DCTH

Commercial Site Expansion

• The company is targeting 37 active commercial sites by the end of the year, with multiple sites in preceptorship/proctorship training queues, and several sites on the cusp of opening with at least one to two patients already scheduled.
• Management views the 37-site goal as achievable due to a robust pipeline of upcoming site openings, and notes recent early demand trends are stronger than the softness seen in the same period last year.

Clinical Trial Pipeline Strategy

• The company selected colorectal cancer (CRC) and breast cancer as the initial indications for its liver-focused cancer therapy. CRC has the largest population of liver-dominant metastatic disease outside of primary liver cancer, and the third-line setting was chosen based on early traction and physician willingness to participate in trials for this novel therapy.
• The breast cancer trial was launched based on key opinion leader (KOL) interest and an identified unmet need, even though it serves a smaller patient population than other potential indications.
• The company plans to add additional indications in the future, including both orphan indications and larger-volume indications.

• Full-year gross margin guidance was revised upward from the original 85% to 87% range to 86% to 89%, following a better-than-expected Q2 gross margin of 90% (up from 86% year-over-year).
• Management maintains the full-year gross margin guidance is conservative, as it accounts for expected additional manufacturing costs in the remaining quarters of the year, and notes quarterly gross margin may fluctuate around the 90% Q2 level.
• Management confirms the end-of-year target of 37 active commercial sites remains in place, and the company remains confident of achieving this goal.

No segment-level financial performance data (absolute revenue figures or revenue contribution percentages) was provided in the excerpted transcript.

• Commercial site activation and patient scheduling are episodic, so there is minor execution risk to hitting the 37-site year-end target despite a strong pipeline.
• Clinical trial enrollment and site activation for the company's two lead trials are running slower than initially expected. The primary cause is unanticipated difficulty coordinating interventional radiology (IR) teams, which are less experienced with clinical trial workflows, and oncology teams, which are unfamiliar with the company's novel therapy type. This has delayed center activation and led to the loss of some trial sites.
• Lower average selling prices (ASP) from 340B pricing have created a gap between 30% volume growth and 27% revenue growth, with 340B pricing responsible for 100% of this gap.
• Novelty of the company's therapy means oncologists are generally more accustomed to systemic treatments, requiring significant education to shift perceptions and drive adoption, both in clinical trials and future commercial use.

Q: What accounts for the gap between 30% volume growth and 27% revenue growth, and why is full-year gross margin guidance lower than Q2's 90% result? / A: 100% of the growth gap stems from 340B discounted pricing, which reduced the company's effective ASP per kit to 170,000-173,000 yen this year from roughly 185,000 yen last year. The 90% Q2 gross margin beat the original guidance due to better overhead absorption, strong manufacturing performance, and higher HEP-SATO volume. Full-year guidance is set to 86-89% as a conservative measure to account for expected additional manufacturing costs in remaining quarters.

Q: Why did the company choose colorectal cancer and breast cancer as the first two indications for its liver-focused therapy? / A: The development strategy was set two years ago, and the indications were selected based on early physician traction. For CRC, there is a large population of liver-dominant metastatic disease, and the third-line trial setting gained quick interest from oncologists who were unfamiliar with the novel therapy. Breast cancer was selected based on KOL interest and an identified unmet need, even though it has a smaller patient population. The company chose these to start building oncologist adoption, and will add more indications later.

Q: Is current enrollment for the two lead trials meeting management's initial expectations? / A: Enrollment and site activation are definitely slower than originally expected. The unanticipated key barrier is coordinating interventional radiology (IR) teams (less experienced with clinical trial workflows) and oncology teams (unfamiliar with this new therapy type). This coordination delay slowed center activation and led to the loss of some trial sites. Management noted this was a larger training and process hill to climb than anticipated, but the company is actively working through these issues similar to commercial rollout.