Fennec Pharmaceuticals Inc. (NASDAQ:FENC) Q3 2023 Earnings Call Transcript

Fennec Pharmaceuticals Inc. (NASDAQ:FENC) Q3 2023 Earnings Call Transcript November 6, 2023

Fennec Pharmaceuticals Inc. beats earnings expectations. Reported EPS is $-0.07, expectations were $-0.11.

Operator: Good morning, ladies and gentlemen, and welcome to Fennec Pharmaceuticals Third Quarter 2023 Earnings and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to participate will be given at that time. As a reminder, today’s conference is being recorded. Now, I would like to turn the conference over to Fennec’s Chief Financial Officer, Robert Andrade. Please go ahead.

Robert Andrade: Thank you, operator, and good morning, everyone. We appreciate you joining us today for Fennec Pharmaceuticals’ third quarter 2023 earnings conference call, during which we will review our financial results as well as provide a general business update. Joining me from Fennec this morning is Rosty Raykov, our Chief Executive Officer; and Adrian Haigh, our Chief Operating Officer. Before we begin, I would like to remind you that during this call, the company will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Reference to these risks and uncertainties are made in today’s press release and disclosed in detail in the company’s periodic and current event filings with the U.S. Securities and Exchange Commission.

In addition, any forward-looking statements made on this call represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements. This conference call is being recorded for audio rebroadcast on Fennec’s website, www.fennecpharma.com, where it will be available for the next 30 days. And with that, I will now turn this call over to Rosty Raykov.

Rosty Raykov: Thank you, Robert, and good morning, everyone. The focus of today’s call is to review updates on the ongoing commercial launch efforts underway for PEDMARK in the United States and review our global opportunities, including the recent approval in the UK and Europe. Further, we will detail our third quarter 2023 financial results, all of which were outlined in our earnings press release issued this morning prior to this call. We’re very pleased to report that PEDMARK delivered strong third quarter revenues of $6.5 million, a 96% increase over the second quarter of 2023. Further, this represents more than tripling our revenue since Q1 2023 from $1.7 million reported in Q1. We continue to be very encouraged with the progress we’ve made with PEDMARK launch to date, and we are even prouder of the work that is underway to sustain this momentum throughout the remainder of ’23 and as we head into ’24.

As a reminder, PEDMARK was approved by the FDA in September of ’22. It is the first and only-FDA approved therapy to reduce the risk of cisplatin-induced hearing loss in pediatric patients one month of age and older with localized, non-metastatic solid tumors. We launched PEDMARK in the U.S. in October 2022. So, we’re — just marked our one-year anniversary since PEDMARK became commercially available. We’re very proud of the team’s ongoing commercial progress and our enthusiasm for PEDMARK and passion for supporting the pediatric oncology community continues to grow. In fact, the team had a busy fall season, engaging in robust discussions with key opinion leaders on the issue of cisplatin-induced ototoxicity. We recently attended the International Society of Pediatric Oncology Annual Meeting, the Connective Tissue Oncology Society Annual Meeting, the Health Connect Partners’ 2023 Fall Hospital Pharmacy Conference, and the Association of Hematology/Oncology Nursing Annual Meeting, where we saw encouraged first-hand about the importance of our work.

These conferences followed on the heels of an event where we are sponsored the Hillsdale College Pediatric Cancer Awareness Day Football Game, in which proceeds from the day went to support multiple organizations engaging the fight against childhood cancer. These are just a few examples of how we are continuing to build strong relationships within the community. In terms of commercial efforts to establish PEDMARK as an necessary complementary agent when prescribing a cisplatin-based therapy for a child with a localized non-metastatic solid tumor, our sales force is currently targeting 200 pediatric hospital centers including COG, NCI and NCCN institutions across the U.S. that drive 80% of cisplatin use. Based on these efforts, we estimated approximately 20% [have written] (ph) a PEDMARK prescription.

In fact, we believe that some of the leading centers have already prescribed more than 25% of eligible patients under their care. We’re highly encouraged by the third quarter’s double-digit growth in new pediatric hospital centers prescribing PEDMARK and with the consistent repeat orders from existing accounts. Further, we continue to see success in large academic centers, including continued formulary approvals at several major pediatric hospital centers in the third quarter. Geographically, all of our territories have seen HCPs prescribing PEDMARK, and we have seen highly encouraging adoption within our target accounts, that are increasing over time. In terms of patients, we have seen utilization across several tumor types, including hepatoblastoma, osteosarcoma and germ cell tumors.

PEDMARK also continues to have broad and favorable payer coverage as evidenced by their approved U.S. prescription claims with commercial insurance plans and Medicare Part D plans. As a reminder, we estimate among current PEDMARK patients, approximately 50% are commercially insured, with another 50% insured through government-sponsored programs. The remainder have no or limited insurance coverage and may be eligible to receive PEDMARK at no cost to them under our patient assistance program, Fennec HEARS, which is comprehensive single source program designed to connect PEDMARK patient to both patient financial and product access support. With regard to expanding in Europe, we announced in June the EMA approval of PEDMARK, which will be marketed under the name PEDMARQSI.

Our PEDMARQSI will be the first and only treatment approved in the European Union to address this area of significant unmet medical need. Further in October, the Medicines and Healthcare products Regulatory Agency, or MHRA, in the UK approved PEDMARQSI for the same indication. Following up on our strong UK key opinion leader relationships, earlier this fall, we presented background and date on PEDMARQSI at a hearing therapeutics summit organized by RNID with the UCL Ear Institute and UCLH Biomedical Research Centre in London. We continue to evaluate the best commercial pathway for the company in Europe and the rest of the world, either go it alone or with a partner. Whatever pathway we select, we see Europe as another significant opportunity to create shareholder value.

In closing, I want to reiterate the focus of our commercial strategy remains on executing the following: establishing PEDMARK as a necessary complement agent when prescribing cisplatin-based therapy for a child with localized non-metastatic solid tumor; minimizing the barriers to access; [indiscernible] rapid responses to product questions; and establishing Fennec as the premier partner of choice among pediatric oncology community. With that, I will now turn the call over to Adrian, who has been on the Board of Fennec since 2014 and joined the executive management team of Fennec in August of this year as Chief Operating Pfficer. Adrian will share his observations and opportunities after his first 100 days on the job. Adrian, over to you.

Adrian Haigh: Thanks, Rosty. Indeed, it’s been an exciting first few months since joining Fennec full-time as Chief Operating Officer. As expressed on the call in August, I’ve got two priorities: the first is accelerating the adoption of PEDMARK in the U.S.; and second, preparing PEDMARQSI for launch in Europe as we continue to evaluate the strategic direction of the business. As Rosty mentioned, adoption of PEDMARK in the U.S. continues to make solid progress. We continue to work with a number of key pharmacy committees and key academic centers ensuring that PEDMARK is included as standard of care in all treatment protocols. We benefited during the third quarter from growth in adoption and, importantly, repeat orders and growth from existing customers and hospitals.

Additionally, we won pharmacy and therapeutics committee approval at several leading institutions. Further, we’re now putting increased focus on the opportunity offered by PEDMARK’s NCCN endorsement in adolescents and young adults, AYAs. And importantly, we have a Category 2 rating — 2A rating, which was achieved earlier this year. To support this effort, during the third quarter, we strengthened our sales team with several new hires who have significant expertise in selling into community oncology centers where many of the AYA patients are treated. Additionally, we’ve strengthened our focus on managing the relationship with group purchasing organizations, and we’ve signed contracts with a number of leading groups. GPO endorsement will support the use of PEDMARK, not only in the pediatric oncology centers, but in these community hospitals, infusion centers, and administration in the home.

We also will be partnering with a leading specialty pharmacy to provide home administration and, importantly, white bag delivery to the hospital with direct billing to the insurance provider or to Medicaid. Turning to Europe, we’re making steady progress in the preparation for the launch of PEDMARQSI in the first half of 2024. Some of these activities include the submission and approval of the German NUB price application. This was done in October 2023 and it was accepted. This allows us to sell PEDMARQSI in German hospitals during 2024. The health technology assessment dossiers required for price approval are now at an advanced stage of development and will be submitted in quarter one in Germany, the UK, France, Italy, and Spain. Additionally, we’ve had early and favorable interactions with several key countries regarding pricing and reimbursement.

And as Rusty said, we recently received MHRA approval in the UK. With that, I’ll turn the call over to Robert to go over the financials for the quarter. Robert?

Robert Andrade: Thank you, Adrian. Our press release contains details of our financial results for the third quarter of 2023. They can be viewed on the Investors and Media section of our website. Rather than read through all of those details, my comments today will focus on some key financial results and we anticipate filing our 10-Q this week with further details. The company recorded net product sales of $6.5 million in the third quarter of 2023 versus $3.3 million in the second quarter, for a net revenue growth of approximately 96%. As mentioned by Rosty, net revenue has more than tripled since Q1 2023, and we look forward to building from the momentum in the first nine months of 2023. To reiterate remarks from Rosty and Adrian, we are pleased with the growing acceptance of PEDMARK within healthcare providers during the third quarter, and with the recent hospital formulary access approvals continuing early in Q4.

Overall, our OpEx during the period has remained well-controlled and within anticipated ranges. General and administrative expenses for the third quarter of 2023 were $3.8 million, which compares to $5.3 million in the second quarter of 2023. The decrease is largely attributable to lower non-cash employee remuneration and lower administrative and legal expenses. As stated in previous quarters, the company began recording selling and marketing expenses when it expanded its payroll to include an internal sales force. Selling and marketing expenses include distribution costs, logistics, shipping and insurance, advertising, wages, and commissions, and out-of-pocket expenses. The company recorded $3.3 million in selling and marketing expenses in the third quarter of 2023 compared to $2.3 million in the second quarter of 2023 as the company increased marketing expenses in the U.S. and pre-commercial activities in Europe.

We expect these levels to continue in the fourth quarter, but overall OpEx to be consistent with Q3 when including G&A. R&D expenses are negligible as the company reduced research and development costs when it received FDA approval of PEDMARK. The majority of traditional R&D expenses associated with PEDMARK are now recorded as G&A or capitalized into inventory and eventually recorded to cost of product sales. Our GAAP net loss for third quarter of 2023 was $1.8 million, or $0.07 per share, compared to a GAAP net loss of $5.4 million, or $0.21 per share, in the second quarter of 2023, and $8.1 million, or $0.31 per share loss, in the second quarter of 2022. As evident in the results, we have made significant progress in getting closer to breakeven on a GAAP EPS.

And finally, our cash position. We ended the third quarter with approximately $12.4 million in cash, cash equivalents and investment securities, which includes $25 million of capital drawn under our existing Petrichor convertible debt facility. Our cash burn for the third quarter was approximately $2.5 million compared to $3.3 million in the second quarter of 2023. As a reminder, we remain focused on reaching cash flow breakeven in the U.S. as revenues grow, and look forward to reporting our Q4 progress in 2024. Finally, we believe our available capital, when coupled with PEDMARK revenue assumptions, will give us sufficient capital to fund our operations through at least the next 12 months. And operator, with that, we are ready for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Chase Knickerbocker with Craig-Hallum. Your line is open.

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Q&A Session

Chase Knickerbocker: Good morning, guys. Congrats on the nice quarter here. Maybe just to start for me, if we look at the model, it seems to me that you’re executing to your plan on launch, where it seems like the initial expectation was cash flow breakeven in Q4 this year. Looking at the model, with revenue growing nearly 100% again sequentially, you would need either a drastic deceleration in that revenue or meaningfully elevated OpEx to not post positive cash flow from operations or positive operating income in my model, that paired with the strong commentary on center penetration, penetration within some of those centers, it seems like breakeven is the right way to think about the business in Q4. Is there anything that you would caution me on the go forward that I should be thinking about when I think about the model?

Rosty Raykov: Yeah. Hi, Chase. Good question. Perhaps Robert can answer that.

Robert Andrade: Yeah, thanks, Chase. As stated, our OpEx during the period has remained well controlled and within previously guided ranges. For the third quarter specifically, if you look at our OpEx, it was roughly $7 million to $7.5 million in cash expenses. So based on those Q3 results, we are on our way to getting to breakeven. Of course, this does exclude an EU launch, which, as we mentioned, we are evaluated — evaluating, excuse me. But further, we feel comfortable that our existing cash, when coupled with PEDMARK revenue assumptions, in the quarters to grow, will give us sufficient capital to fund our operations to cash flow breakeven and positivity. That’s what we’re working towards.

Chase Knickerbocker: Great. Thanks for the color. Maybe just two on Europe for me as well. Maybe help investors think about the framework that inform a decision on whether to partner or go it alone? Is it in terms of a licensing deal? Is it the royalty levels? Is the money upfront? And then, I guess, paired with that, just what geographies within Europe should we think about from a country perspective generating the most meaningful volume within the first 12 to 18 months of launch? Is that the UK and Germany? Just kind of more color there.

Rosty Raykov: Yeah, thanks, Chase. I will send it over to Adrian, because he’s been working intimately in Europe from Dublin, and he’ll be able to share his experience for the last 100 days. Adrian? I think you might be on mute.

Adrian Haigh: Sorry. I was on mute there? Sorry. Yeah, Chase, thanks for the question. I think first of all, with Europe, if we choose to go alone, we don’t bite off more than we can chew. So, I think if we were going to do it ourselves, we would partner in the major — sorry, we do it ourselves in the major markets in Western Europe. And then we look to establish relationships with distributors for Eastern Europe and perhaps some of the smaller markets. I have to say that in discussions that we’ve had with the vendors that are helping us develop the health technology assessment dossiers, I’ve been very encouraged by their views on what price we will be able to achieve. I think the economic argument is very strong when you cover — when you look at the costs of deafness that are covered by the health systems in most of these countries.

Depression is heavily associated with deafness, for example. So, we feel we can make a strong argument for an acceptable price in Europe. In Germany, as I said, we submitted the price for the first six months, and that has been accepted. So, when we do launch, we will launch at that price, and then enter into negotiations with the insurance companies for the final price. And then, we have submitted an early access application — or we’re about to submit an early access application in France, so we should expect to get some pre-price approval sales in France early next year. But as we said earlier on, we’re continuing to evaluate all the options. And if we do license out in Europe, obviously, we’ll be looking for a big cash injection with hefty royalties, if that helps.