Delcath Systems: Bullish on Melblez FDA Panel Vote and Subsequent Approval

Delcath Systems (DCTH) is developing Melblez Kit (melphalan) for injection use with the Delcath Hepatic Delivery System with a proposed indication for the treatment of patients with unresectable ocular melanoma that is metastatic to the liver. Delcath’s proprietary system for chemosaturation is designed to administer high dose chemotherapy and other therapeutic agents to diseased organs or regions of the body, while controlling the systemic exposure of those agents. The new drug application (NDA) submission will be reviewed at an Oncologic Drugs Advisory Committee (ODAC) on Thursday, May 2, 2013. ODAC panels advise the U.S. Food and Drug Administration on the safety and efficacy of proposed new cancer therapies. The FDA is not legally bound to follow the advice of its advisory committees regarding new drug applications, although most of the time, the agency follows these recommendations. Delcath’s NDA was accepted by the FDA for review on October 15, 2012, and was assigned a Prescription Drug User Fee Act (PDUFA), or FDA action date of June 15, 2013.

We believe the outcome of the ODAC vote will be in favor of approval and in this report, we outline the reasons that support our conclusion.

1. The clinical study was completed pursuant to a Special Protocol Assessment (SPA) agreement and largely met the predefined criteria

As described previously, a SPA is a written agreement between the FDA and the trial sponsor that a Phase 3 study conducted according to the agreed-upon protocol design, size, study end points, and outcomes will be sufficient, from a regulatory stand point, to file for an efficacy claim in a subsequent marketing application. Delcath successfully reached a SPA agreement with the FDA in 2006, for a single, pivotal phase 3 study enrolling N=92 patients with ocular or cutaneous metastatic melanoma to the liver. According to the agreement, patients would be randomized to either the Delcath system using melphalan or a control group receiving best alternative care (BAC). Patients in the control group will be reviewed on a case-by-case basis and receive an existing treatment option deemed most appropriate by the principal investigator. The primary endpoint was to determine whether patients using the Delcath system would experience a reduction in tumor burden or zero progression of the metastatic melanoma in their liver longer than those receiving best alternative care. Participants randomized to the control group whose tumors progressed were allowed to cross over and receive treatment using the Delcath system. Results from the point of crossover would not impact the study.

The trial, which was completed in collaboration with the National Cancer Institute (NCI), completed enrollment in 2009 and sufficient events were accrued in early 2010 to report results. In April 2010, the company reported that the clinical trial had successfully met the study’s primary endpoint of extended hepatic progression-free survival (hPFS) in patients with melanoma metastases to the liver based on an independently corroborated intent-to-treat analysis. Comparing treatment with the chemosaturation system with melphalan to BAC, based on independent core lab review of patient scans, the statistical analysis revealed that the active arm patients had a statistically significant longer median hPFS of 214 days compared to 70 days in the BAC arm (p=0.001). This reflected a 144-day prolongation of hPFS over that of BAC control arm, with less than half the risk of progression and/or death in the Melblez group compared to the BAC group (Hazard Ratio = 0.46). The full study results were presented at ASCO 2010.

According to an updated analysis, Melblez demonstrated an absolute 5.3 month improvement in hPFS over BAC, which was highly statistically significant. In other words, patients treated with Melblez lived for 5.3 months longer without their hepatic disease progressing or without dying. This is a very meaningful to patients with metastatic disease.

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In addition, overall PFS was also highly statistically significantly improved over BAC with an absolute benefit of 3.8 months.

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These results together suggest substantial improvement over BAC. However the one concern we flag is that the study was powered with an assumption that the BAC hPFS would be 4 months, and the treatment hPFS arm would be 7.73 months. According to the pre-specified effect detection criteria, the BAC arm grossly underperformed, which may have exaggerated the absolute effect size. However, given that the active treatment arm still performed largely to the degree predicted, we feel this will still be viewed positively by the ODAC committee.

Overall survival analyses were considered exploratory, as patients on BAC who progressed were allowed to crossover and receive treatment with the MelBlez system, which ultimately meant they benefited to the same extent. There was no significant difference in OS between the two arms due to high rates of crossover from BAC to chemosaturation. Per the SPA agreement, this would not affect the result. The procedure was safe and well tolerated, and there were no emergent safety signals detected in the study.

2. Sponsor and FDA have worked diligently together to find a path for approval

In December of 2010 Delcath was able to file the Melblez NDA via a 505(b)(2) application because the active drug melphalan had previously been approved and was commercially available. This pathway allowed the sponsor to rely upon the safety and efficacy studies previously conducted to support approval of the active drug. However the company received a refusal to file notification in February 2011. The FDA’s letter requested information involving manufacturing plant inspection timing, product and sterilization validations, and additional safety information that Delcath had planned to file with a 120 day safety update in April. FDA also requested additional statistical analysis clarification.

Meanwhile in the EU, in April of 2011, the company received a CE Mark approval for its proprietary Hepatic CHEMOSAT(TM) Delivery System, with an indication for the percutaneous intra-arterial administration of a chemotherapeutic agent (melphalan hydrochloride) to the liver. Additionally, a number of FDA discussions took place in the US, including a pre-NDA discussion in January 2012. At some point during this time period, the company had developed and launched a Generation 2 filter program for the chemosaturation system. After consultation with the FDA, they agreed to include the addition of Generation 2 in the NDA re-submission as a technical change to the Chemistry, Manufacturing, and Control module leading to further time delays. It took until August 2012 for FDA to accept the IND Amendments for use of the Generation 2 filter in the U.S. Expanded Access Program, compassionate use, and future clinical trials plan for Melblez. Finally the NDA was re-submitted on August 15, 2012 with Delcath requesting priority review. Two events happened that were interpreted negatively by the investment community. First, FDA refused to accept the submission for priority review, instead designating standard review in October 2012. Second, as the review process began, FDA met with the sponsor and recommended that the indication sought be modified to reflect only patients with metastatic ocular melanoma. This was because 90% of the patients enrolled in the pivotal study had ocular melanoma metastases compared with cutaneous metastases. Obviously this substantially reduces the initial market size at launch, but we believe this also indicates a willingness on the part of FDA to work with Delcath in a manner that can most easily bring Melblez to market in a timeframe that allows for adequate review and dialogue.

FDA has been known to subsequently remove requests for label restrictions during the course of review periods, as was recently the case with Vivus’ (VVUS) Qsymia, so we do not exclude this as a possibility.

Ultimately, we believe the data suggest a meaningful efficacy signal; the procedure is safe and well-tolerated; the sponsor has met the conditions of the SPA; and FDA appears to be working with the sponsor to map out the most efficient course to bring Melblez to market. Given that Melblez is already commercially available in 7 EU countries and that FDA has approved a US EAP, we feel this mitigates any residual risk associated with the CMC component of the NDA and expect a positive ODAC vote and subsequent approval.

The question arises regarding market potential and assessing impact on the stock value, which currently trades at around $1.88.

Assuming an annual US incidence of 2,500 cases of ocular melanoma, of which only 50% of patients are at risk of metastases at 10 years, even the most optimistic peak sales estimate can only be modest. In addition, the company has outlined that the launch plan will initially be restricted to only the handful of centers that participated in the Phase 3 program or who are participating in the expanded access program. The goal is for these sites to serve as Centers of Excellence and train other centers in the procedure. This top down peer to peer training approach is certainly prudent but will guarantee to translate into a modest rate of broad adoption and incremental sales. Another significant unknown is the CPT reimbursement value, which will, according to the company, be based upon value proposition relative to other cancer therapies. As such, investors seeking to trade Delcath may wish to focus on the company’s two near-term catalysts: the ODAC panel and the PDUFA goal date in June, as the stock is likely to run up from current levels in advance of the release of FDA’s briefing information expected by April 30, 2013. Analyst price targets average $4.76, so it seems there is room for the stock to run from current levels.

In connection with DCTH, PropThink has take a long position.