On June 7, 2016 Delcath Systems, Inc. (NASDAQ: DCTH), a specialty pharmaceutical and medical device company focused on oncology with an emphasis on the treatment of primary and metastatic liver cancers, reported it has entered into a securities purchase agreement with an institutional investor to issue $35.0 million of senior convertible notes (the Notes) and related common stock purchase warrants (Press release, Delcath Systems, JUN 7, 2016, View Source;p=RssLanding&cat=news&id=2175682 [SID:1234513107]). The Notes will be issued at an 8% original issue discount. The aggregate proceeds of $32.2 million will be used to fund the Company’s ongoing operations, commercial activities and clinical development programs, including its global Phase 3 trial with Melphalan/HDS in hepatic dominant ocular melanoma (the FOCUS Trial) and its global Phase 2 program with Melphalan/HDS in hepatocellular carcinoma (HCC) and intrahepatic cholangiocarcinoma (ICC).
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Of the $32.2 million in aggregate proceeds, $3 million will be unrestricted and immediately and freely available for use by the Company and its subsidiaries. The remaining $29.2 million will be subject to a cash covenant restricting its use and requiring it to be held in certain control accounts of the Company. Subsequently, $3.0 million of the restricted cash shall become unrestricted cash on the 20th trading day after the later of the stockholder approval of the transaction in accordance with NASDAQ rules, or the six-month anniversary of the closing date (such 20th trading day, the Trigger Date). Thereafter, the remaining $26.2 million of restricted cash will become unrestricted in equal quarterly installments starting the 30th trading day after the Trigger Date, such that the balance will become unrestricted by December 29, 2017, subject to the fulfillment of certain equity conditions.
The Notes will be convertible, at the option of the holder, at 110% of the market price (the Conversion Price) into a fixed number of common shares. The market price will be determined on the closing date and will be based on the Volume Weighted Average Price (VWAP) of the three trading days immediately prior to the closing date. Commencing on the 20th trading day after the six-month anniversary of the closing date, and for each 20th trading day period thereafter, the Notes will amortize in equal installments payable in common stock (at the installment conversion price with pre-delivery and a $0.05 floor), subject to the fulfillment of certain equity conditions, or, at the Company’s option, in cash.
The Company has the right to redeem the notes with restricted cash or any other cash of the Company, at its option, at any time after the earlier of March 31, 2017 or such time as at least $18 million of restricted cash shall have become unrestricted cash under the terms of the Notes.
Roth Capital Partners acted as sole placement agent for the offering.
"This committed financing provides us with the resources to advance our clinical development plan through the end of 2017 while also supporting our commercialization programs in Europe," said Jennifer K. Simpson, Ph.D., MSN, CRNP, President and Chief Executive Office of Delcath. "We are positioned to achieve important clinical inflection points in our FOCUS trial and our global Phase 2 program in HCC and ICC, which we believe represent the fastest path to U.S. FDA approval and ultimately the generation of shareholder value. This financing will be valuable to our efforts to expand global access to our Melphalan/HDS for the benefit of patients suffering with primary and metastatic liver cancers."
In addition to the Notes, the Company will issue common stock purchase warrants in a quantity equal to 85% of the number of shares of common stock the institutional investor would receive if the Notes were converted in full at the initial Conversion Price on the closing date (without regards to any limitations on conversion set forth therein). The warrants will be initially exercisable one year after their initial issuance date and expire five years thereafter. The warrants will include a one-time, downward-only reset of the warrant exercise price based on the market price on the maturity date, and for 75% of the warrants a corresponding adjustment of the number of warrant shares such that the aggregate exercise price of the warrants remains the same after the reset.
For additional information concerning the details of the financing, please refer to the Form 8-K to be filed by Delcath with the Securities and Exchange Commission.
The Notes, warrants and shares of common stock issuable upon conversion or exercise thereof have not been registered under the Securities Act or any applicable state securities laws and may not be offered or sold absent such registration or pursuant to an available exemption from such registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy any of the securities nor shall there be any sale of any of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.