Fennec Pharmaceuticals Inc. (NASDAQ:FENC) Q4 2023 Earnings Call Transcript

Fennec Pharmaceuticals Inc. (NASDAQ:FENC) Q4 2023 Earnings Call Transcript March 21, 2024

Fennec Pharmaceuticals Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. And welcome to the Fennec Pharmaceuticals’ Fourth Quarter and Full Year 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. You may begin.

Robert Andrade: Thank you, operator. And good morning, everyone. We appreciate you joining us today for Fennec’s Pharmaceuticals fourth quarter and full year 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 are 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. References 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 US 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 Web site, www.fennecpharma.com, where it will be available for the next 30 days. And now I will turn the call over to Rosty Raykov. Rosty?

Rosty Raykov: Thank you, Robert, and good morning, everyone. On today’s call, we will detail our fourth quarter and full year 2023 financial results, all of which were outlined in our earnings press release issued this morning prior to this call. We’ll also discuss ongoing commercial launch efforts and the progress that we’re making with PEDMARK in the US and provide details on the exclusive licensing agreement we announced on Monday with Norgine, the commercialize PEDMARQSI in Europe, Australia and New Zealand. As you may recall, we announced preliminary unaudited fourth quarter and full year 2023 net revenues at the end of February and we’re pleased to report that PEDMARK delivered fourth quarter revenues of approximately $9 million.

This brings our full year 2023 net revenues to approximately $21 million. It was an exciting year for Fennec given the strong performance with PEDMARK in the full full fiscal year following its US commercial launch. We’re pleased with our execution against strategic plans and our momentum in ’23 which sets the stage for further success in ’24 and beyond. We continue to be very encouraged with the progress we’ve made and we’re even prouder of the work that is underway to sustain this momentum throughout ’24 and beyond. Earlier this year, we announced the FDA issued a public communication that is aware that some providers may be preparing other sodium thiosulfate products for patients used in place of PEDMARK, including the ruling STS products approved for [other] users to match the strength of PEDMARK.

The FDA reminded healthcare providers that are stated in PEDMARK’s prescribing information, PEDMARK is not substitutable with other sodium thiosulfate products. The FDA stated such substitutions post potential health risks, including potassium chloride, which at high doses can lead to increased risk of acute cardiac events and other serious adverse reactions; potassium chloride is not present in PEDMARK; overexposure to boric acid can cause health risks, including headache, hypothermia, restlessness, weariness, renal injury, dermatitis, alopecia and anorexia and indigestion; although PEDMARK also contains boric acid, it is at a lower concentration than other STS products; overexposure to sodium nitrate, which can lead to health risks, including methemoglobinemia; sodium nitrate is co-packaged with sodium thiosulfate as a separate vial in some products is not present in PEDMARK.

The public communication was issued by the FDA Professional Affairs and Stakeholder Engagement Staff with the Center for Drug Evaluation and Research Office and Communications. We are pleased with the FDA reminder to providers of this issue, which supports our educational efforts in establishing PEDMARK as the necessary complement agent when prescribing a cisplatin based therapy for appropriate patients with a localized nonmetastatic solid tumors. To that end, earlier this month, we sponsored an educational program with Med Safety Board, a subsidiary of Institute for Safe Medication Practices or ISMP, in which expert faculty Rita Jew and Noah Federman reviews therapeutic considerations for reducing the risk of cisplatin-induced ototoxicity in pediatric patients.

Regarding our commercial efforts, our sales force continues to target approximately 200 pediatric hospital centers, including COG, NCI and NCCN institutions across the US that drive 80% of pediatric cisplatin use. We’re also continuing to build upon our commercial momentum to expanding the prescriber base to the community, increasing the utilization of the recent endorsement from the NCCN or PEDMARK in the adolescent and young adult AYA patient population. To be clear, our FDA indication is pediatric and our commercial teams are only promoting our FDA indication. PEDMARK also continues to have broad and favorable payer coverage, as evidenced by payer-approved US 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.

With regards to our evaluation of the best commercial path in Europe, we were pleased to announce on Monday that Fennec has entered into an exclusive licensing agreement with Norgine, a leading European specialist pharmaceutical company, under which Norgine will commercialize PEDMARQSI in Europe, Australia and New Zealand. PEDMARK is the first and only approved therapy in the EU and UK for the prevention of ototoxicity induced by cesplatin chemotherapy in patients one month to 18 years of age with localized non-metastatic solid tumors. Under the terms of the licensing agreement, Fennec received approximately $43 million in upfront consideration and the potential for up to approximately $230 million in additional commercial and regulatory milestone payments and tiered royalties on net sales of PEDMARQSI in the license territories up to the mid-20s.

Norgine will be responsible for all commercialization activities in the license territories and will hold all marketing authorizations. This partnership represents an important step in achieving our mission of expanding PEDMARQSI to patients across the globe who are at risk of suffering from cisplatin induced ototoxicity. From a deal perspective, the terms provide us with many important benefits, including an upfront payment, further solidifying our balance sheet, attractive economic terms, providing meaningful participation in the ex-US success of PEDMARQSI and an experienced partner to successfully launch PEDMARQSI in the license territory. In closing, I want to reiterate that the focus of our commercial strategy remains on executing the following: establishing PEDMARK as necessary complement agent when prescribing the cisplatin based therapy for appropriate patients with localized non-metastatic solid tumors; minimizing the barriers to access and ensuring rapid responses to product questions and inquiries; and establishing Fennec as the premier partner of choice in the oncology, in-patient and community setting.

With that, I will now turn the call over to Adrian who will provide an update on our commercial strategy and operations. Adrian?

Adrian Haigh: Thanks, Rosty. As a reminder, we estimate that in the US, there are approximately 3,500 on-label pediatric oncology patients. The majority of these are treated in the specialist pediatric centers and receive an average of 12 vials per patient. Conversely, there are more than 25,000 15 to 39 year old cancer patients, many of which receive cisplatin. And as Rosty said, the NCCN has recommended PEDMARK for this defined patient population with a 2A rating. Taking testicular cancer as an example, there are approximately 3,800 patients and the majority of these are likely to receive high doses cisplatin putting them at a very high risk of hearing loss. The average testicular cancer patient due to our weight based dosing requires many more vials of PEDMARK than the younger pediatric patients.

Testicular cancer has very high cure rates, 90% and beyond. But in such cases, hearing loss is lifelong and devastating, the unmet medical need for preventative treatment is clear. There is a very strong health economic argument that justifies spending on preventive treatment. These patients are exclusively treated in the community hospitals and infusion centers. AYA patients with cirvical ovarian and head and neck cancers are also likely to be treated with cisplatin. And again, if prescribed will require a significant number of vials of PEDMARK. Since November, our sales force has primarily focused their activities on the community treated population. We have been very encouraged by the community’s response to PEDMARK. Most of them, whilst being acutely aware of the hearing loss called by cisplatin, were not aware of the availability of a preventative treatment.

Incorporating PEDMARK into the treatment schedule requires some adjustment to current practice. For example, infusion clinics may have to stay open for an extra hour or so in order to accommodate the need to administer PEDMARK six hours after the end of cisplatin infusion. All of this takes some time to put in place. And consequently, we focused our efforts during the last few months on disease awareness and treatment awareness, and then subsequently working with the centers on the logistics of administration. We’re essentially just a couple of months into what is in effect a new launch for PEDMARK, but we’re encouraged by the reception we received, patients have already been treated and reimbursed by payers. As we look forward to the conference season and in particular to ASCO, we intend to appropriately educate all oncologists and create awareness of PEDMARK.

We’ve had to deal with one barrier to uptake and I’m pleased to say that from April 1st, this has been resolved. Prior to April 1, 2024, our J-Code did not differentiate between PEDMARK and other formulations of STS. As a consequence, there has been some confusion and impact to the adoption of PEDMARK. We informed CMS and in January 2024, CMS issued a new J-Code for the whole product and amended our J-Code to specify PEDMARK. Importantly, CMS has also stated that the two formulations are not interchangeable. To repeat, this important change will become effective on April 1, 2024 and we do expect a significant acceleration in uptake as a result. As Rosty mentioned, on January 8th, the FDA issued an e-mail reminder that PEDMARK cannot be substituted with other formulations of STS due to significant safety concerns.

As this e-mail was not sent to individual doctors, individual pharmacists or hospitals, but rather to organizations, for example, ASCO and the American Hospital Pharmacists Association, our sales force has been working to create further awareness of this notice to pediatric hospitals. As a result, a significant number of hospitals have scheduled new formulary committee meetings to discuss the FDA notice and some have already seized compounding. Again, this doesn’t happen overnight with many meetings taking place on a monthly or bimonthly frequency. I’m also pleased to report that the American Hospital Pharmacist Association Drug Information Resource, AHFS has recently been amended to clearly differentiate between the various formulations of STS and clearly states they are not substitutable.

So in closing, I’m very pleased with the progress we are making and I’d like to thank the commercial and medical affairs teams for the tremendous effort they’ve made over the last few months, and I look forward to seeing the acceleration in revenue. With that, I’ll turn the call over to Robert to go over the financials for the quarter and full year results. Robert?

Robert Andrade: Thank you, Adrian. Our press release contains details of our financial results for the fourth quarter and full year of 2023, which can be viewed on the Investors & Media section of our Web site. Rather than read through all of those details, my comments today will focus on some key financial results. The company recorded net product sales of PEDMARK for our first full fiscal year after launch of approximately $21 million in fiscal ’23 with over $9 million in the recent Q4 2023. This compares to $1.5 million in fiscal year and fourth quarter of 2022. The increase in net sales reflects strong growth in new patient starts and accounts. G&A for the 2023 fiscal year increased by $2.3 million compared to the 2022 fiscal year.

This increase is largely attributable to payroll and benefit related expenses, which rose approximately $1 million and higher noncash stock based compensation. Selling and marketing expenses, including remuneration of our sales and marketing employees, dollars spent on marketing campaigns, such as sponsorships, trade shows and presentations and any activities to support marketing and sales activities. The company recorded $12.1 million in selling and marketing expenses in fiscal 2023 compared to $2.8 million in fiscal year 2022 as the launch of PEDMARK commenced in fourth quarter of 2022. R&D expenses are negligible, as we’ve mentioned before, as the company reduced research and development costs when it received FDA and EMA approvals of PEDMARK.

The majority of traditional research and development expenses associated with PEDMARK are now recorded as G&A expenses or capitalized into inventory and eventually recorded to costs of product sales. Our net cash used in operating activities was $16 million in 2023, which is consistent with our approximately $25 million in annual cash operating expenses prior to any contributions from net revenue. Further, Q4 2023 and the first six months of 2024 have additional expenses associated with the internal preparation for the EU launch, which with the announced partnership of Norgine, we anticipate these EU expenses to tail off significantly in the second half of 2024. And finally, our cash position, we ended the year with approximately $13 million in cash, cash equivalents and investment securities, which included the December 2023 third closing of 5 million senior secured convertible notes under the existing agreement with Petrichor.

The original investment agreement provided access to up to $20 million of additional financing through December 31, 2023. As part of this closing, Fennec and Petrichor have amended the agreement to provide access to up to $15 million of additional financing through December 31, 2024. In addition and importantly, as announced earlier this week, we received approximately $43 million from the licensing of Europe, Australia and New Zealand to Norgine. Inclusive of the licensing transaction, pro forma December 31, 2023 cash balance is in excess of $56 million. We anticipate that our cash, cash equivalents and investment securities as of December 31, 2023, when coupled with PEDMARK revenue assumptions and the recently announced license agreement for Europe, will be sufficient to fund our planned operations for at least the next 12 months.

And operator, with that, we are ready for questions.

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Q&A Session

Operator: [Operator Instructions] And our first question will be coming from Naureen Quibria with Capital One Securities.

Naureen Quibria: So I was just wondering if we think about the quarter last quarter, in terms of the growth, was it more from new accounts, repeat prescribers? And when do you think the contributions from the AYA group will filter in?

Rosty Raykov: Yes, I would say overall it was really the hospital, the existing accounts, a few newer ones. I would also say that we did have several patients that started treatment that were in the AYA population and and it’s age and attributed the vial usage in those patients is significantly higher. But as you can imagine, those were also in the context of a CMS J-Code issue that has been resolved starting April 1.

Naureen Quibria: And congrats on the licensing deal. I was just wondering maybe too related to that. So when will the transfer the health technology, the ACA dossiers and any relevant materials, has that already occurred with Norgine? And do you expect to maintain the time line for launch in Europe in the second quarter? And finally, related to that, who’s going to pursue the regulatory approval? I think you may have mentioned it, but I’m not sure in Switzerland, in Australia and New Zealand?

Rosty Raykov: This is over to Adrian.

Adrian Haigh: So the second question easy to answer. The Norgine will be responsible for everything regulatory in the licensed territories. So we’ve already begun the process of transferring the European and UK licenses to Norgine. They will be responsible for applying in Switzerland, Australia and New Zealand. We already have begun the process of introducing Norgine to the health technology vendors. They — Norgine will take over or has taken over responsibility for the management of those vendors. It’s not for me to comment on when Norgine will choose to launch. I think they will probably let the dust settle and evaluate where they are. So I would be anticipating a European launch probably in the second half of the year just for logistical reasons.

Operator: And our next question will be coming from Chase Knickerbocker with Craig-Hallum.

Chase Knickerbocker: I wanted to share my congrats as well on the EU licensing deal. A really nice deal you negotiated there, I’m going to start there. Maybe the color is helpful around Norgine’s plans kind of maybe second half of the year from a launch perspective. Maybe kind of building off that, they appear to be set to launch eflornithine in the near future as well, and it seems to be like they see some sort of strategic kind of rationale on the synergies there. Can you kind of speak to the excitement level that Norgine has kind of launching those two assets together? And then second on that, this had to be, in my opinion, a pretty competitive process to get the strong terms that you received. Can you give us any sort of insight on how potential partners were thinking about strategic value of PEDMARK as you kind of went through this process, not only in the EU but globally and in the US as well?

Rosty Raykov: Maybe I can start with the second half of the question and I would turn it over to Adrian. In terms of the value proposition that PEDMARQSI and PEDMARK offers, as you know, it’s very difficult to get a product approved. It’s been 14 years in the making. And it’s very rare for anyone to develop a product in the pediatric oncology setting. We also did an outstanding job with not just getting this product approved but also setting it up for success in Europe, and that’s largely to Adrian’s efforts that were underway since he joined us in August. So I think that set the stage up for an asset that is ready to — again, ultra-rare for an asset that is ready to launch, that’s largely all the risk is basically off the table.

And this is something very, very attractive to, as you could imagine, many, many parties, especially when there is a specific need and market for a very, very unique product. So maybe, Adrian, you could discuss the first part of the question in terms of the overall direction that Norgine will take this forward.

Adrian Haigh: So as I think I mentioned on the previous calls, the work that we’ve been doing over the last six months or so with European health technology vendors has brought us to the conclusion that we can get a pretty significant price in Europe. And as you’re correct in saying that it was a competitive process and a number of the potential suitors all came to that conclusion, it became clear to us that the suitors were very excited about the potential of the product, were prepared to commit significantly more resources than we would have been able to do given our other priorities in the US. And it got to — it became very competitive, we had a number of very high quality European specialty pharma companies that were prepared to invest significant resources in PEDMARK.

I’m absolutely delighted with the partnership with Norgine, they’re completely bought into the concept, we’re completely aligned on our pricing assumptions. They see this, as you said, Chase, as highly synergistic to their growing portfolio in pediatric oncology. And they’re prepared to put very significant resources, both in terms of people and cash to support the launch, if that answers your question.

Chase Knickerbocker: Maybe digging in a little bit more on the J-Code issue. This is a kind of nuanced question, but — so there’s going to be a separate J-Code for the other STS product. Is there any chance that there’s any sort of confusion around the ASP reporting for your J-Code, from a standpoint of, is there going to be some sort of ASPs that were reported for the other products that get included in your J code or is that going to get taken out?