules and regulations that relate to personal data.
Obligations related to information privacy and security (and consumers’ data privacy expectations) are quickly changing,
becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing
applications and interpretations, which may be inconsistent or conflict among jurisdictions.
Compliance with information privacy and security laws may be time consuming, difficult and/or require us to devote
significant resources. If we or the third parties on which we rely fail, or are perceived to have failed, to comply with
applicable laws, regulations or duties relating to the use, privacy or security of personal data we could be subject to
significant consequences including: government enforcement actions (e.g., investigations, fines, penalties, audits,
inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting
requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; reputational
harm; or be forced to alter our business practices or change our business model. Any of these events could have a material
adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers;
interruptions or stoppages in our business operations; inability to process personal data or to operate in certain jurisdictions;
limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry;
adverse publicity; or substantial changes to our business model or operations.
Changes in health care law and implementing regulations, including government restrictions on pricing and
reimbursement, as well as health care policy and other health care payor cost-containment initiatives, may have a
material adverse effect on us.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and
proposed changes regarding the health care system and efforts to control health care costs, including drug prices, that could
have a significant negative impact on our business, including preventing, limiting or delaying regulatory approval of our
drug candidates and reducing the sales and profits derived from our products once they are approved.
For example, in the United States, the Patient Protection and Affordable Care Act of 2010, or ACA, substantially changed
the way health care is financed by both governmental and private insurers and significantly affects the pharmaceutical
industry. The ACA, among other things, subjected manufacturers to new annual fees and taxes for specified branded
prescription drugs, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate
Program, expanded health care fraud and abuse laws, revised the methodology by which rebates owed by manufacturers to
the state and federal government for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated,
imposed an additional rebate similar to an inflation penalty on new formulations of drugs, extended the Medicaid Drug
Rebate Program to Medicaid managed care organizations, expanded the 340B program, which caps the price at which
manufacturers can sell covered outpatient pharmaceuticals to specified hospitals, clinics and community health centers, and
provided incentives to programs that increase the federal government’s comparative effectiveness research. Since its
enactment, there have been judicial and Congressional challenges and amendments to certain aspects of ACA. While
Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under
the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) includes a provision repealing,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail
to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On
June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is
unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Congressional actions to repeal
and replace provisions of the law and litigation and legislation over the ACA is likely to continue with unpredictable and
uncertain results.
More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA was signed into law by President Biden.
The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to
Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient
prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price
34
Table of Contents
negotiations with Medicare (and the maximum price as a result of the negotiations becoming effective beginning on
January 1, 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare
Part D for price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program
with a new discounting program (beginning in 2025). The IRA permits the Department of Health and Human Services, or
HHS, to implement many of these provisions through guidance, as opposed to regulation, for the initial years
These provisions take effect progressively starting in fiscal year 2023. On August 29, 2023, HHS announced the list of the
first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently
subject to legal challenges. Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential
excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated
“maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires
manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps
Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a
year. In response to the Biden administration’s October 2022 executive order, on February 14, 2023, HHS released a report
outlining three new models for testing by the CMS Innovation Center which will be evaluated on their ability to lower the
cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any
health reform measures in the future. Further, on December 7, 2023, the Biden administration announced an initiative to
control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023,
the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for
Considering the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency
can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is
uncertain if that will continue under the new framework.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed
to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
Consolidation in the healthcare industry could lead to demands for price concessions.
The cost of healthcare has risen significantly over the past decade and numerous initiatives and reforms initiated by
legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the medical device
industry. Group purchasing organizations, independent delivery networks and large single accounts in the United States
and foreign markets may result in a consolidation of purchasing decisions for potential healthcare provider customers. We
expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue
to change the worldwide healthcare industry, resulting in further business consolidations and alliances which may exert
further downward pressure on the price of CHEMOSAT and HEPZATO and adversely impact our business, financial
condition and results of operations.
Risks Related to our Intellectual Property
Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us
more effectively.
Our success depends significantly on our ability to maintain and protect our proprietary rights in the technologies and
inventions used in or embodied by our products. To protect our proprietary technology, we rely on patent protection, as
well as a combination of copyright, trade secret and trademark laws, as well as nondisclosure, confidentiality, license and
other contractual restrictions in our employment, manufacturing, consulting and other third-party agreements. These legal
means may afford only limited protection, however, and may not adequately protect our rights or permit us to gain or keep
any competitive advantage.
We have not and may not be able to adequately protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products and technologies in all countries throughout the world could be
prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing
countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries may
not protect our intellectual property rights to the same extent as laws in the United States. Consequently, we may not be
able to prevent third parties from copying our inventions in foreign countries to the extent we can in the United States.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection that covers the
commercial products to develop their own competing products that are the same or substantially the same as our
35
Table of Contents
commercial product and, further, may export otherwise infringing products to territories where we have patent protection,
but judicial systems do not adequately enforce patents to cause infringing activities to be ceased.
We do not have patent rights in certain foreign countries in which a market for our product and technologies exists or may
exist in the future. Moreover, in foreign jurisdictions where we do have patent rights, proceedings to enforce such rights
could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents
at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing, and could provoke
third parties to assert claims against us. The complexity and uncertainty of European patent laws have increased in recent
years. In Europe, the new unitary patent system that came into effect in June of 2023, would significantly impact European
patents, including those granted before the introduction of such a system. Under the unitary patent system, European
applications will have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the
jurisdiction of the Unitary Patent Court (UPC). As the UPC is a new court system, there is no precedent for the court,
increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC will have the option of
opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under
the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful,
could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term
effects of any potential changes. We may not prevail in any lawsuits that we initiate, and the damages or other remedies
awarded, if any, may not be commercially meaningful. Thus, we may not be able to stop a competitor from marketing and
selling in foreign countries products that are the same as or similar to our product and technologies.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection
could be reduced or eliminated for non-compliance with these requirements.
The USPTO, and various foreign governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process. In addition, periodic
maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the
patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance
with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or
patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events
that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond
to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal
documents. If we fail to maintain the patents and patent applications covering our product or procedures, we may not be
able to stop a competitor from marketing products that are the same as or similar to our product and technologies.
Our success depends in part on our ability to obtain patents, which can be an expensive, time consuming, and uncertain
process, and the value of the patents is dependent in part on the breadth of coverage and the relationship between the
coverage and the commercial product.
The patent position of medical drug and device companies is generally highly uncertain. The degree of patent protection we
require may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us
sufficient exclusivity, or to gain or keep our competitive advantage. For example:
•
•
•
•
•
we might not have been the first to invent or the first to file patent applications on the inventions covered by
each of our pending patent applications and issued patents;
others may independently develop similar or alternative technologies or duplicate any of our technologies;
the patents of others may have an adverse effect on our business;
any patents we obtain or license from others in the future may not encompass commercially viable products,
may not provide us with any competitive advantages or may be challenged by third parties; and
any patents we obtain or license from others in the future may not be valid or enforceable.
The process of applying for patent protection itself is time consuming and expensive and we cannot assure you that we
have prepared or will be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable
cost or in a timely manner. It is possible that innovation over the course of development and commercialization may lead to
changes in CHEMOSAT and HEPZATO methods and/or devices that cause such methods and/or devices to fall outside the
scope of the patent protection we have obtained and the patent protection we have obtained may become less valuable. It is
also possible that we will fail to identify patentable aspects of inventions made in the course of development and
commercialization activities before it is too late to obtain patent protection on them. In addition, our patents and
applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is
possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the
36
Table of Contents
future, for example, with respect to proper priority claims, inventorship, claim scope or patent term adjustments. Moreover,
we cannot assure you that all of our pending patent applications will issue as patents or that, if issued, they will issue in a
form that will be advantageous to us.
Our success depends in part on our ability to commercialize CHEMOSAT and HEPZATO prior to the expiration of our
patent protection.
Our patent protection for CHEMOSAT and HEPZATO is primarily in the United States and the EU. We currently have
patents in the United States and the EU directed to our product, system, components, procedure, and method of treatment,
with additional design patent protection in Argentina, Canada, Europe, the UK, and Japan. Our patents provide patent
protection for our CHEMOSAT hepatic delivery system, HEPZATO, hemofiltration cartridge apparatus, hemofiltration
cartridge design, methods of treatment of a subject with cancer in accordance with various embodiments of our system,
embodiments of our system for delivering a high concentration of a small molecule chemotherapeutic agent to a subject
while minimizing systemic exposure to the small molecule chemotherapeutic agent, and methods of setting up a filter
apparatus for hemofiltration in accordance with our procedures using our proprietary hepatic deliver system. However,
patents have a limited lifespan. In the United States and the EU, the ordinary statutory natural expiration of a utility patent
is generally 20 years from its filing date. Various extensions may be available; however, the life of a patent, and the
protection it affords, is limited.
We may in the future become involved in lawsuits to protect or enforce our intellectual property, or to defend our
products against assertion of intellectual property rights by a third party, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To stop any
such infringement or unauthorized use, litigation may be necessary. Our intellectual property has not been tested in
litigation. There is no assurance that any of our issued patents will be upheld if later challenged or will provide significant
protection or commercial advantage. A court may declare our patents invalid or unenforceable, may refuse to stop the other
party from using the technology at issue on the grounds that our patents do not cover the technology in question, or may
interpret the claims of our patents narrowly, thereby substantially narrowing the scope of patent protection they afford.
Because of the length of time and expense associated with bringing new medical drugs and devices to the market, the
healthcare industry has traditionally placed considerable emphasis on patent and trade secret protection for significant new
technologies. Other parties may challenge patents, patent claims or patent applications licensed or issued to us, or may
design around technologies we have patented, licensed or developed.
In addition, third parties may initiate legal or administrative proceedings against us to challenge the validity or scope of our
intellectual property rights, such as inter partes review, post-grant review, re-examination or opposition proceedings before
the USPTO, the European Patent Office or other foreign counterparts. Third parties may also allege an ownership right in
our patents, as a result of their past employment or consultancy with us. Many of our current and potential competitors
have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can.
Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our
intellectual property. Competing products may also be sold in other countries in which our patent coverage might not exist
or be as strong. If we lose a foreign patent lawsuit, alleging our infringement of a competitor’s patents, we could be
prevented from marketing our product in one or more foreign countries.
Our competitors or other patent holders may assert that our products and the methods employed in our products are covered
by their patents. Although we have performed a search for third-party patents and believe we have adequate defenses
available if faced with any allegations that we infringe these third-party patents, it is possible that CHEMOSAT and
HEPZATO could be found to infringe these patents. It is also possible that our competitors or potential competitors may
have patents, or have applied for, will apply for, or will obtain patents that will prevent, limit or interfere with our ability to
make, have made, use, sell, offer for sale, import or export our product. If our products or methods are found to infringe,
we could be prevented from manufacturing or marketing our product.
Companies in the medical drug/device industry may use intellectual property infringement litigation to gain a competitive
advantage. In the United States, patent applications filed in recent years are confidential for 18 months, while older
applications are not publicly available until the patent issues. As a result, there may be some uncertainties associated with
avoiding patent infringement. Litigation may be necessary to enforce any patents issued or assigned to us or to determine
the scope and validity of third-party proprietary rights. Litigation could be costly and could divert our attention from our
business. There are no guarantees that we will receive a favorable outcome in any such litigation. If a third-party claims
that we infringed its patents, any of the following may occur:
•
we may become liable for substantial damages for past infringement if a court decides that our technologies
infringe upon a competitor’s patent;
37
Table of Contents
•
•
we may become prohibited from selling or licensing our product without a license from the patent holder,
which may not be available on commercially acceptable terms or at all, or which may require us to pay
substantial royalties or grant cross-licenses to our patents; and
we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be
possible or could require substantial funds or time.
Litigation related to infringement and other intellectual property claims such as trade secrets, with or without merit, is
unpredictable, can be expensive and time-consuming, and can divert management’s attention from our core business. If we
lose this kind of litigation, a court could require us to pay substantial damages, treble damages, and attorneys’ fees, and
could prohibit us from using technologies essential to our product, any of which would have a material adverse effect on
our business, results of operations, and financial condition. If relevant third-party patents are upheld as valid and
enforceable and we are found to infringe, we could be prevented from selling our product unless we can obtain licenses to
use technology covered by such patents. We do not know whether any necessary licenses would be available to us on
satisfactory terms, if at all. If we cannot obtain these licenses, we could be forced to design around those patents at
additional cost or abandon the product altogether. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to
be negative, it could cause the price of our common stock to decline.
If others have filed patent applications with respect to inventions for which we already have patents issued to us or have
patent applications pending, we may be forced to participate in interference or derivation proceedings declared by the
USPTO to determine priority of invention, which could also be costly and could divert our attention from our business. If
the USPTO declares an interference and determines that our patent or application is not entitled to a priority date earlier
than that of the other patent application, our ability to maintain or obtain those patent rights will be curtailed. Similarly, if
the USPTO declares a derivation proceeding and determines that the invention covered by our patent application was
derived from another, we will not be able to obtain patent coverage of that invention.
Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible
that, before CHEMOSAT and HEPZATO or any other product can be commercialized, any related patent may expire or
remain in force for only a short period following commercialization, thereby reducing any advantages of the patent. Not all
of our U.S. patent rights have corresponding patent rights effective in European or other foreign jurisdictions. Similar
considerations apply in any other country where we are prosecuting patent applications, have been issued patents, or have
decided not to pursue patent protection relating to our technology. The laws of foreign countries may not protect our
intellectual property rights to the same extent as do laws of the United States.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our
product and our technologies.
Patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding
the prosecution, enforcement, and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the
U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws
of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how
the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of
patent laws or changes to patent laws that might be enacted into law by United States and foreign legislative bodies. Those
changes may materially affect our patents or patent applications and our ability to obtain and enforce or defend additional
patent protection in the future.
Our trademarks may be infringed or successfully challenged, resulting in harm to our business.
We rely on our trademarks as one means to distinguish for our customers our products from the products of our
competitors, and we have registered or applied to register many of these trademarks. The USPTO or foreign trademark
offices may deny our trademark applications, however, and even if published or registered, these trademarks may be
ineffective in protecting our brand and goodwill and may be successfully opposed or challenged. Third parties may oppose
our trademark applications, or otherwise challenge our use of our trademarks. In addition, third parties may use marks that
are confusingly similar to our own, which could result in confusion or a likelihood of confusion among our customers,
thereby weakening the strength of our brand or allowing such third parties to capitalize on our goodwill. In such an event,
or if our trademarks are successfully challenged, we could be forced to rebrand our product, which could result in loss of
brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may
infringe our trademarks and we may not have adequate resources to enforce our trademark rights in the face of any such
infringement.
38
Table of Contents
We may rely primarily on trade secret protection for important proprietary technologies.
In addition to patent and trademark protection, we also rely on trade secrets, including unpatented know-how, technology,
and other proprietary information, to maintain our competitive position. Unlike patents, trade secrets are only recognized
under applicable law if they are kept secret by restricting their disclosure to third parties. We protect our trade secrets and
proprietary knowledge in part through confidentiality agreements with employees, consultants and other parties. However,
certain consultants and third parties with whom we have business relationships, and to whom in some cases we have
disclosed trade secrets and other proprietary knowledge, may also provide services to other parties in the medical device/
pharmaceutical industry, including companies, universities and research organizations that are developing competing
products. In addition, some of our former employees who were exposed to certain of our trade secrets and other proprietary
knowledge in the course of their employment may seek employment with, and become employed by, our competitors. We
cannot be assured that consultants, employees and other third parties with whom we have entered into confidentiality
agreements will not breach the terms of such agreements by improperly using or disclosing our trade secrets or other
proprietary knowledge. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not
know whether the steps we have taken to protect our intellectual property will be effective. In addition, we may not be able
to obtain adequate remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a
trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside
and outside the United States are less willing or unwilling to protect trade secrets.
Trade secret protection does not prevent independent discovery of the technology or proprietary information or use of the
same. Competitors may independently duplicate or exceed our technology in whole or in part. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those
to whom they communicate it, from using that technology or information to compete with us in countries where we do not
have patent protection.
Similar considerations apply in foreign countries where we receive approval and do not have issued patents for the current
version of CHEMOSAT and HEPZATO. In these countries, our ability to successfully commercialize CHEMOSAT and
HEPZATO will depend on our ability to maintain trade secret protection in these markets.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our
competitors.
We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed
alleged trade secrets or other proprietary information of former employers, competitors, or other third parties. Although we
endeavor to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-
how or trade secrets of others in their work for us, we may in the future be subject to claims that we caused an employee to
breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have,
inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer
or competitor. Litigation may be necessary to defend against these claims. Even if we are successful in defending against
these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those
claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or features that are
essential to our product, if such technologies or features are found to incorporate or be derived from the trade secrets or
other proprietary information of the former employers or other third parties. An inability to incorporate technologies or
features that are important or essential to our product may prevent us from selling our product. In addition, we may lose
valuable intellectual property rights or personnel. Moreover, any such litigation or the threat thereof may adversely affect
our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work
product could hamper or prevent our ability to commercialize our product.
Risks Related to Our Common Stock
The market price of our common stock has been, and may continue to be volatile and fluctuate significantly, which
could result in substantial losses for investors.
The trading price of our common stock has been, and we expect it to continue to be, volatile. For example, the closing
trading price of our common stock has varied between a high of $7.96 on May 31, 2023 and a low of $2.25 on November
14, 2023. The price at which our common stock trades depends upon a number of factors, including historical and
anticipated operating results, our financial situation, announcements of technological innovations or new products by us or
our competitors, our ability or inability to raise the additional capital needed and the terms on which it may be raised, and
general market and economic conditions. Some of these factors are beyond our control. Broad market fluctuations may
lower the market price of our common stock and affect the volume of trading, regardless of our financial condition, results
39
Table of Contents
of operations, business or prospects. Among the factors that may cause the market price of our common stock to fluctuate
are the risks described elsewhere in this “Risk Factors” section and other factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fluctuations in our quarterly operating results or the operating results of competitors;
variance in financial performance from the expectations of investors;
changes in the estimation of the future size and growth rate of our markets;
changes in accounting principles or changes in interpretations of existing principles, which could affect
financial results;
conditions and trends in the markets served;
changes in general economic, industry and market conditions;
success of competitive products and services;
changes in market valuations or earnings of competitors;
changes in pricing policies or the pricing policies of competitors;
announcements of significant new products, contracts, acquisitions or strategic alliances by us or our
competitors;
potentially negative announcements, such as a review of any of our filings by the SEC, changes in accounting
treatment or restatements of previously reported financial results or delays in our filings with the SEC;
the commencement or outcome of litigation involving us, our general industry or both;
our filing for protection under federal bankruptcy laws;
changes in capital structure, such as future issuances of securities or the incurrence of additional debt;
actual or expected sales of common stock by stockholders; and
the trading volume of our common stock.
In addition, the stock markets and the market for pharmaceutical companies in particular, may experience a loss of investor
confidence. Such loss of investor confidence may result in extreme price and volume fluctuations in our common stock that
are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations.
These broad market and industry factors may materially harm the market price of our common stock and expose us to
securities class action litigation. Such litigation, even if unsuccessful, could be costly to defend and divert management’s
attention and resources, which could further materially harm our financial condition and results of operations.
Because of volatility in our trading price and trading volume, we may incur significant costs from class action securities
litigation.
Holders of stock in companies that have a volatile stock price frequently bring securities class action litigation against the
company that issued the stock. We may be the target of this type of litigation in the future. If any of our stockholders were
to bring a lawsuit of this type against us, even if the lawsuit is without merit, we could incur substantial costs defending the
lawsuit and the time and attention of our management could be diverted from other business concerns, either of which
could seriously harm our business.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may
occur, could adversely affect the market price of our common stock and could impair our ability to raise additional
equity capital.
As of December 31, 2023, 22,761,554 shares of common stock are issued and outstanding, and we have reserved
20,510,737 shares of our common stock for future issuance pursuant to our stock option and equity incentive plans,
outstanding warrants and preferred stock.
Future sales of a substantial number of shares of our common stock in the public market or the perception that such sales
may occur, or the issuance of our common stock pursuant to outstanding warrants or convertible preferred stock, could
cause immediate dilution and adversely affect the market price of our common stock. The sale or issuance of our common
stock, as well as the existence of outstanding stock options and shares of common stock reserved for issuance under our
equity incentive plans and outstanding warrants and convertible preferred stock, could cause the market price of our
common stock to decline and could impair our ability to raise capital through the sale of additional equity securities. We
cannot predict the effect that future sales of shares of our common stock or other equity-related securities would have on
the market price of our common stock.
40
Table of Contents
We have a history of reverse splits, which have severely impacted our common stock price.
Since our initial public offering in 2000, we have effected five reverse stock splits. Each such reverse split has resulted in
an effective decline in the price of our common stock. There can be no assurance that we will not be required to effect one
or more additional reverse stock splits which could further impact the market price and liquidity of our common stock.
Anti-takeover provisions in our Amended and Restated Certificate of Incorporation and By-laws may reduce the
likelihood of a potential change of control or make it more difficult for our stockholders to replace management.
Certain provisions of our Amended and Restated Certificate of Incorporation and By-laws could have the effect of making
it more difficult for our stockholders to replace management at a time when a substantial number of stockholders might
favor a change in management. These provisions include providing for a staggered board of directors and authorizing the
board of directors to fill vacant directorships or increase the size of the board of directors.
Furthermore, our Board has the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to
determine the rights and preferences of the shares of any such series without stockholder approval. To date, we have
designated the following series of preferred stock: Series A (4,200 shares), Series B (2,360 shares), Series C (590 shares),
Series D (10,000 shares), Series E (40,000 shares), Series E-1 (12,960 shares), Series F-1 (24,900 shares), Series F-2
(24,900 shares), Series F-3 (34,860 shares) and Series F-4 (24,900 shares). Any series of preferred stock is likely to be
senior to the common stock with respect to dividends, liquidation rights and, possibly, voting rights. The Board’s ability to
issue preferred stock may have the effect of discouraging unsolicited acquisition proposals, thus adversely affecting the
market price of our common stock.
We have never declared or paid any dividends to the holders of our common stock and we do not expect to pay cash
dividends in the foreseeable future.
We intend to retain all earnings for use in connection with the expansion of our business and for general corporate
purposes. The Board will have the sole discretion in determining whether to declare and pay dividends in the future. The
declaration of dividends will depend on profitability, financial condition, cash requirements, future prospects and other
factors deemed relevant by our Board. Our ability to pay cash dividends in the future could be limited or prohibited by the
terms of financing agreements that we may enter into or by the terms of any preferred stock that may be authorized and
issued. For example, the terms of the Avenue Loan Agreement contain negative covenants prohibiting us from issuing cash
dividends. We do not expect to pay dividends in the foreseeable future. As a result, holders of our common stock must rely
on stock appreciation for any return on their investment.
If we engage in acquisitions, reorganizations or business combinations, we will incur a variety of risks that could
adversely affect our business operations or our stockholders.
From time to time, we may consider strategic alternatives, such as acquiring businesses, technologies or products or
entering into a business combination with another company. If we do pursue such a strategy, we could, among other things:
•
•
•
•
•
•
•
issue equity securities that would dilute current stockholders’ percentage ownership;
incur substantial debt that may place strains on our operations;
spend substantial operational, financial and management resources in integrating new businesses, personnel,
intellectual property, technologies and products;
assume substantial actual or contingent liabilities;
reprioritize our programs and even cease development and commercialization of CHEMOSAT and
HEPZATO;
suffer the loss of key personnel; or
merge with, or otherwise enter into a business combination with, another company in which our stockholders
would receive cash or shares of the other company or a combination of both on terms that certain of our
stockholders may not deem desirable.
Although we intend to evaluate and consider different strategic alternatives, we have no agreements or understandings with
respect to any acquisition, reorganization, or business combination at this time.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our
market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our
securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may
publish about us, our business, market or competitors. Securities and industry analysts do not currently, and may never,
41
Table of Contents
publish research on us. If no securities or industry analysts commence coverage of us, the price and trading volume of our
securities would likely be negatively impacted. If any of the analysts who may cover us change their recommendation
regarding our shares of common stock adversely, or provide more favorable relative recommendations about our
competitors, the price of our shares of common stock would likely decline. If any analyst who may cover us were to cease
coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn
could cause our share price or trading volume to decline.
General Risk Factors
The loss of key personnel could adversely affect our business.
Our success depends upon the efforts of our employees. The loss of any of our senior executives or other key employees
could harm our business. Competition for experienced personnel is intense and, if key individuals leave us, we could be
adversely affected if suitable replacement personnel are not quickly identified and hired. Competition for qualified
individuals exists in all functional areas, which makes it difficult to attract and retain the qualified employees we need to
operate our business. Our success also depends in part on our ability to attract and retain highly qualified scientific,
technical, commercial and administrative personnel. If we are unable to attract new employees and retain our current key
employees, our ability to compete could be adversely affected and the development and commercialization of our products
could be delayed or negatively impacted.
We and the third parties that support us rely on the proper function, availability and security of information technology
systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect
on our business, including by not limited to regulatory investigations or actions; litigation; fines and penalties;
disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.
We and the third parties upon which we rely collect, receive, store, process, generate, use, transfer, disclose, make
accessible, protect, secure, dispose of, transmit, and share (collectively, processing) proprietary, confidential, and sensitive
data, including personal data (such as health-related data), intellectual property and trade secrets (collectively, sensitive
information) in our day-to-day operations.
Similar to other companies, the size and complexity of our information technology systems makes them vulnerable to a
variety of evolving threats, including cyber-attack, malicious intrusion, breakdown, destruction, loss of information
privacy, or other significant disruption that threaten the confidentiality, integrity, and availability of our sensitive
information and information technology systems, and those of the third parties upon which we rely. Such threats are
prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional
computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or
misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to
continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in
conjunction with military conflicts and defense activities. During times of war and other major conflicts, we, the third
parties upon which we rely, may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that
could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and
services.
We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-
engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake, and
phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat
intrusions), denial-of-service attacks, credential stuffing attacks, credential harvesting, personnel misconduct or error,
ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or
other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, attacks enhanced or
facilitated by artificial intelligence (“AI”), and other similar threats. Remote work has become more common and has
increased risks to our information technology systems and data, as more of our employees utilize network connections,
computers and devices outside our premises or network, including working at home, while in transit and in public
locations.
Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks
and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’
systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such
acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment
and security program.
42
Table of Contents
We rely on third-party service providers and technologies to operate critical business systems to process sensitive
information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities,
encryption and authentication technology, employee email, content delivery to customers, and other functions. Our ability
to monitor these third parties’ information security practices is limited, and these third parties may not have adequate
information security measures in place. If our third-party service providers experience a security incident or other
interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service
providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our
damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency and
severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply
chains have not been compromised.
While we have implemented security measures designed to protect against security incidents, there can be no assurance that
these measures will be effective. We take steps designed to detect, mitigate, and remediate vulnerabilities in our
information systems. We may not, however, detect and remediate all such vulnerabilities including on a timely basis.
Unremediated high risk or critical vulnerabilities pose material risks to our business. Further, we may experience delays in
developing and deploying remedial measures and patches designed to address identified vulnerabilities.
Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance
existing systems and develop new systems to keep pace with continuing changes in information processing technology,
evolving systems and regulatory standards. We may expend significant resources or modify our business activities
(including our clinical trial activities) to try to protect against security incidents. Any failure by us to maintain or protect
our information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could
result in the unauthorized access to sensitive information, or otherwise compromise our confidential or proprietary
information and disrupt our operations. Applicable information privacy and security obligations may require us to notify
relevant stakeholders, including affected individuals, customers, regulators, and investors, of security incidents. Such
disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse
consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have
experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for
example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight;
restrictions on processing sensitive information (including personal data); litigation (including class claims);
indemnification obligations; negative publicity; reputational harm; monetary fund diversions; diversion of management
attention; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security
incidents and attendant consequences may prevent or cause customers to stop using our services, deter new customers from
using our services, and negatively impact our ability to grow and operate our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of
liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and
security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to
mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on
commercially reasonable terms or at all, or that such coverage will pay future claims.
In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us
from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and
could be used to undermine our competitive advantage or market position.
We will continue to incur significant costs as a result of operating as a public company, and our management will
continue to devote substantial time to compliance initiatives.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses. As a
public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-
Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and
Nasdaq. Our management and other personnel need to continue to devote a substantial amount of time to comply with
these requirements. Moreover, these rules and regulations have increased, and will continue to increase, our legal and
financial compliance costs and make some activities more time consuming and costly. The increased costs may increase
our net loss. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies. This could result in future uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. The impact of these requirements could also make it more
difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as our executive
officers.
43
Table of Contents
We are a “smaller reporting company” and have elected to comply with reduced public company reporting
requirements, which could make our common stock less attractive to investors.
Because our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market
value of our voting and non-voting common stock held by non-affiliates was less than $700.0 million measured on the last
business day of our second fiscal quarter, we qualify again as a “smaller reporting company” as defined in the Exchange
Act. Accordingly, we may provide less public disclosure than larger public companies, including, the inclusion of only two
years of audited financial statements and only two years of related selected financial data and management’s discussion and
analysis of financial condition and results of operations disclosure. We are also not required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, the information that we provide to our
stockholders may be different than you might receive from other public reporting companies in which you hold equity
interests. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these
exemptions. If some investors find our common stock less attractive as a result of any choice we make to reduce disclosure,
there may be a less active trading market for our common stock and the market price for our common stock may be more
volatile.
Our business could be adversely affected by economic downturns, inflation, increases in interest rates, natural disasters,
public health crises, political crises, global geopolitical conflicts, or other macroeconomic conditions, which have in the
past and may in the future negatively impact our business and financial performance.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including,
among other things, severely diminished liquidity and credit availability, declines in economic growth, supply chain
shortages and disruptions, increases in inflation rates, higher interest rates and uncertainty about economic stability.
The Federal Reserve has raised interest rates multiple times in response to concerns about inflation and it may raise them
again. Higher interest rates, coupled with the risk of government shutdowns reduced government spending and volatility in
financial markets may increase economic uncertainty and affect consumer spending. Similarly, public health crises and
ongoing global geopolitical conflict has created extreme volatility in the global capital markets and is expected to have
further global economic consequences, including disruptions of the global supply chain and energy markets. Any such
volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit
markets deteriorate, or do not improve, including as a result of political unrest or war, it may make any necessary debt or
equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.
Further downgrades of the U.S. credit rating, automatic spending cuts, or a government shutdown could negatively
impact our liquidity, financial condition and earnings.
The U.S. debt ceiling and budget deficit concerns have increased the possibility of credit-rating downgrades and economic
slowdowns, or a recession in the United States. Although U.S. lawmakers have previously passed legislation to raise the
federal debt ceiling on multiple occasions, there is a history of ratings agencies lowering or threatening to lower the long-
term sovereign credit rating on the United States given such uncertainty. On August 1, 2023, Fitch Ratings downgraded the
U.S.’ long-term foreign currency issuer default rating to AA+ from AAA as a result of these repeated debt ceiling and
budget deficit concerns. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or
its perceived creditworthiness could adversely affect the United States and global financial markets and economic
conditions. Moreover, these developments could cause interest rates and borrowing costs to rise, which may negatively
impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has
caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions
could have a material adverse effect on our business, financial condition and results of operations.
Environmental, social and governance matters and any related reporting obligations may impact our business.
U.S. and international regulators, investors and other stakeholders are increasingly focused on environmental, social and
governance matters. For example, new domestic and international laws and regulations relating to environmental, social
and governance matters, including environmental sustainability and climate change, human capital management and
cybersecurity, are under consideration or being adopted, which may include specific, target-driven disclosure requirements
or obligations. Our response could require additional investments and implementation of new practices and reporting
processes, all entailing additional compliance risk.
Item 1B. Unresolved Staff Comments.
Not applicable.
44
Table of Contents
Item 1C. Cybersecurity.
We have implemented and maintain various information security processes designed to identify, assess and manage
material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications
systems, hardware and software, and our critical data, including intellectual property, confidential information that is
proprietary, strategic or competitive in nature, and clinical trial data results (“Information Systems and Data”).
The Company’s Senior Vice President of Finance (“SVPF”) and Director of Information Technology (“IT”) help identify,
assess and manage cybersecurity risk, including input from employees, and devote resources to cybersecurity and risk
management processes to adapt to the changing cybersecurity landscape and respond to emerging threats. The SVPF and
Director of IT identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and
the Company’s risk profile using various methods including, for example maintaining manual and automated tools,
conducting scans of threats and actors, evaluating threats reported to us, completing internal and external audits, and
completing third-party threat assessments.
We have processes and standards to address cybersecurity matters and mitigate material cybersecurity risk. Depending on
the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards
and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and
Data, including, for example, encryption standards, access controls, disaster recovery/business continuity plans, incident
detection and response, antivirus protection, remote access security, and multi factor authentication. All employees are
required to complete cybersecurity trainings at least once a year.
Our assessment and management of material risks from cybersecurity threats are integrated into the Company’s overall risk
management processes. For example, our Director of IT along with management evaluates material risks from
cybersecurity threats against our overall business objectives and reports to the Board, which evaluates our overall
enterprise risk.
The SVPF and Director of IT, who has over thirty years of experience in information technology and has both a computer
science and information science degree, are responsible for developing and implementing our information security program
and reporting on cybersecurity matters to the Board of Directors. We support our information security program with
external resources including cybersecurity software providers and advisors as needed.
We have a vendor management processes to manage cybersecurity risks associated with our use of these external providers
that includes a risk assessment for each vendor, reviews of vendor audits and reports, and we also impose certain
contractual information security obligations on vendors. Depending on the nature of the services provided, the sensitivity
of the Information Systems and Data at issue, and the identity of the provider, our vendor management process may
involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose
contractual obligations related to cybersecurity on the provider. Our assessment of risks associated with the use of third-
party providers is part of our overall cybersecurity risk management framework.
The Board, as part of its general oversight function, participate in discussions with senior management and amongst
themselves regarding cybersecurity risks. With the assistance of the Company’s most senior IT manager, we review
annually the cyber and data security risks of our overall IT environment. We assess cybersecurity risk and the overall
environment which includes devices, IT systems, websites, social media accounts, manufacturing technology/systems and
suppliers/vendors. The oversight from the Board includes material changes to policies, procedures, employee training and
elements of the overall environment, as necessary, senior management provides an update on emerging cyber threats. The
Board has access, as requested, to various reports, summaries or presentations related to cybersecurity threats, risk and
mitigation.
Our cybersecurity incident response plan is designed to escalate certain cybersecurity incidents to members of senior
management, depending on the circumstances. Senior management works with the Company’s cybersecurity incident
response team to help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition,
the Company’s cybersecurity incident response plan includes reporting to the Board for certain cybersecurity incidents.
We face a number of cybersecurity risks in connection with our business. For more information about the cybersecurity
risks we face, see the risk factor entitled “We and the third parties that support us rely on the proper function, availability
and security of information technology systems to operate our business and a cyber-attack or other breach of these systems
could have a material adverse effect on our business, including by not limited to regulatory investigations or actions;
litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and
other adverse consequences” in Item 1A- Risk Factors.
45
Table of Contents
Item 2. Properties.
Our corporate offices occupy 10,320 square feet at 566 Queensbury Avenue in Queensbury, New York. The corporate
office is owned by the Company. We ended the sublease for our former corporate offices at 1633 Broadway, Suite 22C,
New York, New York in February 2024. We also own a building comprised of approximately 6,000 square feet at 95-97
Park Road in Queensbury, New York. These Queensbury facilities house manufacturing, quality assurance and quality
control, research and development, and office space functions. We also own approximately four acres of land at 12 and 14
Park Road in Queensbury, New York. In January 2024, we entered into a five-year lease for approximately 18,000 square
feet of space at 2 Country Club Road in Queensbury, New York. In addition, we sub-lease a facility for office and
manufacturing comprised of approximately 2,409 square feet at 19 Mervue, Industrial Park in Galway, Ireland under a
lease agreement that expires in August 2026. We believe substantially all of our property and equipment is in good
condition and that we have sufficient capacity to meet current operational needs.
Item 3. Legal Proceedings.
From time to time, claims are made against the Company in the ordinary course of business, which could result in
litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such
as monetary damages, fines, penalties, or injunctions prohibiting us from selling our products or engaging in other
activities.
medac Matter
See Note 15 - “Commitment and Contingencies - Litigation, Claims and Assessments - medac Matter” for more
information.
Item 4. Mine Safety Disclosures.
Not applicable.
46
Table of Contents
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information.
Our common stock, par value $0.01 per share, is traded on The Nasdaq Capital Market under the symbol “DCTH.”
Holders.
On February 29, 2024, there were approximately 57 holders of record of our common stock based on information furnished
by Equiniti, LLC, the transfer agent for our securities.
Dividend Policy.
We have never declared or paid cash dividends on our common stock and have no intention to do so in the foreseeable
future. Furthermore, the terms of the Avenue Loan Agreement contain negative covenants prohibiting us from issuing cash
dividends.
Recent Sales of Unregistered Securities.
See Note 12 - “Preferred Purchase Agreement” for more information.
Repurchases of Equity Securities.
We did not repurchase any shares of our common stock during the fiscal year ended December 31, 2023.
Item 6. [Reserved.]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited
consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Overview
We are an interventional oncology company focused on the treatment of primary and cancers metastatic to the liver. Our
lead product, the HEPZATO KIT (“HEPZATO” melphalan for Injection/Hepatic Delivery System), a drug/device
combination product, was approved by the FDA on August 14, 2023 indicated as a liver-directed treatment for adult
patients with uveal melanoma with unresectable hepatic metastases affecting less than 50% of the liver and no extrahepatic
disease, or extrahepatic disease limited to the bone, lymph nodes, subcutaneous tissues, or lung that is amenable to
resection or radiation. In Europe, the hepatic delivery system is a stand-alone medical device having the same device
components as HEPZATO KIT, 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 in the liver.
In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by 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 us 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).
Our clinical development program for HEPZATO was comprised of the FOCUS Trial, a global registration clinical trial
that investigated objective response rate in patients with mUM. We are currently reviewing the incidence, unmet medical
need, and development requirements for a broad set of cancers of the liver in order to select a portfolio of follow-on
indications that will maximize the value of the HEPZATO KIT. In addition to HEPZATO’s use to treat mUM, we believe
that HEPZATO has the potential to treat other liver dominant cancers, such as metastatic colorectal cancer, metastatic
neuroendocrine tumors, metastatic breast cancer and intrahepatic cholangiocarcinoma, and plan to begin the study of
47
Table of Contents
HEPZATO KIT to treat such conditions in the near future. We believe that those and similar disease states are areas of
unmet medical needs that represent significant market opportunities.
We have sufficient raw material and component constituent parts of HEPZATO KIT to meet the first year of our
anticipated demand and we intend to manage supply chain risk through stockpiled inventory and contracting with multiple
suppliers for critical components.
On February 28, 2022, CHEMOSAT received Medical Device Regulation (MDR) certification under the European
Medical Devices Regulation (EU) 2017/745, which may be considered by jurisdictions when evaluating reimbursement. As
of March 1, 2022, we have assumed direct responsibility for sales, marketing and distribution of CHEMOSAT in Europe.
Liquidity and Capital Resources
On December 31, 2023, we had cash, cash equivalents and restricted cash totaling $12.7 million and short-term
investments totaling $19.8 million, as compared to cash, cash equivalents and restricted cash totaling $11.8 million on
December 31, 2022. During the years ended December 31, 2023 and 2022, we used $31.3 million and $25.0 million,
respectively, of cash in our operating activities, and $6.3 million and $0.7 million, respectively, for principal payments of
outstanding debt.
Our future results are subject to substantial risks and uncertainties. We have operated at a loss for our entire history and
there can be no assurance that we will ever achieve or maintain profitability. We have historically funded our operations
primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of common stock
and from the exercise of such warrants, sales of preferred stock, proceeds from the issuance of convertible debt and
borrowings under loan and security agreements.
Funding Requirements
If there is a substantial delay in the activation of sites approved to administer HEPZATO, we expect to need to raise
additional capital under structures available to us, including debt and/or equity offerings, which may not be on terms
favorable to us. In a substantially delayed site activation scenario, we will not have sufficient funds to meet our obligations
within twelve months from the issuance date of these condensed consolidated financial statements. As such, there is
uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial
doubt about our ability to continue as a going concern.
Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our
ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we
raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that
may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds
through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market our product candidates even if we
would otherwise prefer to develop and market such product candidates ourselves.
We also expect to use cash and cash equivalents to fund activities relating to commercial support for HEPZATO,
CHEMOSAT and any future clinical research trials and operating activities. Our future liquidity and capital requirements
will depend on numerous factors, including our ability to successfully commercialize HEPZATO and CHEMOSAT; the
cost of and our ability to obtain additional regulatory approvals for HEPZATO and CHEMOSAT in additional jurisdictions
and for additional indications; our ability to build a commercial infrastructure for HEPZATO for the treatment of mUM in
the United States; obtaining regulatory approvals and complying with applicable laws and regulations; the timing and
effectiveness of product commercialization activities, including marketing arrangements; our headcount growth and
associated costs as we expand our research and development and establish a commercial infrastructure; the timing and
costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; and the effect of
competing technological and market developments.
Capital Commitments
Our capital commitments over the next twelve months include (a) $6.3 million to satisfy accounts payable, accrued
expenses, current lease liabilities and current medac settlement and (b) $10.6 million of loan and convertible note principal
payments, if the holders do not elect to convert up to $5.0 million of the notes into equity. Additional capital commitments
beyond the next twelve months include (a) $0.8 million for settlement of litigation with medac and (b) less than $0.1
million of lease liabilities.
48
Table of Contents
Sources of Liquidity
ATM Sales Agreement
We entered into a Controlled Equity OfferingSM Sales Agreement (“ATM Sales Agreement”), with Cantor Fitzgerald & Co.
(the “Sales Agent”), pursuant to which we may offer and sell, at our sole discretion through the Sales Agent, shares of
common stock having an aggregate offering price of up to $17.0 million. To date, we have sold approximately $4.0 million
of our common stock, prior to issuance costs, under the ATM Sales Agreement. No sales were made during the year ending
December 31, 2023.
Avenue Loan Agreement
On August 6, 2021, we entered into the Avenue Loan Agreement with Avenue Venture Opportunities Fund, L.P. (the
“Lender,” or “Avenue”), as amended on March 31, 2023, for a term loan in an aggregate principal amount of up to $20.0
million (the “Avenue Loan”). The Avenue Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.7%
plus the prime rate as reported in The Wall Street Journal and (b) 10.95%. The interest rate pursuant to the Avenue Loan on
December 31, 2023 was 16.20%. The Avenue Loan is secured by all of our assets globally, including intellectual property.
The Avenue Loan matures on August 1, 2024. On March 15, 2023, we returned to Avenue $4.0 million held in the
restricted cash to pay down a portion of the outstanding loan balance, principal payments of $2.1 million and an
incremental 4.25% of the final payment of $0.2 million. On March 31, 2023, we reached an agreement to amend the
existing loan agreement with Avenue to defer the interest only period to September 30, 2023 with an additional extension
option upon the FDA approval for the HEPZATO KIT and subsequent receipt of at least $10 million from the sale and
issuance of equity securities. In exchange for this extension, the Company agreed to provide Avenue with 34,072 warrants
to purchase shares of common stock. The exercise price of the warrants is $0.01. On August 14, 2023, the Company
received the FDA approval for the HEPZATO KIT and subsequently received over $10 million from the exercise of
warrants. At our option, we elected to extend the interest only period to December 31, 2023. Principal payments of
approximately $1.0 million began in January 2024.
Private Placements, Common Offering and Warrants
On March 27, 2023, we entered into a securities purchase agreement with certain accredited investors (the “Preferred
Purchase Agreement”), pursuant to which we agreed to issue and sell, in a private placement (the “Series F Preferred
Offering”), (i) 24,900 shares of our Series F-1 Convertible Preferred Stock, par value $0.01 per share (the “Series F-1
Preferred Stock”), (ii) tranche A warrants (the “Preferred Tranche A Warrant”) to acquire 34,859 shares of Series F-3
Convertible Preferred Stock, par value $0.01 per share (the “Series F-3 Preferred Stock”) and (iii) tranche B warrants (the
“Preferred Tranche B Warrant,” together with the Preferred Tranche A Warrant, the “Preferred Warrants”) to acquire
24,900 shares of Series F-4 Convertible Preferred Stock, par value $0.01 per share (the “Series F-4 Preferred Stock”) for an
aggregate offering price of $24.9 million before deducting the fees paid to the placement agent and the financial advisors
and other financing expenses payable by us.
Also on March 27, 2023, we entered into a securities purchase agreement with the our Chief Executive Officer, Gerard
Michel, pursuant to which we agreed to issue and sell, in a private placement (the “Common Offering”, and together with
the Series F Preferred Offering, the “Private Placements”), (i) 19,646 shares of common stock, (ii) tranche A warrants to
acquire 31,110 shares of common stock (the “Common Tranche A Warrants”, and together with the Preferred Tranche A
Warrants, the “Tranche A Warrants”) and (iii) tranche B warrants to acquire 16,666 shares of common stock (the
“Common Tranche B Warrants”, and together with the Preferred Tranche B Warrants, the “Tranche B Warrants”) for an
approximate aggregate offering price of $0.1 million.
On June 12, 2023, the stockholders approved the Private Placements at the annual general meeting of stockholders and
therefore, the Preferred Warrants and Common Warrants issued in the Private Placements are exercisable. The exercise of
all such Preferred Warrants and Common Warrants would generate approximately $60.0 million in proceeds. There can be
no guarantee that all such Warrants are ever exercised, and if so, there is no guarantee that we will ever receive the full
$60.0 million in proceeds. During the twelve months ended December 31, 2023, all of the Preferred Tranche A Warrants
were exercised for an aggregate exercise price of $34.9 million into 34,859 shares of Series F-3 Preferred Stock and all of
the Common Tranche A Warrants were exercised for an aggregate exercise price of $0.1 million into 31,110 shares of
common stock.
As of December 31, 2023, 46,197 shares of our Series F-1, F-2 and F-3 Preferred Stock were converted into 12,073,145
shares of common stock.
49
Table of Contents
Results of Operations
(In thousands)
Total revenues
Cost of goods sold
Gross profit
Research and development expenses
Selling, general and administrative expenses
Total operating expenses
Operating loss
Interest and other income (expense)
Net loss
Revenue
Year ended December 31,
2023
2022
$
2,065 $
(635)
1,430
17,502
22,110
39,612
(38,182)
(9,496)
2,719
(686)
2,033
18,583
17,303
35,886
(33,853)
(2,655)
$
(47,678) $
(36,508)
We recorded approximately $2.1 million in product revenue during the year ended December 31, 2023. During the same
period in 2022, we recorded $2.5 million in product revenue and $0.2 million in other revenue. Our product revenues
decreased $0.6 million primarily due to transitioning to direct selling of CHEMOSAT beginning in March 2022. Other
revenues decreased as a result of the amortization of our license agreement with medac, pursuant to which medac had
served as our exclusive distributor of CHEMOSAT in the United Kingdom and European Union.
Cost of Goods Sold
During the year ended December 31, 2023, cost of goods sold was relatively flat between $0.6 million and $0.7 million for
both 2023 and 2022.
Research and Development Expenses
For the year ended December 31, 2023, research and development expenses decreased to $17.5 million from $18.6 million
for the year ended December 31, 2022, a decrease of $1.1 million or 6%. The decrease is primarily due to higher expenses
for preparation of the pre-NDA meeting in April 2022 and increased third party expenses throughout 2022 related to the
NDA resubmission which occurred on February 14, 2023.
Selling, General and Administrative Expenses
For the year ended December 31, 2023, selling, general and administrative expenses increased to $22.1 million from $17.3
million for the year ended December 31, 2022, an increase of $4.8 million or 28%. The increase is primarily due to
increased headcount and higher costs incurred to prepare for the commercialization of HEPZATO in the United States in
2023.
Interest Expense, Net
For the year ended December 31, 2023, we recognized $1.4 million of interest expense, as compared to $2.7 million in the
prior year, a decrease of $1.3 million. The decrease primarily relates to a reduction in interest expense after we returned
$6.3 million to Avenue in the first quarter of 2023. The net interest was further positively affected in 2023 due to investing
cash received from the Private Placements in March 2023 and the subsequent warrant exercises in August 2023.
50
Table of Contents
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States (“GAAP”). Certain critical accounting estimates have a significant impact on amounts reported in the
consolidated financial statements. A summary of those critical accounting estimates is below. Additional details can be
found in Note 3 to our audited consolidated financial statements contained in this Annual Report on Form 10-K.
Fair Value Measurements
GAAP 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, GAAP 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).
Our fair value measurements are generally related to a contingent liability, warrant liability, a preferred stock offering,
investments, and stock-based compensation.
Contingent Liabilities
Contingent liabilities are re-measured to fair value each reporting period using projected financial targets, discount rates,
probabilities of payment, and projected payment dates. Projected contingent payment amounts are discounted back to the
current period using a discounted cash flow model. Projected financial targets are based on our most recent internal
operational budgets and may take into consideration alternate scenarios that could result in more or less profitability for the
respective service line. Increases or decreases in projected financial targets and probabilities of payment may result in
significant changes in the fair value measurements. Increases in discount rates and the time to payment may result in lower
fair value measurements. Increases or decreases in any of those inputs in isolation may result in a significantly lower or
higher fair value measurement.
Warrant Liability
The valuation of the warrant liability was 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, we used probabilities of recording at least $10 million in quarterly U.S. revenue from the
commercialization of HEPZATO as inputs in the model to determine the fair value of warrants liability. We adjust the fair
value of the warranty liability at the end of each reporting period.
Stock Based Compensation
Valuation of stock options generally requires certain assumptions, including the fair market value of our common stock
(generally an observable market price, as our common stock is publicly traded), the expected term of the financial
instrument (judgment is required), the expected volatility of our common stock over the expected term (generally estimated
by reference to the historical volatility of our common stock), our expected dividend rate over the expected term (currently
estimated as zero, given that we are not projecting profits over the intermediate term) and the expected risk-free rate over
the expected term (generally estimated by reference to U.S. treasury instruments with similar remaining terms).
Accrued Expenses
We utilize contract research organizations in order to perform research and development and conduct clinical trials. In
some cases, these organizations do not bill on a timely basis. Management monitors certain key drivers of these costs and
estimates accruals in an attempt to properly match expenses incurred with the appropriate reporting period. However, there
is judgment involved and the actual billings could be more or less than the estimated accrual.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
51
Table of Contents
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID 688)
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and
2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
F-1
F-3
F-4
F-5
F-7
F-8
52
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Delcath Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Delcath Systems Inc. (the “Company”) and Subsidiaries
as of December 31, 2023 and 2022, the related consolidated statements of income operations and comprehensive loss,
stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2023 and 2022
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2023 and 2022, in conformity
with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred
significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Issuance of Preferred Equity and Warrant Liabilities
Critical Audit Matter Description
As described in Note 12 to the consolidated financial statements, the Company entered into a securities purchase agreement
in March 2023, in which the Company issued and sold in a private placement several classes of Series F preferred shares
and warrants. We identified the evaluation of the transaction date fair value and allocation of proceeds to the preferred
shares and warrants as a critical audit matter.
F-1
Table of Contents
The principal consideration for our determination that the evaluation of the transaction date fair values and allocation of
proceeds to the preferred shares and warrants was a critical audit matter is the high degree of subjective auditor judgment
associated with evaluating management’s determination of the fair values, which is primarily due to the complexity of the
valuation models used and the sensitivity of the underlying significant assumptions. The key assumptions used within the
valuation models included probabilities of successful outcomes and prospective financial information, including future
revenue growth. The calculated fair values are sensitive to changes in these key assumptions.
How the Critical Audit Matter was addressed in the Audit
Our audit procedures related to the evaluation of the transaction date fair values and allocation of proceeds to the preferred
shares and warrants included the following, among others:
• We evaluated the design effectiveness of certain controls over the transaction-date valuation process, including
controls over the development of the key assumptions such as the revenue growth and the probabilities of success.
• We obtained the valuation report from management and the third-party specialist engaged by management.
i. We assessed the qualifications and competence of management and the third-party specialist; and
ii. We evaluated the methodologies used to determine the fair values of the preferred shares and warrants.
• We tested the assumptions used within the valuation model to estimate the fair values of the preferred shares and
warrants, which included key assumptions such as the future revenue growth, probabilities of success and
volatility.
• We assessed the reasonableness of management’s forecast by inquiring with management to understand how the
forecast was developed and comparing the projections to historical results and external sources including industry
trends and peer companies’ historical data.
• We involved an internal valuation specialist who assisted in the evaluation and testing performed of the
reasonableness of significant assumptions to the models, including the applied discount rate.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2018.
New York, NY
March 26, 2024
F-2
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Right-of-use assets
Total assets
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable
Accrued expenses
Lease liabilities, current
Loan payable, current
Convertible notes payable, current
Total current liabilities
Warrant Liability
Other liabilities, non-current
Loan payable, non-current
Convertible notes payable, non-current
Total liabilities
Commitments and contingencies (see note 15)
Stockholders’ equity (deficit)
Preferred stock, $.01 par value; 10,000,000 shares authorized; 24,819 and 11,357
shares issued and outstanding at December 31, 2023 and 2022, respectively
Common stock, $.01 par value; 80,000,000 shares authorized; 22,761,554 shares and
10,046,571 shares issued and outstanding at December 31, 2023 and 2022,
respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity
December 31,
2023
December 31,
2022
$
12,646 $
50
19,808
241
3,322
1,091
37,158
1,352
103
7,671
4,151
—
366
1,998
1,969
16,155
1,422
285
$
38,613 $
17,862
$
1,012 $
5,249
37
5,239
4,911
16,448
5,548
840
—
—
2,018
4,685
186
7,846
—
14,735
—
1,144
3,070
4,772
22,836
23,721
—
—
228
100
520,576
451,608
(505,162)
(457,484)
135
15,777
(83)
(5,859)
$
38,613 $
17,862
See Accompanying Notes to these Consolidated Financial Statements.
F-3
DELCATH SYSTEMS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
Table of Contents
Product revenue
Other revenue
Total revenues
Cost of goods sold
Gross profit
Operating expenses:
Research and development expenses
Selling, general and administrative expenses
Total operating expenses
Operating loss
Change in fair value of warrant liability
Interest expense, net
Other income (expense)
Net loss
Comprehensive (loss) income:
Unrealized gains (loss) on investments
Foreign currency translation adjustments
Total comprehensive loss
Common share data:
Basic and diluted loss per common share
Weighted average number of basic and diluted shares outstanding
Year ended December 31,
2023
2022
$
2,065 $
—
2,065
(635)
1,430
17,502
22,110
39,612
2,548
171
2,719
(686)
2,033
18,583
17,303
35,886
(38,182)
(33,853)
(7,998)
(1,439)
(59)
—
(2,685)
30
(47,678)
(36,508)
157
61
—
101
(47,460) $
(36,407)
(2.94) $
(4.12)
16,229,931
8,864,615
$
$
See Accompanying Notes to these Consolidated Financial Statements.
F-4
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share and per share data)
Preferred Stock
$0.01 Par Value
Common Stock
$0.01 Par Value
Year ended December 31, 2023
No. of
Shares
Amount
No. of
Shares
Amount
Additional
Paid
in Capital
Accumulated
Deficit
Accumulated
Comprehensive
Income (Loss)
Total
Balance at January 1, 2023
11,357 $
— 10,046,571 $
100 $
451,608 $ (457,484) $
(83) $
(5,859)
Compensation expense for issuance of stock options
Compensation expense for issuance of employee stock option plan
Private placement - issuance of common stock, net of expenses
Issuance of common stock with the employee stock purchase plan
Issuance of common stock related to stock option exercises
Preferred share issuance
Conversion of Series E Preferred Shares to common stock
—
—
—
—
—
44,483
(100)
—
—
—
—
—
—
—
—
—
19,646
41,435
819
—
10,000
—
—
1
—
—
—
—
8,090
61
55
123
4
49,487
—
Conversion of Series F Preferred Shares to common stock
(30,921)
— 12,073,145
122
11,148
Issuance of common stock with common stock warrant exercises
—
—
—
—
—
—
— $
—
569,938
—
—
—
5
—
—
—
—
—
—
—
Net loss
Unrealized gain on investments
Foreign currency translation adjustments
Balance at December 31, 2023
—
—
—
—
—
—
—
—
—
(47,678)
—
—
—
—
—
—
—
—
—
—
—
—
157
61
8,090
61
56
123
4
49,487
—
11,270
5
(47,678)
157
61
24,819 $
— 22,761,554 $
228 $
520,576 $ (505,162) $
135 $ 15,777
See Accompanying Notes to these Consolidated Financial Statements.
F-5
Table of Contents
DELCATH SYSTEMS, INC
Consolidated Statements of Stockholders’ Equity (Deficit), Continued
(in thousands, except share and per share data)
Balance at January 1, 2022
Compensation expense for issuance of stock options
Private placement - issuance of common stock and prefunded
warrants, net of expenses
Net loss
Foreign currency translation adjustments
Balance at December 31, 2022
Preferred Stock
$0.01 Par Value
Common Stock
$0.01 Par Value
Year Ended December 31, 2022
No. of
Shares
Amount
No. of
Shares
Amount
Additional
Paid
in Capital
Accumulated
Deficit
Comprehensive
Income (Loss)
Total
Accumulated
11,357 $
—
—
—
—
11,357 $
—
—
—
—
—
—
7,906,728 $
79 $
432,831 $
(420,976) $
18 $ 11,952
—
2,139,843
—
—
—
21
—
—
7,941
10,836
—
—
—
—
(36,508)
—
—
—
—
7,941
10,857
(36,508)
(101)
(101)
10,046,571 $
100 $
451,608 $
(457,484) $
(83) $
(5,859)
See Accompanying Notes to these Consolidated Financial Statements.
F-6
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Statements of Cash Flows
(in thousands, except share and per share data)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense
Depreciation expense
Warrant liability fair value adjustment
Non-cash lease expense
Amortization of debt discount
Interest expense accrued related to convertible notes
Amortization of premiums and discounts on marketable securities
Changes in assets and liabilities:
Prepaid expenses and other assets
Accounts receivable
Inventory
Accounts payable and accrued expenses
Other liabilities, non-current
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities:
Purchases of investments
Sales and maturities of investments
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from private placement
Proceeds from the issuance of common stock relating to the employee stock purchase plan
Repayment of Debt
Proceeds from the exercise of warrants
Proceeds from the exercise of stock options
Net cash provided by financing activities
Foreign currency effects on cash
Net increase (decrease) in total cash
Total Cash, Cash Equivalents and Restricted Cash:
Beginning of period
End of period
Cash, Cash Equivalents and Restricted Cash consisted of the following:
Cash
Restricted Cash
Total
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest expense
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Right of use assets obtained in exchange for lease obligations
Conversion of mezzanine equity to common shares
Conversion of mezzanine equity to preferred shares
Years Ended
December 31,
2023
2022
$
(47,678) $
(36,508)
8,151
128
7,998
271
776
160
(151)
1,029
125
(1,324)
(199)
(537)
—
(31,251)
(19,651)
—
(58)
(19,709)
22,960
123
(6,313)
35,004
4
51,778
56
874
11,822
12,696 $
12,646 $
50
12,696 $
7,941
132
—
443
768
160
—
774
(322)
(587)
1,798
621
(170)
(24,950)
—
—
(209)
(209)
10,857
—
(714)
—
—
10,143
(115)
(15,131)
26,953
11,822
7,671
4,151
11,822
Years Ended
December 31,
2023
2022
1,459 $
1,873
84 $
11,269 $
7,099 $
86
—
—
$
$
$
$
$
$
$
See Accompanying Notes to these Consolidated Financial Statements.
F-7
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(1) Description of Business
The Company is an interventional oncology company focused on the treatment of primary and cancers metastatic to
the liver. The Company’s lead product, the HEPZATOTM KIT (“HEPZATO” melphalan for Injection/Hepatic
Delivery System), a drug/device combination product, was approved by the US Food and Drug Administration (the
“FDA”) on August 14, 2023, indicated as a liver-directed treatment for adult patients with uveal melanoma with
unresectable hepatic metastases affecting less than 50% of the liver and no extrahepatic disease, or extrahepatic
disease limited to the bone, lymph nodes, subcutaneous tissues, or lung that is amenable to resection, or radiation. In
Europe, the hepatic delivery system is a stand-alone medical device having the same device components as
HEPZATO KIT, 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 in the liver. The first commercial use of HEPZATO for the treatment of
mUM occurred in January 2024.
In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by
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).
The Company has sufficient raw material and component constituent parts of HEPZATO KIT to meet the first year
of its anticipated demand and it intends to manage supply chain risk through stockpiled inventory and contracting
with multiple suppliers for critical components.
On February 28, 2022, CHEMOSAT received Medical Device Regulation (MDR) certification under the European
Medical Devices Regulation (EU) 2017/745, which may be considered by jurisdictions when evaluating
reimbursement. As of March 1, 2022, the Company assumed direct responsibility for sales, marketing and
distribution of CHEMOSAT in Europe.
The Company’s clinical development program for HEPZATO was comprised of the FOCUS Clinical Trial for
Patients with metastatic hepatic dominant Uveal Melanoma (the “FOCUS Trial”), a global registration clinical trial
that investigated objective response rate in patients with metastatic uveal melanoma (“mUM”). The current focus of
the Company’s clinical development program is to generate clinical data for CHEMOSAT and HEPZATO in
patients with mUM, either as monotherapy or in combination with immunotherapy. The Company extects that this
will support increased clinical adoption of and reimbursement for CHEMOSAT in Europe, and to support
reimbursement in various jurisdictions, including the United States. In addition to HEPZATO’s use to treat mUM,
the Company believes that HEPZATO has the potential to treat cancers in the liver, such as metastatic colorectal
cancer, metastatic neuroendocrine tumors, metastatic breast cancer and intrahepatic cholangiocarcinoma, and plans
to begin one or more studies of HEPZATO KIT to treat such conditions in 2024. The Company believes that those
and similar disease states are areas of unmet medical needs that represent significant market opportunities.
Risks and Uncertainties
The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited
to, the risks associated with developing product candidates and successfully launching and commercializing its drug/
device combination products, the Company’s ability to obtain regulatory approval of its such products in the United
States and other geography markets, the uncertainty of the broad adoption of its approved products by physicians
and consumers, and significant competition.
In addition, high rates of inflation have resulted in the U.S. Federal Reserve raising interest rates. 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 additional banks and financial
F-8
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
institutions enter receivership or become insolvent in the future in response to financial conditions affecting the
banking system and financial markets, the Company or its partners’ ability to access existing cash, cash equivalents
and investments may be threatened and could have a material adverse effect on the Company’s business and
financial condition, including the Company’s ability to access additional capital on favorable terms, or at all, which
could in the future negatively affect the Company’s ability to pursue its business strategy.
Liquidity and Going Concern
On December 31, 2023, the Company had cash, cash equivalents and restricted cash totaling $12.7 million and
short-term investments totaling $19.8 million, as compared to cash, cash equivalents and restricted cash totaling
$11.8 million at December 31, 2022. During the twelve months ended December 31, 2023, the Company used
$31.3 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.
If there is a substantial delay in the activation of sites approved to administer 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 substantially delayed site activation scenario, the Company would not
have sufficient funds to meet its obligations within twelve months from the issuance date of these condensed
consolidated financial statements. As such, there is uncertainty regarding the Company’s ability to maintain liquidity
sufficient to operate its business effectively, which raises substantial doubt about the Company’s ability to continue
as a going concern. Debt financing and equity financing, if available, may involve agreements that include
covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends. If the Company raises funds through collaborations, or other
similar arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue
streams, research programs or product candidates or grant licenses on terms that may not be favorable to the
Company and/or may reduce the value of its common stock. If the Company is unable to raise additional funds
through equity or debt financings when needed, it may be required to delay, limit, reduce or terminate its product
development or future commercialization efforts or grant rights to develop and market its product candidates even if
the Company would otherwise prefer to develop and market such product candidates itself.
The Company also expects to use cash and cash equivalents to fund activities relating to commercial support for
HEPZATO, CHEMOSAT and any future clinical research trials and operating activities. The Company’s future
liquidity and capital requirements will depend on numerous factors, including the initiation and progress of clinical
trials and research and product development programs; obtaining regulatory approvals and complying with
applicable laws and regulations; the timing and effectiveness of product commercialization activities, including
marketing arrangements; the timing and costs involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights; and the effect of competing technological and market developments.
The Company’s capital commitments over the next twelve months include (a) $6.3 million to satisfy accounts
payable, accrued expenses, current lease liabilities and current medac settlement and (b) $10.6 million of loan and
convertible note principal payments, if the holders do not elect to convert up to $5.0 million of the notes into equity.
Additional capital commitments beyond the next twelve months include (a) less than $0.1 million of lease liabilities;
and (b) $0.8 million for settlement of litigation with medac.
F-9
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(2) Basis of Consolidated Financial Statement Presentation
The accounting and financial reporting policies of the Company conform to generally accepted accounting principles
in the United States of America (“GAAP”). The preparation of consolidated financial statements in conformity with
GAAP requires management to make assumptions and estimates that impact the amounts reported in the Company’s
consolidated financial statements. The consolidated financial statements include the accounts of all entities
controlled by the Company. All significant inter-company accounts and transactions are eliminated.
(3)
Summary of Significant Accounting Policies
Use of Estimates
The Company bases its estimates and judgments on historical experience and on various other assumptions that it
believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s
consolidated balance sheets and the amount of revenues and expenses reported for each of the periods presented are
affected by estimates and assumptions, which are used for, but not limited to, the accounting for valuation of
warrants, stock-based compensation, valuation of inventory, impairment of long-lived assets, income taxes and
operating expense accruals. Such assumptions and estimates are subject to change in the future as additional
information becomes available or as circumstances are modified. Actual results could differ from these estimates.
Cash Equivalents and Concentrations of Credit Risk
The Company considers investments with original maturities of three months or less at date of acquisition to be cash
equivalents. The Company has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation;
however, the Company does not consider this a significant concentration of credit risk based on the strength of the
financial institution.
Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual
agreements are recorded as restricted cash on the accompanying consolidated balance sheets.
Investments
Investments classified as short-term have maturities of less than one year. Investments classified as long-term are
those that: (i) have a maturity of greater than one year, and (ii) the Company does not intend to liquidate within the
next twelve months, although these funds are available for use and, therefore, are classified as available-for-sale.
The Company’s investment strategy is to buy short-duration Treasury bills (T-bills). As of December 31, 2023, all
investments held by the Company had remaining contractual maturities of less than five months.
Accounts Receivable
Accounts receivable, principally trade, are generally due within 30 days and are stated at amounts due from
customers. Collections and payments from customers are monitored and a provision for estimated credit losses may
be created based upon historical experience and specific customer collection issues that may be identified.
Inventories
Inventories are valued at the lower of cost or net realizable value (“NRV”) using the first-in, first-out method. The
reported “NRV” of inventory includes finished saleable products, work-in-process, and raw materials that will be
sold or used in future periods. The Company reserves for expired, obsolete, and slow-moving inventory.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost, less accumulated depreciation. The Company provides for
depreciation on a straight-line basis over the estimated useful lives of the assets which range from three to seven
F-10
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
years. Leasehold improvements will be amortized over the shorter of the lease term or the estimated useful life of the
related assets when they are placed into service. The Company evaluates property, plant and equipment for
impairment periodically to determine if changes in circumstances or the occurrence of events suggest the carrying
value of the asset or asset group may not be recoverable. Maintenance and repairs are charged to operations as
incurred. Expenditures which substantially increase the useful lives of the related assets are capitalized.
Leases
The Company determines if an arrangement is a lease at inception, in accordance with Accounting Standards
Codification (“ASC”) Topic 842, Leases. All operating lease commitments with a lease term greater than 12 months
are recognized as right-of-use assets and lease liabilities, on a discounted basis on the balance sheet. Leases with an
initial term of 12 months or less are not recorded on the balance sheet. Certain of the Company’s lease agreements
include lease payments that are adjusted periodically for an index or rate. The leases are initially measured using the
present value of the projected payments adjusted for the index or rate in effect at the commencement date. In
addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance
and other expenses, which do not transfer a good or service to the Company and are generally referred to as non-
lease components. Variable non-lease components are not measured as part of the right-of-use asset and liability.
Only when lease components and their associated non-lease components are fixed are they accounted for as a single
lease component and are recognized as part of a right-of-use asset and liability. The Company’s lease agreements do
not contain any material residual value guarantees or material restrictive covenants.
The Company may have options to renew lease terms for facilities and other assets. Some leases contain clauses for
renewal at the Company’s option with renewal terms that generally extend the lease term from 1 to 5 years. The
exercise of lease renewal options is generally at the Company’s sole discretion. The Company evaluates renewal and
termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on
the basis of economic factors.
Fair Value Measurements
The Company adheres to ASC 820, Fair Value Measurement, which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. ASC 820 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.
ASC 820 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,
ASC 820 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: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
•
•
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported by little or no 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.
F-11
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
Revenue Recognition
Revenue is generated from proprietary and partnered product sales and license and royalty arrangements. Revenue is
recognized when or as the Company transfers control of the promised goods or services to its customers in an
amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or
services. When obligations or contingencies remain after the products are shipped, such as training and certifying the
treatment centers, revenue is deferred until the obligations or contingencies are satisfied.
The Company may enter into contracts with partners that contain multiple elements such as licensing, development,
manufacturing, and commercialization components. These arrangements are often complex, and the Company may
receive various types of consideration over the life of the arrangement, including up-front fees, reimbursements for
research and development services, milestone payments, payments on product shipments, margin sharing
arrangements, license fees and royalties.
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core
principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is
possible more judgment and estimates may be required within the revenue recognition process, including identifying
performance obligations in the contract, estimating the amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate performance obligation.
The following five steps are applied to achieve that core principle:
•
•
•
•
•
Step 1: Identify the contract with the customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price, including an estimation of any variable consideration expected to be
received in connection with the contract;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when the company satisfies a performance obligation.
Each of these steps in the revenue recognition process requires management to make judgments and/or estimates.
The most significant judgements and estimates involve the determination of variable consideration to be included in
the transaction price. Variable consideration is recognized at an amount management believes is not subject to
significant reversal and is adjusted at each reporting period if the most likely amount of expected consideration
changes or becomes fixed. Management believes this provides a reasonable basis for recognizing revenue; however,
actual results could differ from estimates and significant changes in estimates could impact the Company’s results of
operations in future periods. The Company’s total revenue and accounts receivable concentration from a
CHEMOSAT customer for the year ended and as of December 31, 2023 was 16.1% and 21.1%, respectively, and
20.8% and 41.6%, respectively for the year ended December 31, 2022.
As required by ASC 606, the Company disaggregates its revenue into the categories of product revenue and other
revenue. The Company recognizes product revenue and milestone payments at a point in time, whereas other
revenues (primarily license fees) are recognized over time. Milestone payments that are contingent upon the
occurrence of future events, are evaluated and recorded at the most likely amount, and to the extent that it is
probable that a significant reversal will not occur when the associated uncertainty is resolved. See Note 15 –
Commitments and Contingencies – Litigations, Claims and Assessments – medac Matter.
F-12
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
Selling, General and Administrative
Selling, general and administrative costs include personnel costs and related expenses for the Company’s sales,
marketing, general management and administrative staff, recruitment, costs related to the Company’s
commercialization efforts, professional service fees, professional license fees, business development and certain
general legal activities. All such costs are charged to expense when incurred.
Research and Development
Research and development costs include the costs of materials used for clinical trials, personnel costs associated
with device and pharmaceutical development expenses, clinical affairs, medical affairs, medical science liaisons, and
regulatory affairs, costs of outside services and applicable indirect costs incurred in the development of the
Company’s proprietary drug delivery system. All such costs are charged to expense when incurred.
Stock Based Compensation
The Company accounts for its share-based compensation in accordance with the provisions of ASC 718, Stock-
Based Compensation, which establishes accounting for equity instruments exchanged for services. Under the
provisions of ASC 718, 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, which is generally the
vesting period of the equity grant. The Company expenses its share-based compensation granted under the
accelerated method, which treats each vesting tranche as if it were an individual grant.
The Company periodically grants stock options for a fixed number of shares of common stock to its employees,
directors, and non-employee contractors, with an exercise price greater than or equal to the fair market value of the
common stock at the date of the grant. The Company estimates the fair value of stock options using the Black-
Scholes option pricing model. Key inputs used to estimate the fair value of stock options include the exercise price
of the option, the expected term, the expected volatility of the stock over the option’s expected term, the risk-free
interest rate over the option’s expected term, and the expected annual dividend yield. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
Income Taxes
The Company accounts for income taxes following the asset and liability method in accordance with the ASC 740,
Income Taxes. Under such method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The Company applies the accounting guidance issued to address the
accounting for uncertain tax positions. This guidance clarifies the accounting for income taxes, by prescribing a
minimum recognition threshold a tax position is required to meet before being recognized in the financial statements
as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company classifies interest and penalty expense related to uncertain
tax positions as a component of income tax expense. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years that the asset is expected to be recovered or the liability
settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax
asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable
income during the period in which related temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its
assessment of a valuation allowance. See Note 17 for additional information.
Segment Information
A single management team that reports to the Chief Executive Officer comprehensively manages the business.
Accordingly, the Company does not have separately reportable segments.
F-13
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
Foreign Currency and Currency Translation
Transactions that are denominated in a foreign currency are remeasured into the functional currency at the current
exchange rate on the date of the transaction. Any foreign currency-denominated monetary assets and liabilities are
subsequently remeasured at current exchange rates, with gains or losses recognized as foreign exchange (losses)/
gains in the statements of operations.
The assets and liabilities of the Company’s international subsidiaries are translated from their functional currencies
into United States dollars at exchange rates prevailing at the balance sheet date. The majority of the foreign
subsidiaries revenues and operating expenses are denominated in Euros. The reporting currency for the Company is
the United States dollar. Average rates of exchange during the period are used to translate the statement of
operations, while historical rates of exchange are used to translate any equity transactions.
Translation adjustments arising on consolidation due to differences between average rates and balance sheet rates, as
well as unrealized foreign exchange gains or losses arising from translation of intercompany loans that are of a long-
term-investment nature, are recorded in other comprehensive income.
Subsequent Events
Management has evaluated events occurring subsequent to the consolidated balance sheet date, through March 26,
2024, which is the date the consolidated financial statements were issued, determining all subsequent events have
been disclosed.
Recently Issued Accounting Pronouncements
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses. The disclosure requirements must be applied retrospectively to all
prior periods presented in the financial statements. The effective date for the standard is for fiscal years beginning
after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early
adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on the
consolidated financial statements.
ASU 2023-09, Improvements to Income Tax Disclosures
On December 14, 2023, the FASB issued, ASU 2023-09, Improvements to Income Tax Disclosures, a final standard
on improvements to income tax disclosures. The standard requires disaggregated information about a reporting
entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard applies to all
entities subject to income taxes and is intended to benefit investors by providing more detailed income tax
disclosures that would be useful in making capital allocation decisions. For public business entities (PBEs), the new
requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied
on a prospective basis with the option to apply the standard retrospectively. The Company is currently in the process
of evaluating the effect of this guidance on its financial statements.
F-14
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(4) Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual
agreements are recorded in Restricted Cash on the balance sheet. Restricted cash does not include required minimum
balances.
Cash and cash equivalents
Restricted balance for loan agreement
Letters of credit
Security for credit cards
Total cash, cash equivalents and restricted cash shown in the statement of cash
flows
December 31,
2023
December 31,
2022
$
12,646 $
—
—
50
7,671
4,000
101
50
$
12,696 $
11,822
On March 15, 2023, the Company returned to Avenue the $4.0 million held in restricted cash to pay down a portion
of the outstanding Avenue Loan balance. See Note 11 - Loans and Convertible Notes Payable - Term Loan from
Avenue Venture Opportunities Fund, L.P. for more information. On March 31, 2023, the letter of credit for the sub-
lease agreement for office space at 1633 Broadway, New York, NY expired.
(5)
Investments
Marketable debt securities held by the Company are classified as available-for-sale pursuant to ASC 320,
Investments - Debt and Equity Securities, and carried at fair value in the accompanying condensed consolidated
balance sheets.
The following table summarizes the gross unrealized gains and losses on the Company’s marketable securities:
December 31,
2023
Gross Unrealized
U.S. government agency bonds
Classified as:
Short-term investments
Amortized
Cost
Gains
Losses
Credit Losses
Estimated
Fair Value
$
$
19,651 $
19,651 $
157 $
157 $
— $
— $
— $
— $
19,808
19,808
$
19,808
As of December 31, 2023, there was $0.2 million of interest receivable related to the outstanding debt securities held
by the Company.
F-15
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Table of Contents
(6)
Inventories
Inventories consist of:
Raw materials
Work-in-process
Finished goods
Total inventories
December 31,
2023
December 31,
2022
$
$
1,443 $
1,753
126
3,322 $
763
1,102
133
1,998
December 31,
2023
December 31,
2022
$
222 $
1,630
157
133
151
428
123
121
—
95
(7)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include the following:
Clinical trial expenses
Insurance premiums
Professional services
Interest Receivable
Other
Total prepaid expenses and other current assets
$
1,091 $
1,969
(8)
Property, Plant, and Equipment
Property, plant, and equipment consists of:
December 31,
2023
December 31,
2022
Buildings and land
Enterprise hardware and software
Leaseholds
Equipment
Furniture
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
$
1,318 $
1,857
1,787
1,263
202
6,427
(5,075)
$
1,352 $
Estimated Useful Life
1,301 30 years - Buildings
1,855 3 years
Lesser of lease term or
estimated useful life
1,774
1,222 7 years
201 5 years
6,353
(4,931)
1,422
Depreciation expense for the years ended December 31, 2023 and 2022 was $0.1 million and $0.1 million,
respectively.
F-16
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(9) Accrued Expenses
Current accrued expenses include the following:
Clinical expenses
Compensation, excluding taxes
Professional fees
Interest on convertible note
Inventory
Other
Total accrued expenses
(10) Leases
December 31,
2023
December 31,
2022
$
1,129 $
1,859
272
713
585
691
1,470
1,040
1,087
553
—
535
$
5,249 $
4,685
The Company recognizes right-of-use (“ROU”) assets and lease liabilities when it obtains the right to control an
asset under a leasing arrangement with an initial term greater than twelve months. The Company leases its facilities
under non-cancellable operating leases.
The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an
operating or financing lease and recognizes the ROU asset and lease liabilities based on the present value of future
minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit
interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a
similar collateralized basis over a similar term in order to determine the present value of its lease payments.
On June 25, 2020, the Company entered into a sub-lease agreement (the “2021 Sub-Lease”) with its previous sub-
lessee pursuant to which, effective August 2, 2021, the previous sub-lessee would become the lessee and the
Company would then sublease its portion of the premises in Galway, Ireland from the previous sub-lessee. The
Company’s rent expense under the 2021 Sub-Lease is approximately $3,700 per month for a term of five years.
On September 22, 2020, the Company entered into an amendment to a sub-lease agreement executed in March 2016
for approximately 6,877 square feet of office space at 1633 Broadway, New York, NY. The term of the sub-lease
agreement began in April 2016 and, pursuant to amendments was extended through August 2023. As of August 31,
2023, this lease has been on a month-to-month basis. No ROU assets or lease liabilities are recognized on the
balance sheet for this arrangement. The Company ended the sublease for its former corporate offices at 1633
Broadway, New York, NY in February 2024.
For the years ended December 31, 2023 and 2022, lease expense of less than $0.2 million and $0.1 million,
respectively, was recorded for short-term leases.
The following table summarizes the Company’s operating leases as of December 31, 2023:
Lease cost
Operating cash flows from operating leases
$
Weighted average remaining lease term
Weighted average discount rate - operating leases
238
—
8%
$
33
$
271
2.6
8%
U.S.
Ireland
Total
F-17
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Maturities of the Company’s operating leases, excluding short-term leases, are as follows:
Year ended December 31, 2024
Year ended December 31, 2025
Year ended December 31, 2026
Total
Less present value discount
U.S.
Ireland
Total
$
— $
44 $
—
—
—
—
44
26
114
(11)
44
44
26
114
(11)
Operating lease liabilities included in the condensed
consolidated balance sheets at December 31, 2023
$
— $
103 $
103
(11) Loans and Convertible Notes Payable
December 31, 2023
December 31, 2022
Gross
Discount
Net
Gross
Discount
Net
$
5,610 $
(371) $
5,239 $
8,570 $
(724) $
—
—
—
3,353
(283)
7,846
3,070
$
5,610 $
(371) $
5,239 $ 11,923 $
(1,007) $ 10,916
5,000
(89)
4,911
—
—
—
Loans payable, current
Loans payable, non-current
Total - Loans payable1
Convertible notes payable -
current
Convertible notes payable - non-
current
Total - Convertible notes payable
$
5,000 $
(89) $
4,911 $
5,000 $
(228) $
—
—
—
5,000
(228)
4,772
4,772
Total - Loans and notes payable
$ 10,610 $
(460) $ 10,150 $ 16,923 $
(1,235) $ 15,688
[1]
The gross amount includes the 4.25% final payment of $0.5 million.
Remaining maturities of the Company’s loan and convertible note payables are as follows:
Year ended December 31, 2024
Year ended December 31, 2025
Total
Loans
Convertible
Notes
Total
$
$
5,610 $
5,000 $
10,610
—
—
—
5,610 $
5,000 $
10,610
Term Loan from Avenue Venture Opportunities Fund, L.P.
On August 6, 2021, the Company entered into a Loan and Security Agreement (the “Avenue Loan Agreement”)
with Avenue Venture Opportunities Fund, L.P. (the “Lender,” or “Avenue”) for a term loan in an aggregate
principal amount of up to $20.0 million (the “Avenue Loan”). The Avenue Loan bears interest at an annual rate
equal to the greater of (a) the sum of 7.70% plus the prime rate as reported in The Wall Street Journal and (b)
10.95%. The interest rate at December 31, 2023 was 16.2%. The Avenue Loan is secured by all of the Company’s
assets globally, including intellectual property. The Avenue Loan matures on August 1, 2024.
F-18
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
The initial tranche of the Avenue Loan was $15.0 million, including $4.0 million that was funded into a restricted
account. On March 15, 2023, the Company returned to Avenue $4.0 million held in the restricted cash to pay down a
portion of the outstanding loan balance, principal payments of $2.1 million and an incremental 4.25% of the final
payment of $0.2 million. On March 31, 2023, the Avenue Loan Agreement was amended (the “Avenue
Amendment”) to defer the interest only period to September 30, 2023, with an additional extension option upon
FDA Approval for the HEPZATO KIT and subsequent receipt of at least $10 million from the sale and issuance of
equity securities. On August 14, 2023, the Company received FDA approval and has subsequently received over
$10 million from the exercise of Tranche A Preferred Warrants. At the Company’s option, it has elected to extend
the interest only period to December 31, 2023 and principal payments began in January 2024.
Up to $3.0 million of the principal amount of the Avenue Loan outstanding may be converted, at Avenue’s option,
into shares of the Company’s common stock at a conversion price of $11.98 per share.
The Avenue Loan Agreement requires the Company to make and maintain representations and warranties and other
agreements that are customary in loan agreements of this type. The Avenue Loan Agreement also contains
customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and
material judgements.
In connection with the initial entry into the Avenue Loan Agreement, the Company issued warrants to Avenue (the
“Initial Avenue Warrant”) to purchase 127,755 shares of common stock at an exercise price per share equal to $0.01.
The Initial Avenue Warrant is exercisable until August 31, 2026. Additionally, in connection with the Avenue
Amendment, the Company issued to Avenue a warrant to purchase 34,072 shares of common stock at an exercise
price per share equal to $0.01.
The Company determined that the embedded conversion option associated with the Avenue Loan did not require
bifurcation and met the criteria for equity classification. In addition, the amendment was recorded under debt
modification guidance. Aggregate debt discount amortization of $0.8 million was recorded for the years ended
December 31, 2023 and 2022. Interest expense incurred was $1.5 million and $1.9 million for the years ended
December 31, 2023 and 2022, respectively.
Convertible Notes Payable
The Company has $2.0 million of principal outstanding related to Senior Secured Promissory Notes (the “Rosalind
Notes”) which bear interest at 8% per annum. Pursuant to their original terms, the Rosalind Notes were convertible
into Series E Preferred Stock at a price of $1,500 per share and were to mature on July 16, 2021.
On August 6, 2021, the Company executed an agreement to amend the Rosalind Notes to (i) reduce the conversion
price to $1,198 per share of the Company’s Series E Convertible Preferred Stock; and (ii) extend the maturity date to
October 30, 2024. In addition, the holders of the Rosalind Notes agreed to subordinate all of the Company’s
indebtedness and obligations to Avenue and all of the holders’ security interest, to the Avenue Loan and Avenue’s
security interest in the Company’s property.
Interest expense relating to the Rosalind Notes was $0.2 million for the years ended December 31, 2023 and 2022.
(12) Preferred Purchase Agreement
On March 27, 2023, the Company entered into a securities purchase agreement with certain accredited investors (the
“Preferred Purchase Agreement”), pursuant to which on March 29, 2023, the Company issued and sold, in a private
placement (the “Series F Preferred Offering”), (i) 24,900 shares of Series F-1 Convertible Preferred Stock, par value
$0.01 per share (the “Series F-1 Preferred Stock”), (ii) tranche A warrants (the “Preferred Tranche A Warrants”) to
acquire 34,859 shares of Series F-3 Convertible Preferred Stock, par value $0.01 per share (the “Series F-3 Preferred
Stock”) and (iii) tranche B warrants (the “Preferred Tranche B Warrants”, together with the Preferred Tranche A
Warrants, the “Preferred Warrants”) to acquire 24,900 shares of Series F-4 Convertible Preferred Stock, par value
$0.01 per share (the “Series F-4 Preferred Stock”) for an aggregate offering price of $24.9 million before deducting
F-19
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
the fees paid to the placement agent and the financial advisors and other financing expenses payable by the
Company.
The gross proceeds of $24.9 million from the Series F Preferred Offering have been allocated first to the Preferred
Warrant liabilities at their fair value of $4.9 million, with the residual of $20.0 million being allocated to the Series
F-1 Preferred Stock.
During the twelve months ended December 31, 2023, all of the Preferred Tranche A Warrants were exercised for an
aggregate exercise price of $34.9 million into 34,859 shares of Series F-3 Preferred Stock and since then 23,839
shares of F-3 Preferred Stock were converted into 5,297,550 shares of common stock. The Preferred Tranche B
Warrants are exercisable for 24,900 shares of Series F-4 Preferred Stock, with an aggregate exercise price of
$24.9 million until the earlier of (i) 21 days following the Company’s announcement of receipt of at least
$10 million in quarterly U.S. revenue from the commercialization of HEPZATO and (ii) March 31, 2026.
Following stockholder approval, pursuant to the Certificate of Designation of Preferences, Rights and Limitations
of the Series F Convertible Voting Preferred Stock (the “Certificate of Designation”), each share of Series F-1
Preferred Stock automatically converted into shares of common stock and/or, if applicable (in accordance with the
beneficial ownership limitations then in effect), shares of Series F-2 Preferred Stock, par value $0.01 per share (the
“Series F-2 Preferred Stock” and, together with the Series F-1 Preferred Stock, the Series F-3 Preferred Stock and
the Series F-4 Preferred Stock, the “Series F Preferred Stock”) in lieu of common stock. Subject to limitations set
forth in the Certificate of Designation, the shares of Series F-2, F-3 and F-4 Preferred Stock are convertible into
common stock at the option of the holder at the conversion price of $3.30 per share, $4.50 per share and $6.00 per
share, respectively, rounded down to the nearest whole share, and in each case subject to the terms and limitations
contained in the Certificate of Designation. During the twelve months ended December 31, 2023, 46,197 shares of
the Company’s Series F-1, F-2 and F-3 Preferred Stock were converted into 12,073,145 shares of common stock.
As of December 31, 2023, there were 2,542 shares of Series F-2 Preferred Stock, 11,020 shares of Series F-3
Preferred Stock and no shares of Series F-4 Preferred Stock outstanding.
The Series F-2, F-3 and F-4 Preferred Stock are not mandatorily redeemable, redeemable at the holder’s election or
contingently redeemable at the holder’s election (at this point, a Deemed Liquidation Event would potentially
trigger pro rata liquidation payments to the preferred and common stockholders on a pro rata “as converted” basis).
Accordingly, the Series F-2, F-3 and F-4 Preferred are now classified as permanent equity.
The Company determined that the outstanding Preferred Warrants should be liability-classified. See Critical
Accounting Estimates - Fair Value Measurements - Warrant Liability for a discussion of the accounting treatment
of the Common Warrants and Preferred Warrants.
(13) Stockholders’ Equity
Public and Private Placements
Common Purchase Agreement
On March 27, 2023, the Company entered into a securities purchase agreement (the “Common Purchase
Agreement”) with the Company’s Chief Executive Officer, Gerard Michel, pursuant to which the Company agreed
to issue and sell, in a private placement (the “Common Offering”) shares of common stock, tranche A warrants
(“Common Tranche A Warrants”) to acquire 31,110 shares of common stock, tranche B warrants (“Common
Tranche B Warrants”, together with the Common Tranche A Warrants, the “Common Warrants”) to acquire 16,666
shares of common stock. On March 29, 2023, the Company closed the Common Offering.
The aggregate exercise price of the Common Tranche A Warrants issued pursuant to the Common Offering is
approximately $0.1 million.
On August 14, 2023, the Company announced the receipt of the FDA Approval and all Common Tranche A
Warrants were exercised and converted into 31,110 shares of common stock.
F-20
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
The aggregate exercise price of the Common Tranche B Warrants issued in the Common Offering is approximately
$0.1 million. The Common Tranche B Warrants are exercisable for an aggregate of 16,666 shares of common stock
until the earlier of 21 days following the Company’s announcement of receipt of recording at least $10 million in
quarterly U.S. revenue from the commercialization of HEPZATO and March 31, 2026.
Registration Rights for Preferred and Common Offerings
Pursuant to the Preferred Purchase Agreement and the Common Purchase Agreement (collectively, the “Purchase
Agreements”), the Company filed a registration statement on Form S-3 (the “Resale Registration Statement”)
providing for the resale by the investors party thereto of the common stock issuable upon conversion of the
Registrable Shares (as defined in the Purchase Agreements). The Resale Registration Statement became effective on
June 28, 2023.
There is no established public trading market for the Series F Preferred Stock, the Preferred Warrants, or the
Common Warrants and the Company does not intend to list such securities on any national securities exchange or
nationally recognized trading system.
At-the-Market Offering
The Company has entered into a Controlled Equity OfferingSM Sales Agreement (“ATM Sales Agreement”), with
Cantor Fitzgerald & Co. (the “Sales Agent”), pursuant to which the Company may offer and sell, at its sole
discretion through the Sales Agent, shares of common stock having an aggregate offering price of up to $17.0
million. To date, the Company has sold approximately $4.0 million of its common stock, prior to issuance costs,
under the ATM Sales Agreement. No sales were made during the year ended December 31, 2023.
Authorized Shares
In June 2023, stockholders approved an amendment to the Company’s Amended and Restated Certificate of
Incorporation to increase the total number of shares of its common stock authorized for issuance from 40 million to
80 million shares. The company is authorized to issue 80 million shares of common stock, $0.01 par value, and
10 million shares of preferred stock, $0.01 par value. As of December 31, 2023, the Company has designated the
following preferred stock:
Designated Preferred Shares
December 31, 2023
Series A
Series B
Series C
Series D
Series E
Series E-1
Series F-1
Series F-2
Series F-3
Series F-4
Total
Preferred Stock
4,200
2,360
590
10,000
40,000
12,960
24,900
24,900
34,860
24,900
179,670
As of December 31, 2023, there were an aggregate of 11,257 shares of Series E and Series E-1, 2,542 Series F-2 and
11,020 Series F-3 Convertible Preferred Stock outstanding, respectively.
F-21
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Equity Incentive Plans
On September 30, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) was adopted by the
Company’s Board of Directors. On November 23, 2020, the Company’s stockholders approved the 2020 Plan. The
2020 Plan will continue in effect until the tenth anniversary of the date of its adoption by the Board or until earlier
terminated by the Board. The 2020 Plan is administered by the Board of Directors or a committee designated by the
Board of Directors. On June 12, 2023, the stockholders approved the amendment to the Company’s 2020 Plan to
increase the number of shares of common stock available under the plan by 2.65 million shares. The 2020 Plan
provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted
stock awards, restricted stock unit awards, performance awards, as well as other stock-based awards or cash awards
that are deemed to be consistent with the purposes of the plan to Company employees, directors and consultants. As
of December 31, 2023, there are 5,123,742 shares of common stock reserved under the 2020 Plan for future
issuance, of which 1,837,509 remained available to be granted.
In addition to options granted from the 2020 Plan, the Company also grants employment inducement awards
pursuant to Listing Rule 5635(c)(4) of the corporate governance rules of the NASDAQ Stock Market. The
inducement grants are intended to provide incentive to certain individuals to enter into employment with the
Company. Prior to December 5, 2023, the inducement awards were granted outside of the 2020 Plan, however they
are governed in all respects as if they were issued under the 2020 Plan. These grants do not reduce the number of
options available for issuance under the 2020 Plan.
On December 5, 2023, the Company’s 2023 Inducement Plan (the “2023 Plan”) was adopted by the Company’s
Board of Directors. The 2023 Plan is administered by a Compensation Committee of two or more Independent
Directors appointed by the Board of Directors and is intended to provide for the grant of non-qualified stock options,
stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, as well as other
stock-based awards or cash awards that are deemed appropriate to incentivize employment with the Company.
Awards from the 2023 Plan can only be granted to individuals who have not previously worked for the Company or
have not worked for the Company for a bona fide period of time. As of December 31, 2023, there are 650,000 shares
of common stock reserved under the 2023 Plan, of which 623,000 remain available to be granted.
Stock Options
The following table sets forth information as of December 31, 2023 with respect to compensation plans (including
individual compensation arrangements) under which shares of common stock of the Company are authorized for
issuance.
Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
Weighted-
average
exercise price of
outstanding
options, warrants
and rights
(b)
3,286,233 $
896,999 $
4,183,232 $
7.69
9.93
8.17
1,837,509
623,000
2,460,509
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders (1)
Total
F-22
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(1)
Includes (a) stock options for an aggregate of 499 shares of common stock issued under the Company’s 2019 Equity
Incentive Plan, which allows for grants in the form of incentive stock options, non-qualified stock options, stock
units, stock awards, stock appreciation rights, and other stock-based awards to the Company’s officers, directors,
employees, consultants, and advisors, including options to purchase shares of common stock at exercise prices not
less than 100% of fair value on the dates of grant. As of November 2, 2020, no additional grants may be made under
this plan, which has been superseded by the Company’s 2020 Omnibus Equity Incentive Plan; however, outstanding
awards granted under this plan will remain outstanding and continue to be administered in accordance with the terms
of this plan and the applicable award agreements; (b) pursuant to an employment agreement dated as of August 31,
2020 between the Company and Gerard Michel, the Company’s Chief Executive Officer, on October 1, 2020, a non-
qualified and non-plan stock option “inducement award” to purchase 498,000 shares of the Company’s common
stock in reliance on Nasdaq Rule 5635(c)(4) pursuant to the terms of a stock option award agreement between the
Company and Mr. Michel; and (c) new hire inducement awards to purchase 398,500 shares of the Company’s
common stock in reliance on Nasdaq Rule 5635(c)(4) pursuant to the terms of a stock option award agreement
between the Company and 12 employees hired during 2022 and 2023.
The following tables include information for all options granted, including inducement grants that are granted
outside of the 2020 Plan.
The Company values stock options using the Black-Scholes option pricing model and used the following
assumptions during the reporting periods:
Expected terms (years)
Expected volatility
Risk-free interest rate
Expected dividends
Years Ended December 31
2023
0.8 - 5.9
2022
0.7 - 8.4
96.4% -172.8%
166.4.% - 180.3%
3.9% - 5.4%
1.2% - 4.4%
0.00%
0.00%
The weighted average estimated fair value of the stock options granted during the years ended December 31, 2023
and 2022 was approximately $5.62 and $6.05 per share, respectively.
The following is a summary of stock option activity for the year ended December 31, 2023:
Number of
Options
Weighted
Average
Exercise Price
Per Share
Weighted Average
Grant Date Fair
Value Per Share
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
Outstanding at January 1,
2023
Granted
Exercised
Expired
Cancelled/Forfeited
Outstanding at December 31,
2023
2,235,052 $
10.30 $
2,218,757
(819)
(141,059)
(128,699)
5.97
4.67
8.40
7.02
4,183,232 $
8.17 $
Exercisable at December 31,
2023
Unvested at December 31,
2023
2,252,556 $
9.93 $
1,930,676 $
6.12 $
9.40
5.62
4.51
5.76
6.74
7.60
9.15
5.79
7.7 $
9.1
$
36
1
8.3 $
147
7.6 $
9.1 $
24
123
F-23
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
The following table summarizes information for stock option shares outstanding and exercisable at December 31,
2023:
Range of Exercise Prices
2.83 - $51.50
51.50+
Options Exercisable
Outstanding
Number of
Options
4,182,733
499
4,183,232
Weighted
Average
Remaining
Option Term
(in years)
8.3
5.1
8.3
Number of
Options
2,252,057
499
2,252,556
The following is a summary of the share-based compensation expense in the statement of operations for the twelve
months ended December 31, 2023:
Selling, general and administrative
Research and development
Cost of goods sold
Total
Years Ended
December 31,
2023
2022
$
$
4,944 $
2,837
370
8,151 $
5,282
2,449
210
7,941
At December 31, 2023, there was approximately $5.9 million of aggregate unrecognized compensation expense
related to employee, consultant and Non-employee Director stock option grants. The Company does not estimate
forfeitures and only recognizes forfeitures as they occur. The cost is expected to be recognized over a weighted
average period of 2.1 years.
Employee Stock Purchase Plan
In August 2021, the Company’s Board of Directors, with shareholder approval in May 2022, adopted the Employee
Stock Purchase Plan (the “ESPP”). The ESPP provides for a maximum of 260,295 shares of common stock to be
purchased by participating employees of which 41,435 have been issued as of December 31, 2023 since the
inception of the benefit in 2021. Employees who elect to participate in the ESPP will be able to purchase common
stock at the lower of 85% of the fair market value of common stock on the first or last day of the applicable six-
month offering period. In January 2024, an aggregate 21,140 shares were purchased by participating employees for
the offering period of July 3, 2023 to December 29, 2023.
F-24
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Common Stock Warrants
The following is a summary of common stock warrant activity for the year ended December 31, 2023:
Outstanding at January 1, 2023
Warrants issued
Warrants exercised
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Weighted
Average
Exercise Price
Weighted
Average
Remaining Life
(in years)
Warrants
5,153,291 $
81,848
(569,938) $
4,665,201 $
4,665,201 $
7.01
2.94
0.26
7.76
7.76
1.6
1.6
The following table presents information related to stock warrants at December 31, 2023:
Range of Exercise Prices
$0.01
$6.00
$10.00
Warrants Exercisable
Outstanding
Number
of Warrants
1,037,792
16,666
3,610,743
4,665,201
Weighted
Average
Remaining
Warrant
Term (in years)
3.2
2.2
1.2
1.6
Number of
Warrants
1,037,792
16,666
3,610,743
4,665,201
Preferred Stock Warrants
The following is a summary of preferred stock warrant activity for the year ended December 31, 2023:
Outstanding at January 1, 2023
Warrants issued
Warrants exercised
Outstanding at December 31, 2023
Exercisable at December 31, 2023
(14) Net Loss Per Share
Weighted
Average
Exercise Price
Weighted
Average
Remaining Life
(in years)
Warrants
— $
59,759
—
1,000.00
(34,859) $
1,000.00
24,900 $
1,000.00
24,900 $
1,000.00
2.3
2.3
Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock
outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are
issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted
weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of
potentially dilutive common shares, such as stock options, stock purchased pursuant to the Company’s employee
stock purchase plan, convertible notes and warrants calculated using the treasury stock method. In periods with
F-25
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that
basic net loss per share and diluted net loss per share are equal.
For the years ended December 31, 2023 and 2022 the following potentially dilutive securities were excluded from
the computation of diluted earnings per share because their effects would be antidilutive:
Common stock warrants - equity
Assumed conversion of preferred stock warrants
Assumed conversion of preferred stock
Assumed conversion of convertible notes
Stock options
Total
December 31,
2023
2022
3,627,409
3,610,743
4,149,994
—
4,344,909
488,031
4,183,232
16,793,575
1,135,721
488,031
2,235,052
7,469,547
At December 31, 2023, the Company had 1,037,792 pre-funded warrants outstanding. The following tables provides
a reconciliation of the weighted average shares outstanding calculation for the year-ended December 31, 2023 and
2022.
Weighted average shares issued
Weighted average pre-funded warrants
Weighted average shares outstanding
(15) Commitments and Contingencies
Litigation, Claims and Assessments
medac Matter
Year ended December 31,
2023
2022
15,039,630
8,290,529
1,190,301
574,086
16,229,931
8,864,615
In April 2021, the Company’s wholly-owned subsidiary, Delcath Systems Ltd, issued to medac GmbH, a privately
held, multi-national pharmaceutical company based in Germany (“medac”), an invoice for a €1 million milestone
payment under a License, Supply and Marketing Agreement dated December 10, 2018 (the “medac Agreement”)
between medac and the Company. The medac Agreement provided to medac the exclusive right to market and sell
CHEMOSAT in certain designated countries for which the Company was entitled to a combination of upfront and
success-based milestone payments as well as a fixed transfer price per unit of CHEMOSAT and specified royalties.
In response to medac’s subsequent dispute and non-payment of the invoice, on October 12, 2021, the Company
notified medac in writing that it was terminating the medac Agreement due to medac’s nonpayment of the €1 million
milestone payment, with the effective date of termination of the medac Agreement being April 12, 2022. On
December 16, 2021, the Company initiated an arbitration proceeding pursuant to the dispute resolution procedures
of the medac Agreement for the non-payment of the invoice.
On December 30, 2022, the parties reached a final settlement of the matter and the Company agreed to pay medac
either (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, or (b) a minimum annual payment of $0.2 million in the event the annual
royalty payment does not reach the agreed minimum payment amount. As of December 31, 2023, the Company has
estimated the settlement to be $1.0 million and recorded $0.8 million as other liabilities, non-current and
$0.2 million as accrued expenses on the Company’s condensed consolidated balance sheet.
F-26
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Lachman Consulting Services, Inc
On January 24, 2023, Lachman Consultant Services, Inc. (“Lachman”) served the Company with a complaint
alleging that Delcath owed Lachman approximately $0.9 million in unpaid consulting fees plus interest, costs and
attorneys’ fees. The dispute arises from a July 22, 2021 agreement between Lachman and Delcath under which
Lachman provided assistance to the Company in regard to preparing for a FDA inspection and good manufacturing
practices, training and support. A settlement was reached on July 5, 2023, under which the Company paid Lachman
$0.9 million.
Manufacturing and Supply Agreements
The Company has a License, Supply and Contract Manufacturing Agreement (the “Supply Agreement”) for the
supply of melphalan provided in the HEPZATO KIT. The Supply Agreement is effective until April 30, 2024, with
an option to extend its term for three additional years. The Supply Agreement does not consist of minimum purchase
units per year but does require each order to contain a minimum number of vials. As of December 31, 2023, the
Company has committed to purchase $2.25 million of melphalan under this Supply Agreement in 2024.
(16) Subsequent Events
Leases
On January 18, 2024 (the “Lease Commencement Date”), the Company entered into a lease agreement (the
“Queensbury Lease”) to lease approximately 18,000 square feet of manufacturing and office space in Queensbury,
New York (the “Premises”). The initial term of the lease is 5 years with a right to extend the lease by an additional 5
years, exercisable under certain conditions set forth in the Queensbury Lease. The initial term is expected to begin
within 90 days of the Lease Commencement Date.
The annual base rent of the Queensbury Lease is initially $8 per square foot per year, subject to annual 3% increases
in years four and five. Additionally, the Company is responsible for reimbursing the landlord for the Company’s
share of the Premises’ property taxes.
Securities Purchase Agreement
On March 14, 2024, the Company and certain accredited investors (each an “Investor” and collectively, the
“Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which
the Company agreed to sell and issue to the Investors in a private placement (the “Private Placement”) (i) an
aggregate of 876,627 shares (the “Shares”) of the Company’s common stock, par value $0.01 per share (the
“Common Stock”), at a purchase price of $3.72 per share, and (ii) to certain investors, in lieu of shares of Common
Stock, 1,008,102 pre-funded warrants (the “Pre-Funded Warrants”) at a price per Pre-Funded Warrant of $3.71 (the
“Warrant Shares” and together with the Shares, the “Securities”). The Pre-Funded Warrants will have an exercise
price of $0.01 per share of Common Stock, be immediately exercisable and remain exercisable until exercised in
full.
The Private Placement closed on March 19, 2024. The Company received gross proceeds from the Private
Placement of approximately $7.0 million, before deducting offering expenses payable by the Company. The
Company intends to use the net proceeds of the Private Placement for working capital and other general corporate
purposes.
F-27
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(17) Income Taxes
There is no income tax provision for the years ended December 31, 2023 and 2022, respectively.
Loss before income taxes consists of:
Domestic
Foreign
Income before taxes
For the Year Ended
December 31,
2023
2022
$
$
(41,303) $
(34,547)
(6,375)
(1,960)
(47,678) $
(36,507)
The provision for income taxes differs from the amount computed by applying the statutory rate as follows:
Income taxes using U.S federal statutory rate
$
(10,012) $
(7,666)
For the Year Ended
December 31,
2023
2022
Nondeductible interest
Branch income
State income taxes, net of federal benefit
Foreign rate differential
Valuation allowance
Stock option expense, exercises and cancellations
Research and development costs
Other
Derivative Charge
Significant components of the Company’s deferred tax assets are as follows:
Deferred tax assets:
Employee compensation accruals
Accrued liabilities
Research tax credits
Lease obligation
Other
Research expense capitalization
Net operating losses
Total deferred tax assets
127
(1,230)
(31)
506
7,099
2,899
(859)
(179)
1,680
$
— $
139
(385)
(531)
165
9,221
752
(708)
(987)
—
—
For the Year Ended
December 31,
2023
2022
$
1,377 $
54
2,330
4
233
5,441
29,875
$
39,314 $
2,772
197
1,429
38
160
3,203
24,595
32,394
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
Deferred tax liabilities:
Right of use asset
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
For the Year Ended
December 31,
2023
2022
$
$
13 $
13
39,301
— $
50
50
32,344
—
As of December 31, 2023, and 2022, the Company had net operating loss carryforwards for U.S. federal income tax
purposes of approximately $307.6 million and $290.4 million, respectively. A significant portion of the federal
amount is subject to an annual limitation as low as $28 as a result of changes in the Company’s ownership in May
2003, November 2016, and multiple dates throughout 2017, 2018, 2019, 2021 and 2023, as defined by Section 382
of the United States Internal Revenue Code of 1986, as amended (the “IRC”), and the related income tax
regulations. As a result of the limitations caused by the multiple ownership changes, approximately $200.5 million
of the total net operating loss carryforwards is expected to expire unutilized and will be unavailable to offset future
federal taxable income. Approximately $107.1 million of net operating loss carryforwards remains available to
offset future federal taxable income, of which $1.7 million will expire between 2024 and 2037 and $105.4 million
will have an unlimited carryforward period.
In addition, the Company’s state net operating losses are also subject to annual limitations that generally follow the
IRC Section 382 provisions (with the exception of Connecticut and Florida), adjusted for each state’s respective
income apportionment percentages. As of December 31, 2023, and 2022, the Company had net operating loss
carryforwards for states and city income tax purposes between approximately $0.8 million and $196.0 million and
between approximately $0.3 million and $195.3 million, respectively, which expire through 2043. As a result of the
Section 382 limitations, approximately $191.1 million and $175.4 million of New York State and New York City
net operating losses are expected to expire unutilized and will be unavailable to offset future taxable income.
Approximately $5.0 million and $4.9 million of net operating loss carryforwards, respectively, will be available to
offset future state and city taxable income. As of December 31, 2023 and 2022, the Company had a net operating
loss carryforward for foreign income tax purposes of $43.3 million and $33.4 million, respectively, which have
indefinite carryforward periods. As of December 31, 2023 and 2022, the Company had federal research and
development tax credit carryforwards of approximately $7.4 million and $6.5 million, respectively, which expire
through 2043. As a result of the Section 382 limitations, all but $2.3 million of the tax credit carryforwards is
expected to expire unutilized.
Management has established a 100% valuation allowance against the deferred tax assets as management does not
believe it is more likely than not that these assets will be realized. The Company’s valuation allowance increased by
approximately $7.0 million and $9.2 million in 2023 and 2022, respectively. The change in valuation allowance is as
follows:
Beginning Balance
Charged to costs and expenses
Charged to other comprehensive income
Ending balance
December 31,
2023
2022
$
32,344 $
7,099
(142)
23,125
9,221
(2)
$
39,301 $
32,344
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
The Company complies with the provisions of ASC 740-10 in accounting for its uncertain tax positions. ASC
740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should
be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The Company has determined that the Company has
no significant uncertain tax positions requiring recognition under ASC 740-10 and therefore has not included a
tabular roll forward of unrecognized tax benefits. As there are no uncertain tax positions recognized, interest and
penalties have not been accrued.
The Company is subject to income tax in the United States, as well as various state and international jurisdictions.
The Company has not been audited by any state tax authorities in connection with income taxes. The Company has
not been audited by international tax authorities or any states in connection with income taxes. The Company’s New
York State tax returns have been subject to annual desk reviews which have resulted in insignificant adjustments to
the related franchise tax liabilities and credits. The Company is no longer subject to federal and state examination for
tax years ending prior to December 31, 2020; tax years ending December 31, 2020 through December 31, 2023
remain open to examination. The Republic of Ireland is the Company’s only significant foreign jurisdiction. The
Company is no longer subject to Ireland tax examination for tax years ending prior to December 31, 2018 (as Ireland
has not initiated an audit of 2017 as of December 31, 2023); tax years ending December 31, 2019 through
December 31, 2023 remain open to examination. However, the Company’s tax years December 31, 1998 through
December 31, 2023 generally remain open to adjustment for all federal, state and foreign tax matters until its net
operating loss and tax credit carryforwards are utilized or expire prior to utilization, and the applicable statutes of
limitation have expired in the utilization year. The federal and state tax authorities can generally reduce a net
operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the
correct amount of net operating loss which may be allowed as a deduction against income for a period within the
statute of limitations.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties, if incurred, as a
component of income tax expense.
The Company’s foreign subsidiaries have generally incurred losses since inception and the Company has no material
undistributed earnings as of December 31, 2023.
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
(18) Fair Value Measurements
The Company’s fair value measurements are classified and disclosed in one of the following three categories:
•
•
•
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported by little or no market activity).
The table below presents activity within Level 3 of the fair value hierarchy and the Company’s liabilities carried at
fair value for the year ended December 31, 2023:
Balance at January 1, 2023
Fair value of warrant liabilities issued
Total change in exchange rate
Fair value adjustment
Change due to warrant exercise
Balance at December 31, 2023
Contingent
Liabilities
Level 3
Warrant
Liabilities
$
1,280 $
— $
—
46
(330)
—
4,940
—
1,688
(1,080)
$
996 $
5,548 $
Total
1,280
4,940
46
1,358
(1,080)
6,544
Contingent liabilities are re-measured to fair value each reporting period using projected financial targets, discount
rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts are discounted
back to the current period using a discounted cash flow model. Projected financial targets are based on the
Company’s most recent internal operational budgets and may take into consideration alternate scenarios that could
result in more or less profitability for the respective service line. Increases or decreases in projected financial targets
and probabilities of payment may result in significant changes in the fair value measurements. Increases in discount
rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those
inputs in isolation may result in a significantly lower or higher fair value measurement.
As disclosed in Note 12 of the Company’s consolidated financial statements, the Company allocated part of the
proceeds of the Series F Preferred Offering to warrant liability issued in connection with the transaction. The
valuations of the warrants were determined using option pricing models. The Company concluded that the Preferred
Warrants were not in the scope of ASC 480, Distinguishing Liabilities from Equity, since the Preferred Warrants are
not mandatorily redeemable; and do not have obligations to issue a variable number of shares of preferred stock. The
Company determined the Preferred Warrants met the definition of a derivative in accordance with ASC 815 but
were not considered indexed to the Company’s common stock since the warrants require early settlement by
repurchasing the preferred warrants for cash in an amount equal to the Black-Scholes value in the event of a
Fundamental Transaction at pre-specified volatility of 100% as an input to the Black-Scholes calculation. The
Company determined to record the Preferred Warrants at fair value with subsequent changes in fair value recorded
in earnings at the end of each reporting period. For the twelve months ended December 31, 2023, the Company
recorded other expense of $8.0 million related to the change in fair value of the warrant liability and Tranche A
Warrant exercises. 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. The Company has classified the warrants as
a long-term liability due to certain provisions relating to the holders’ ability to exercise the warrants beyond twelve
months of the reporting date.
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share amounts)
The fair value of the preferred and common warrants at December 31, 2023 and March 29, 2023 was determined by
using option pricing models assuming the following:
Risk free interest rate
Expected term (years)
Expected volatility
Expected dividends
March 29, 2023
3.80% - 4.80%
December 31, 2023
4.09%
0.5 - 3.0
70% - 75%
0.00%
2.3
70%
0.00%
Additionally, the Company has determined that the warrant liability should be classified within Level 3 of the fair-
value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and
using the lowest level of input as the basis for the fair-value classification as called for in ASC 820. There are six
inputs: closing price of the Company’s stock on the day of evaluation; the exercise price of the warrants; the
remaining term of the warrants; the volatility of the Company’s stock over that term; annual rate of dividends; and
the risk-free rate of return. Of those inputs, the exercise price of the warrants and the remaining term are readily
observable in the warrant agreements. The annual rate of dividends is based on the Company’s historical practice of
not granting dividends. The closing price of the Company’s stock would fall under Level 1 of the fair-value
hierarchy as it is a quoted price in an active market, the risk-free rate of return is a Level 2 input, while the historical
volatility is a Level 3 input as defined in ASC 820-10. Since the lowest level input is a Level 3, the Company
determined the warrant liability is most appropriately classified within Level 3 of the fair value hierarchy.
The following tables present information about the Company’s financial assets and liabilities that have been
measured at fair value as of December 31, 2023 and December 31, 2022 and indicate the fair value hierarchy of the
valuation inputs utilized to determine such fair value.
Description
Assets:
Money market
funds
U.S. government
agency bonds
Total Assets
Liabilities:
Contingent
Liability
Warrant
Liabilities
Total Liabilities
December 31,
2023
December 31,
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
392 $
— $
— $
392 $
— $
— $
— $
—
19,808
—
19,808
—
—
—
392 $ 19,808 $
— $ 20,200 $
— $
— $
— $
—
—
—
$ — $ — $
996 $
996 $ — $ — $ 1,280 $ 1,280
—
—
5,548
5,548
—
—
—
—
$
— $
— $ 6,544 $ 6,544 $
— $
— $ 1,280 $ 1,280
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Accounting Officer,
performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based on that evaluation, the Chief Executive Officer and
Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable
assurance regarding the preparation and fair presentation of financial statements for external purposes in accordance with
generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent
limitations and can provide only reasonable assurance that the objectives of the internal control system are met.
We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal
Control-Integrated Framework. Based on that evaluation, our management, including our Chief Executive Officer and
Chief Accounting Officer, concluded that our internal control over financial reporting was effective as of December 31,
2023.
The Remediation of Material Weakness
Management, with the input, oversight and support of our audit committee, has completed the following steps, which
management believes assisted us in remediating the material weakness in our internal control over financial reporting
relating to the detection and application of our expense policy of share-based compensation as further described in our
Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 27, 2023.
a. As of April 2023, the stock option expense platform utilized by the Company was updated to appropriately
expense share-based compensation using the accelerated method chosen by the Company.
b. A manual review of each new grant is completed to confirm the accelerated expense method has been applied.
c. Monthly, the Company recalculates a selection from new grants and compares against the stock option expense
platform.
In 2023, we completed our remediation activities and found them to be effective. As a result, we have concluded that
the material weakness related to share-based compensation has been remediated as of December 31, 2023.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there have been no material changes to the Company’s internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over
financial reporting.
Item 9B. Other Information
During the year ended December 31, 2023, no Director or Officer of the Company adopted, modified, or terminated a Rule
10b5-1 trading plan.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
55
Table of Contents
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item will be set forth in our proxy statement for the 2024 Annual Meeting of Stockholders
of the Company, to be filed with the SEC within 120 days of December 31, 2023, and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees,
executive officers and directors. The Code of Conduct is available at the investors section of our website at
www.delcath.com. Information contained on or accessible through this website is not a part of this proxy statement, and the
inclusion of such website address in this proxy statement is an inactive textual reference only. Any amendments to the
Code of Conduct, or any waivers of its requirements, will be disclosed on our website to the extent required by applicable
rules and exchange requirements.
Item 11. Executive Compensation
The information required by this Item will be set forth in our proxy statement for the 2024 Annual Meeting of Stockholders
of the Company, to be filed with the SEC within 120 days of December 31, 2023, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth in our proxy statement for the 2024 Annual Meeting of Stockholders
of the Company, to be filed with the SEC within 120 days of December 31, 2023, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in our proxy statement for the 2024 Annual Meeting of Stockholders
of the Company, to be filed with the SEC within 120 days of December 31, 2023, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be set forth in our proxy statement for the 2024 Annual Meeting of Stockholders
of the Company, to be filed with the SEC within 120 days of December 31, 2023, and is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
PART IV
1.
Consolidated Financial Statements: The following Consolidated Financial Statements and Supplementary
Data and the Report of Independent Registered Public Accounting Firm included in Part II, Item 8:
•
•
•
•
•
Consolidated Balance Sheets at December 31, 2023 and 2022;
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31,
2023 and 2022;
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and
2022;
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022; and
Notes to Consolidated Financial Statements.
2.
Exhibits: The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part
of this Annual Report on Form 10-K.
Item 16. Form 10-K Summary.
None.
56
Table of Contents
Exhibit No.
Description
Exhibit Index
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company’s Registration Statement on Form S-1/A filed September 25, 2019).
Amendment to the Amended and Restated Certificate of Incorporation of the Company dated October 17,
2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on
October 23, 2019).
Certificate of Correction to Amendment to the Amended and Restated Certificate of Incorporation of the
Company dated October 22, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current
Report on Form 8-K filed on October 23, 2019).
Amendment to the Amended and Restated Certificate of Incorporation of the Company, effective December
24, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on
December 30, 2019).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated
November 23, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on November 24, 2020).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated
June 12, 2023 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed
on June 12, 2023).
Certificate of Designation of Preference, Rights and Limitations of the Series F Convertible Voting Preferred
Stock (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K on March 30,
2023).
Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to Amendment
No. 1 to Company’s Registration Statement on Form SB-2).
Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock of
the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
July 11, 2019).
Certificate of Designation of Preferences, Rights and Limitations of Series E-1 Convertible Preferred Stock
of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed August 16, 2019).
Form of Series E Warrant to Purchase Shares of Common Stock (incorporated by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed July 11, 2019).
Form of Series E-1 Warrant to Purchase Shares of Common Stock (incorporated by reference to Exhibit 4.1
to the Company’s Current Report on Form 8-K filed August 16, 2019).
Warrant to Purchase Shares, dated August 6, 2021, issued by the Company to Avenue Venture Opportunities
Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
August 11, 2021).
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.7 to the Company’s Amendment No. 1
to the Registration Statement on Form S-1 filed February 7, 2020).
Form of Warrant Agency Agreement between the Company and American Stock Transfer & Trust
Company, LLC, including the form of Series F warrant (incorporated by reference to Exhibit 4.8 to the
Company’s Registration Statement on Form S-1/A filed on April 20, 2020).
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed July 20, 2022).
57
Table of Contents
Exhibit No.
Description
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
10.2#
10.3
10.4#
10.5#
10.6#
10.7#
10.8#
10.10
10.11
10.12
Form of Registration Rights Agreement dated July 18, 2022 between the Company and each other party a
signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed July 20, 2022)
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed December 13, 2022)
Form of Registration Rights Agreement dated December 7, 2022 between the Company and each other party
a signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed December 13, 2022)
Description of Securities
Form of Preferred Tranche A Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on March 30, 2023).
Form of Preferred Tranche B Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K filed on March 30, 2023).
Form of Common Tranche A Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current
Report of Form 8-K filed on March 30, 2023).
Form of Common Tranche B Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Current
Report on Form 8-K filed on March 30, 2023).
Delcath Systems, Inc. 2020 Omnibus Equity Incentive Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 13, 2023).
Employment Agreement dated August 31, 2020, between the Company and Gerard Michel. (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2020).
2023 Inducement Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement
on Form S-8 filed with the Commission on December 15, 2023).
Form of Inducement Awards Stock Option Award Agreement (incorporated by reference to Exhibit 99.3 to
the Company’s Registration Statement on Form S-8 filed with the Commission on December 15, 2023).
Form of Off-Plan Inducement Award Stock Option Award Agreement (incorporated by reference to Exhibit
99.4 to the Company’s Registration Statement on Form S-8 filed with the Commission on December 15,
2023).
Employee Confidentiality, Invention Assignment and Restrictive Covenants Agreement, dated August 31,
2020, between the Company and Gerard Michel (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on October 1, 2020).
Executive Security Agreement between the Company and John Purpura (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 26, 2018).
Form of Indemnification Agreement dated April 8, 2009 between the Company and members of the
Company’s Board of Directors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed April 10, 2009).
Lease dated August 2, 2011 between MBP Co-Ownership Group and Delcath Systems Limited
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2011 filed on November 9, 2011).
Controlled Equity OfferingSM Sales Agreement, dated August 18, 2020, between the Company and Cantor
Fitzgerald & Co. (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K
filed on August 18, 2020).
58
Table of Contents
Exhibit No.
Description
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Loan and Security Agreement, dated August 6, 2021, between Delcath Systems Inc. as borrow and Avenue
Venture Opportunities Fund, L.P., as lender (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed August 11, 2021).
Supplement to the Loan and Security Agreement, dated August 6, 2021, between the Company as borrower
and Avenue Venture Opportunities Fund, L.P., as lender (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed August 11, 2021).
Second Note Amending Agreement, dated August 6, 2021, between the Company and Rosalind
Opportunities Fund I L.P. and Rosalind Master Fund L.P. (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed August 11, 2021).
Note Amending Agreement, dated as of July 15, 2019, between the Company and Rosalind Opportunities
Fund I L.P. and Rosalind Master Fund L.P. (incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K filed August 11, 2021).
8% Secured Promissory Note, dated July 15, 2019, issued by the Company to Rosalind Opportunities Fund I
L.P. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed August
11, 2021).
8% Secured Promissory Note, dated July 15, 2019, issued by the Company to Rosalind Master Fund L.P.
(incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed August 11,
2021).
First Amendment to Loan Documents issued by the Company to Avenue Venture Opportunities Fund, L.P.,
dated March 31, 2023 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q filed May 22, 2023).
21**
Subsidiaries of the Company.
23.1**
Consent of Independent Registered Public Accounting Firm.
24.1
Power of Attorney (included on signature page hereto).
31.1**
Certification by Principal Executive Officer Pursuant to Rule 13a 14.
31.2**
Certification by Principal Financial Officer Pursuant to Rule 13a 14.
32.1*
32.2*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
97**
Delcath Systems, Inc., Incentive Compensation Recoupment Policy.
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document contained in Exhibit 101
59
Table of Contents
Exhibit No.
Description
#
*
**
Indicates management contract or compensatory plan or arrangement.
Furnished herewith.
Filed herewith.
60
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DELCATH SYSTEMS, INC.
/s/ Gerard Michel
Gerard Michel
Chief Executive Officer
(Principal Executive Officer)
Dated: March 26, 2024
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Gerard Michel as
attorney-in-fact and agent, with full power of substitution and re-substitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Gerard Michel
Gerard Michel
/s/ Sandra Pennell
Sandra Pennell
/s/ John R. Sylvester
John R. Sylvester
/s/ Elizabeth Czerepak
Elizabeth Czerepak
/s/ Steven Salamon
Steven Salamon
/s/ Roger G. Stoll, Ph D
Roger G. Stoll, Ph D
/s/ Gil Aharon
Gil Aharon
Chief Executive Officer and Director
(Principal Executive Officer)
March 26, 2024
Principal Financial and Accounting Officer
March 26, 2024
Chairman of the Board
March 26, 2024
Director
Director
Director
Director
61
March 26, 2024
March 26, 2024
March 26, 2024
March 26, 2024