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.

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 those 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.

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 the 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 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 learned firsthand about the importance of our work. These conferences followed an event where we sponsored the Hillsdale College Pediatric Cancer Awareness Day Football Game, in which proceeds from the day went to support multiple organizations engaging in 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 a 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 estimate approximately 20% have written 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 healthcare professionals 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 a comprehensive single-source program designed to connect PEDMARK patients 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 data 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 that the focus of our commercial strategy remains on executing the following: establishing PEDMARK as a necessary complementary agent when prescribing cisplatin-based therapy for a child with localized non-metastatic solid tumor; minimizing barriers to access; providing rapid responses to product questions; and establishing Fennec as the premier partner of choice among the 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 Officer. Adrian will share his observations and opportunities after his first 100 days on the job. Adrian, over to you.

Thanks, Rosty. It has indeed been an exciting first few months since I joined Fennec full-time as Chief Operating Officer. As mentioned in the August call, I have two main priorities: the first is to accelerate the adoption of PEDMARK in the U.S.; the second is preparing for the launch of PEDMARQSI in Europe while we evaluate the company's strategic direction. As Rosty noted, we are seeing solid progress in the adoption of PEDMARK in the U.S. We are actively working with various key pharmacy committees and leading academic centers to ensure PEDMARK becomes part of standard care in all treatment protocols. During the third quarter, we saw growth in adoption, repeat orders, and expansion from existing customers and hospitals. We also achieved approval from pharmacy and therapeutics committees at several top institutions. Furthermore, we are placing greater emphasis on the benefits of PEDMARK's NCCN endorsement for adolescents and young adults, particularly with the Category 2A rating attained earlier this year. To bolster this effort, we enhanced our sales team in the third quarter by adding several new hires with extensive experience in community oncology centers, where many AYA patients receive treatment. We have also focused on strengthening our relationships with group purchasing organizations, securing contracts with several major groups. Endorsement from these GPOs will facilitate the use of PEDMARK not only in pediatric oncology centers but also in community hospitals, infusion centers, and home administration. We will be collaborating with a prominent specialty pharmacy to provide home administration and white bag delivery to hospitals, with direct billing to insurance providers or Medicaid. Regarding Europe, we are making consistent progress in preparing for PEDMARQSI's launch in the first half of 2024. Recent activities include the submission and approval of the German NUB price application, submitted in October 2023, which has been accepted and will allow us to sell PEDMARQSI in German hospitals in 2024. The health technology assessment dossiers needed for price approval are advancing well and will be submitted in the first quarter in Germany, the UK, France, Italy, and Spain. Additionally, we have had positive early interactions with several key countries on pricing and reimbursement, and we recently received MHRA approval in the UK. Now, I will turn the call over to Robert to discuss the financials for the quarter. Robert?

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 operating expenses during the period have 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 operating expenses to be consistent with Q3 when including general and administrative. 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 the 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.

Thank you. Our first question comes from Chase Knickerbocker with Craig-Hallum. Your line is open.

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 operating expenses 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?

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

Yeah, thanks, Chase. As stated, our operating expenses during the period have remained well controlled and within previously guided ranges. For the third quarter specifically, if you look at our operating expenses, 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 evaluating. 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.

Great. Thanks for the color. Maybe just two on Europe for me as well. Maybe help investors think about the framework that informs a decision on whether to partner or go it alone? Is it in terms of a licensing deal? Is it the royalty levels? Is it 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.

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.

Sorry about that. Thanks for the question, Chase. Regarding Europe, if we decide to go independently, we will ensure our ambitions are realistic. If we proceed on our own, we would focus on the major markets in Western Europe and look to establish partnerships with distributors in Eastern Europe and some smaller markets. In conversations with the vendors assisting us in developing our health technology assessment dossiers, I have felt optimistic about their outlook on the price we can achieve. The economic rationale is quite compelling when considering the costs associated with deafness covered by health systems in these countries; for instance, depression is significantly linked to deafness. Therefore, we believe we can present a strong case for an acceptable price in Europe. In Germany, we submitted the price for the first half-year, which has been accepted. So, when we launch, we will do so at that price and then negotiate with insurance companies for the final pricing. Additionally, we are about to submit an early access application in France, which should allow for some pre-price approval sales early next year. As previously mentioned, we are continuing to explore all our options. If we decide to license out in Europe, we would naturally seek a substantial cash injection along with significant royalties.

Yeah. And then if we kind of dig in a little bit on the Europe pricing there, is greater than a 50% decline from U.S. net price the right way to think about it, or should I maybe be thinking about that a little bit differently? And then also a little bit of color on kind of inpatient versus outpatient usage in the United States, maybe percentage of sales between both sites of service, and then kind of how the prior authorizations have been on the outpatient side from a coverage perspective?

To answer your first question about Europe pricing, yes, we expect the initial price in Germany to be significantly closer to 100% of the U.S. price, and then it will be subject to negotiation. I anticipate that there will be a request for some sort of pricing cap in Europe, especially considering the high cost associated with a 17-year-old testicular cancer patient, which was stated to be nearly €1 million. Thus, we should expect that they won’t cover that full amount, and a cap will be necessary. Generally, for pricing in Europe, we are looking at around 70% of the U.S. price on average. Focusing on the adolescent and young adult (AYA) population, we note that there are approximately 3,500 pediatric patients in the U.S. with localized disease currently treated with cisplatin. In the AYA demographic alone, there are also about 3,500 testicular cancer patients aged 15 to 39 in the U.S. If we consider other tumor types likely to be treated with cisplatin, the total number of potential patients rises to around 30,000. This represents a tenfold increase. Most of these patients receive treatment in the community with an ASP-plus model. As I mentioned, we recently began focusing our sales team on this specific population, and early results have been promising, with the sales force reporting a substantial unmet medical need and favorable responses from the community.

Thanks for the question, guys.

One moment for our next question. Our next question comes from Naureen Quibria with Capital One Securities. Your line is open.

Hi, good morning. Thanks for taking my question, and congrats on the quarter. I guess I'll start with the very simple just in terms of you're looking at actual sales numbers and you're seeing progress there. But just out of curiosity, what kind of metrics are you personally tracking over time to gauge your progress? Is it just repeat orders? Just some specifics would help.

Hi Naureen, I can start and then pass it to Robert and Adrian. Our top priority is to achieve breakeven for the business, and we are close to reaching that goal. On the sales side, we have established clear metrics based on the demographics discussed in both the pediatric and AYA settings moving forward, and the sales team will be strongly motivated to excel in these areas. Additionally, we are focused on building the brand as we move ahead. Robert or Adrian, do you want to add anything?

We have several metrics, including formulary committees and repeat orders from those centers. Ultimately, it comes down to the number of vials sold and the revenue generated.

Got it. Thank you. And then...

And they're based on the individual performing in their territory and not on an overall team goal.

Okay. And you did mention in the prepared remarks that you've added some folks in the sales force. So, how many are you up to now? And is there a different focus for these newer individuals, or if you could just help clarify that a little bit?

We have maintained a consistent sales force with 12 salespeople in the field, targeting 80% of cisplatin use based on previously discussed territories. As you might expect, there is some natural turnover within the team, and we are now looking to bring on talented individuals who have experience selling in community centers. These new team members will help promote the use of NCCN guidelines for AYA regarding PEDMARK in this demographic. Overall, we believe the timing has worked out very well.

Okay.

I believe there are four essential components needed. First, you need the NCCN guidelines with a Category 2A designation. Second, agreements and endorsements from the GPO organizations are crucial. You also require a specialty pharmacy capable of supplying directly to communities, hospitals, and patients' homes. Lastly, an experienced sales force familiar with this environment is necessary. We now have all these elements in place, so our primary focus is on the AYA population while also continuing to engage with pediatric oncology centers.

Terrific. So, just one more from me. You did, Adrian, mention in your prepared remarks about partnering with specialty pharma and the home administration angle. What percentage of that is that part of the market, just out of curiosity?

Well, if you look at the pediatric oncology centers, which accounts for 3,500 patients, then I think the majority of those, right now, the younger ones are treated in the specialist oncology centers. But all the older patients are either treated infusion centers or at home or in community hospitals. And as I said, there's probably around 30,000 in total there. So, I think the opportunity, the real opportunity, lies with the AYA population where we've got NCCN endorsement, we've got reimbursement because it's a 2A, and it's financially attractive. And also bear in mind that these patients are obviously older and heavier, so they're going to use more vials.

Additionally, we now have the capability to provide vials directly to patients' homes, which we did not have before. This development is certainly encouraging, along with the necessary skills to sell in community oncology, as Adrian highlighted earlier. We are equipped with a complete range of products and the sales team needed to implement this strategy.

And that has been in place since the middle of October, all of these things. So, we think we've got everything in place now.

Great. Thank you. That's all for me.

One moment for our next question. Our next question comes from Charles Duncan with Cantor Fitzgerald. Your line is open.

Good morning, Rosty and team. Congratulations on a strong quarter, and thank you for addressing our questions. I have a couple of inquiries. Looking ahead a year from now, do you expect most of your vial use to come from younger pediatric patients treated in centers for excellence, or will it likely stem more from the AYA patient population, considering they are generally larger? Also, aside from revenue, what is your goal for the next 12 months? Thank you.

Hi, Charles, that's a great question. Since Adrian joined, we've been concentrating on two key opportunities: the AYA population and international markets, alongside our work with a major pediatric hospital center. A year from now, I believe we could see significant contributions from all three areas. The AYA segment, as you noted, involves tumor types and cisplatin therapies that will demand a larger quantity of PEDMARK vials, potentially making it the largest source given its current starting point is nearly zero. However, we’ve also made considerable strides with the pediatric hospital, and we have ongoing activity and wins, with more anticipated. So, there could be positive surprises there too. On the international front, revenues will likely be driven by Germany, the UK, and France, and I'm very optimistic about what Adrian has accomplished in Germany.

Yeah. And that's a great segue to my next question. I was a little bit confused about some of Adrian's answers regarding pricing. And beyond pricing, and I know that can be kind of an artifact of the certain country, I guess I'm wondering if you could perhaps talk about the pharmacoeconomic value of PEDMARK in Europe or in the UK versus here in the United States? Do you think there's a good recognition of the downstream costs of cisplatin-induced hearing loss? And if you could gauge timing, as to being able to talk about your strategy, is it a goal for the first half of next year to be able to really come to a conclusion on what next steps are ex U.S.? Thanks.

I will address the latter question and pass it to Adrian. Our objective is to determine by the middle of next year what our plans will be, whether that involves retaining the major five while partnering on the rest or selling the European business. This decision will depend on several factors, particularly the cash upfront. Adrian, could you elaborate on the value proposition of European health dossiers regarding the health economics of PEDMARK and its impact on their healthcare systems?

Yeah. So, I think the first thing to remind everyone of is that although you've got actually in Europe two regulatory authorities now, you've got the UK's MHRA and the EMA, the other 27 countries, you've got 28 different ways of assessing whether the country can afford to pay for a drug. So, in terms of the health economic argument that we are putting together, i.e., can this country justify paying X for the drug, we're well advanced in most of the European countries in terms of the dossier preparation, and we feel strongly that we will be able to present a convincing argument to justify paying something like at least 70% to 100% of the U.S. price in Europe, if that's clearer.

That makes sense. I didn't know if it was a discount or the actual price, so that helps.

I think there will be a mixture of some degree of discounts and caps because, whilst they will be willing to pay full price for a 5-kilo hepatoblastoma patient, they won't be willing to pay full price for an 80-kilo testicular cancer patient. So, there's got to be some kind of cap.

That makes sense. Is there an acknowledgment that depression is one of the downstream costs associated with losing one's hearing and that this impacts not only the patient but also the community over time?

Yeah. And different countries have different approaches. For example, some will take into account the fact that a deaf patient is unlikely to be able to contribute because they drop out of school, they don't get well-paid jobs, they become a burden on the social security system. Some countries will take that into account in their assessment. Others will say, well, how much are they just costing the healthcare system; for example, and not taking into account social security costs and loss of earnings, et cetera. So, each one of these countries has a slightly different way of looking at it. So, it's very difficult to generalize. Where I would generalize is that we feel that in most of the countries, we've got sufficiently strong arguments to justify a good price.

That's helpful. Looking forward to seeing the progress next year ex U.S. as well as U.S. Congrats on the progress in the quarter. Thank you.

One moment for our next question. Our next question comes from Dipesh Patel with H.C. Wainwright. Your line is open.

Thank you, guys. This is Dipesh on for Ram Selvaraju. What kind of information do you expect to disclose going forward regarding the commercial trajectory of PEDMARK in the U.S.? So, for instance, a number of patients on therapy, number of new and repeat prescriptions written, total number of prescribers, or number of prescribers who have written, for example, greater than one prescription, et cetera?

Yes, that's a good question. As you can see, we started providing more detailed information as the business has developed, especially with the accounts where we've secured P&T, along with the repeat orders from those locations and the engagement with physicians there. As the business continues to grow, we will definitely provide more detailed information. However, it's important to note that, given our label which encompasses many tumor types, we can only make educated guesses about the specific tumor types being treated.

Okay. Thank you for that. And I have several more questions. How would you describe the current status of reimbursement and formulary access for PEDMARK?

So in terms of reimbursement, we have not seen any major issues. So that certainly has been encouraging. In terms of the formulary process, as you could imagine, hospitals in the U.S. are under tremendous financial pressure. Their margins, net operating margins, are very thin. On the other hand, very positive is happening to them, which is they are creating a tremendous margin at their pharmacy level, particularly savings from biosimilars. So, as we are moving forward to get through a P&T committee, sometimes it takes us more than once, those type of considerations come into play. But obviously, it's not easy. It's not easy to get through a P&T committee given all the considerations, given that this comes from their DRG.

All right, that's very helpful. And then, how are partnership discussions progressing in Europe? And when do you expect to launch the product there?

We expect to launch sometime in the second quarter of next year, likely around May or June. This is our best estimate at the moment. We are currently undergoing a Type 2 variation as we transition the manufacturing of PEDMARK from the U.S. to Europe, where we also manufacture PEDMARQSI. Approval is required for this Type 2 variation. Once we have that approval and are ready to ship and label the product for the European market, we will be able to provide more specific details about the launch month. Adrian is actively working on this and preparing for the associated health economics.

Got it. And then just a couple of more questions. Do you have any plans to advance other drug candidates from your discovery stage pipeline into the clinic at this time?

Well, I don't know if you know much about the history of Fennec, which was formerly known as Adherex, but we started with three, and we have one. So, I think it's very important for us to establish this one on the market before looking into bringing something else in.

Got it. Okay. And then last question, gentlemen. What does the long-term competitive landscape look like for PEDMARK in the U.S.?

I mean I think the most critical piece is, would cisplatin remain a mainstay treatment in pediatric cancer? And we believe it will be. Pediatric tumors in general and AYA tumors in general are very receptive and sensitive to cisplatin. Oncologists see a good use for the drug. They know how to use it. They've optimized it. So, anything else that comes usually comes on top of the cisplatin and comes at later stages. So, I don't see anyone looking to replace cisplatin. So that's really the view that we have and what we see in the marketplace. So yeah, I don't expect substitution for cisplatin any time soon.

Got it. Thank you, Rosty and gentlemen, for the update. Appreciate it.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Rosty for any closing remarks.

Yes. I would like to thank you all for joining us today, and we look forward to updating you on our continued launch progress and corporate milestones in future quarterly calls. Thank you, and have a great day.