Fennec Pharmaceuticals Inc. Q2 FY2024 Earnings Call

Good morning, ladies and gentlemen, and welcome to Fennec Pharmaceuticals Second Quarter 2024 Earnings and Corporate Update Conference Call. As a reminder, today's conference call is being recorded. Now I'd 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' second quarter 2024 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 our newly appointed Chief Executive Officer and Board Member, Jeff Hackman. Jeff joined Fennec on August 5th and brings more than 30 years of commercial leadership including oversight of more than 10 product launches across a wide range of therapeutic areas and markets. Importantly, Jeff has successfully commercialized products that are specifically relevant to the PEDMARK markets. Now 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 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 now it gives me pleasure to turn the call over to Jeff Hackman.

Thank you, Robert, and good morning, everyone. I'm incredibly excited to lead Fennec in this new role and I look forward to working with this team to direct the organization through its continued growth efforts. Before I introduce myself, I would like to thank Rosty for his dedication and leadership since 2009. He's been critical not only to the success of Fennec, but bringing a much needed therapy to the pediatric oncology population that was at risk for irreversible hearing loss, which can be a profound lifelong impact, as you know, on these patients. On behalf of everyone at Fennec, we're pleased we will be able to continue to benefit from Rosty's experience and knowledge as we enter into the next chapter. Let me talk a little bit about me, my tenure in oncology spans the last 12 years with companies like Sigma-Tau, Baxalta, Shire and EUSA Pharma, where I was responsible for the U.S. commercial organizations and managing the company's product portfolios in multiple franchises, generating billions in revenues over those years. As Robert mentioned, I have specific experience commercializing oncology products that are specifically relevant to PEDMARK markets and in the pediatric oncology community where I spent a lot of time and I'm passionate about. From my very first early interactions with the team here at Fennec through my last week here, it's clear to me that we have access to an incredible pool of talent at Fennec. Fennec's dedication, expertise and passion are evident, and I'm confident that together, we can work to fill any gaps and address any needs to drive our organization forward. Now turning to our second quarter 2024 financial results, all of which were outlined in our earnings press release issued earlier this morning before the call. We will also discuss ongoing commercial launch efforts and the progress we're making with PEDMARK in the U.S. and abroad, following exclusive licensing agreement announcement we executed in March with Norgine to commercialize PEDMARQSI in Europe, Australia and New Zealand. In the second quarter, PEDMARK delivered net revenues of $7.3 million. We believe there were several key milestones that we achieved recently that will enable us to accelerate patient access and build off the second quarter. In May, the office of new drugs at the FDA added a safety communication issued by SEDAR professional affairs and stakeholder engagement staff to PEDMARK's approval on the FDA page. Now it is clear that substitutions pose potential health risks. Fennec continues to diligently work with the FDA to address this issue. During the second quarter, notifications were sent outlining the FDA non-substitution status. Payer recipients included Medicare administrative contractors, Medicare Advantage, managed Medicaid, and commercial payers. Provider recipients included all state oncology societies, the top 20 health systems, including children's hospitals, and more than 360 oncology practices. These are community-based or hospital-owned. Additionally, as of April 1, our J-Code was issued, and we fully resolved this with CMS, amending it to specify PEDMARK. Now that this change is affected, we are seeing uptake that we believe will continue to improve in the quarters as we move forward. Further, and of great importance, the NCCN recently modified and updated their AYA guidelines for PEDMARK. The guidelines removed pediatric-specific wording and allowed for patients up to 39 years of age; and two, replaced cisplatin with platinum. We believe this allows PEDMARK to access a broader patient population within the ototoxicity prevention application. Now that the NCCN AYA guidelines have been modified, we've submitted PEDMARK data packages to the remaining targeted clinical drug compendia and anticipate that these updates to the compendia will be completed by the end of this quarter. So with all these recent milestones achieved, we remain optimistic and excited about the second half of the year for Fennec, given the foundation that we put into place for the first 18 months of the launch. We're confident in our ability to navigate through these marketplace changes and to achieve long-term objectives. Our outlook for the next few quarters will largely depend on our ability to continue to make positive steps forward with these key institutions and successfully target community hospitals and infusion centers to treat the outpatient setting with these older patients within our label and the NCCN guidelines for adolescents and young adults. Our plans to do so include: our sales force has expanded their activities and now are into the community centers that treat this AYA population that fall within our label. We believe that there are significantly more patients in this segment compared to the inpatient hospital treated pediatric population. Recently, we have administered to patients within this population, including tumor types such as testicular cancer, ovarian cancer, and head and neck cancer. We have successfully managed the reimbursement process with major health plans such as Blue Cross Blue Shield, United, and Caremark. We continue to work diligently with senior managers to extend our reach into infusion center hours to accommodate the time that it takes to administer PEDMARK, which is six hours after cisplatin infusion. We will continue to build off our recent success in partnering with Orsini Specialty Pharmacy to help patients access PEDMARK through Orsini's high-touch care model, these high-touch care model centers that provide personalized patient care. Now regarding our partnership with Norgine to commercialize PEDMARQSI in Europe, Australia, and New Zealand, efforts continue to progress in these territories and our targeted launch is late Q4 2024, and this remains on track. As a reminder, under the terms of the licensing agreement, Fennec received approximately $43.2 million in upfront consideration and the potential of up to approximately $230 million in additional commercial and regulatory milestone payments and tiered royalties on the net sales of PEDMARQSI in these licensed territories up to the mid-20s. Norgine will be responsible for all commercialization activities in these licensed territories and will hold all marketing authorizations in these licensed territories. The next major milestone will be evaluated after the launch in Germany in Q4 of 2024. As we've previously communicated, this partnership represents an important step for achieving our mission of expanding PEDMARQSI to patients across the globe who are at risk of suffering from cisplatin-induced ototoxicity. These terms provide us with many important benefits, including an upfront payment, further solidifying our balance sheet, attractive economic terms, providing a meaningful participation in the ex-U.S. success of PEDMARQSI, and an experienced partner to successfully launch PEDMARQSI in these licensed territories. So in closing, we continue to see promising opportunities for PEDMARK, including the steps we're taking to educate the marketplace along with executing on our commercial plans. We are looking forward to seeing the benefits of our actions in the coming months. So with that, I'm going to turn the call back over to Robert to go over the financials for the quarter.

Thank you, Jeff. Our press release contains details of our financial results for the second quarter of 2024, which can also be viewed on the Investors & Media section of our website. Rather than read through all of those details, my comments today will focus on some key financial results. As stated, the company recorded PEDMARK net sales of $7.3 million for the second quarter of 2024. This represents an increase of approximately 120% compared to the same quarter in 2023. G&A for the second quarter of 2024 was $6.9 million, which compares to $5.5 million in the comparable quarter of 2023 and $5.8 million in the first quarter of 2024. This increase is largely attributable to the pre-commercialization efforts for potential European launch or partnership that we were exploring and expenses associated with the Norgine transaction. As discussed on previous calls, we anticipate all major EU-related expenses to wind down in the second quarter of 2024. Selling and marketing expenses include remuneration of our sales and marketing employees, dollars on marketing campaigns, such as sponsorships, trade shows, and presentations, and any activities to support marketing and sales. The company reported $4.6 million in selling and marketing expenses in the second quarter of 2024 compared to $2.4 million in the comparable quarter and $5.8 million in the first quarter of 2024. The increase was largely attributable to higher payroll and increased marketing expenses related to the previously mentioned AYA initiatives. And finally, regarding our cash position. We ended the first quarter with approximately $43 million in cash and cash equivalents. The decrease in cash over the first quarter of 2024 was a result of cash expenses related to sales and marketing and G&A described earlier, along with EU-related expenses, including those associated with the Norgine transaction. Further, as a reminder, the next milestone related to our Norgine agreement will be obtaining pricing approval in Germany, for which Fennec will have the opportunity to receive a €10 million milestone. Additionally, Fennec's royalties on net sales are anticipated to commence in the mid-teens upon launch in Q4 of 2024. With that, we anticipate that our cash and cash equivalents as of June 30, 2024, when coupled with PEDMARK revenue assumptions in the recently announced licensing agreement for Europe with Norgine, will be sufficient to fund our planned operations for at least the next 12 months. Lastly, I would like to thank the investors for their support as we take the necessary steps to regain market confidence. We successfully sold the EU rights to Norgine in March 2024. We are currently seeing signs that the AYA channel is open, and we look forward to sharing the next chapter of Fennec and the introduction of Jeff and his expertise in the coming weeks through various conferences and investor discussions, including Wedbush this week and H.C. Wainwright and Cantor in September of 2024. And operator, with that, we are ready for questions.

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

Good morning. Thanks for taking the questions. Jeff, congrats on the new role.

Thank you.

Jeff, can you share what specifically excited you about joining Fennec? Additionally, what opportunities do you see for leveraging your skills and experiences to quickly create shareholder value here? Are there specific aspects of commercial execution and excellence from your previous roles that you believe can enhance value at Fennec?

Yes. It's day 7, so I'm excited to be on the call today and I have seen some things, and I did in my preparation to come here was, I was excited to lead Fennec in this role because I did see a significant opportunity here. There's talent. There is leadership experience that I've seen. And it's a great jumping point and great start for me. I've got the experience, Chase, to understand where the opportunities are, and I'm excited to bring that here. I've got experience in these markets. I've got experience not only in the pediatric COG institutions but also moving a product from pediatric into the AYA space. So right now, I'm identifying gaps and I'm looking to see where I can have some quick wins and move the company forward. So I'm looking forward to talking more about my experiences and what I'm going to be planning here.

Great. And then we spoke to AYA progress kind of in the press release and also kind of briefly on the call. Can you just maybe give us a little bit more of a window into what we're seeing so far through July and into August? I mean have we seen quite a few physicians adopt, try a couple of patients, have we seen some more high-volume adopters? I mean, how should we think about the progress thus far? And was that largely unlocked from the NCCN guideline kind of wording change? And then kind of what are the gating factors still there in AYA that kind of need to be addressed? You mentioned the compendium, just kind of speak to how you kind of see Q3 kind of developing from the AYA side?

Yes, thanks, Chase. It's Robert. I'll address most of that question. As you know, we've built a solid foundation over the last several quarters to prepare for the AYA opportunity. Part of this effort involved updating the NCCN guidelines, which we successfully accomplished. Recently, we’ve noticed that institutions are becoming more aware of PEDMARK, thanks in large part to our commercial team. As awareness increases and reimbursement is secured, we're starting to see positive results. We're happy with the progress in July and into August. This is just the beginning, but it's encouraging to see the developments.

And is it also being successful in getting the clinics to stay open later, are we treating these patients who are we infusing them in the home setting? I mean just kind of walk through maybe that logistical challenge and how that's kind of played out?

Yes, it's a good question. It's a combination of both. What we also even alluded to in our script and our commentary was the Orsini partnership that we have, which we've started to see some traction there and that includes either bringing a home nurse to the patient or bringing it through a white bag to the actual oncologist. And important with that is also the reimbursement. And so I think we signaled a few large payers that have reimbursed. And so that's, again, quite a bit of progress over the last quarter. And then lastly, to your question in terms of clinics, we have, depending on the clinic, been able to get them to keep their hours open, etc. But I think it's really a combination of both, and we anticipate that going forward.

Got it. And then just maybe how has the pediatric business, how did it kind of play out in Q2? I look like it was kind of down; it was obviously down modestly sequentially. Do you think that, that business has kind of found its footing now and you expect this to kind of be the bottom there or kind of walk through how we should think about the pediatric business from here?

Yes, I will address that to begin with, and I think Jeff can provide additional insights from his experience in pediatrics. As you know, this is a very small market segment. We have a solid foundation in terms of several centers, hospitals, and key opinion leaders who truly understand the product and its advantages. Do we see potential for further growth? Yes. However, we maintain a stable base. Each quarter brings its own variations, and I believe part of Jeff's strategy involves a dual approach to ensure we continue making progress in the adolescent and young adult segment while also exploring opportunities within traditional pediatrics.

Yes. I think there's an opportunity still there, Chase. So we'll continue to look at the levers that we need to pull and what the execution has been and what it should be going forward with these pediatric institutions. So it's something I'm evaluating.

I understand. Lastly, I apologize for all the questions, but with the combination of progress in AYA and pediatric appearing to be a stable business, could you share your thoughts on potentially returning to growth? Do you expect the business as a whole, with these two segments, to start growing significantly again? I’ll rejoin the queue, but I am curious if you foresee meaningful sequential growth from this point forward.

I'll start with it. Maybe, Jeff is on day 7, and we are here to grow meaningfully. Jeff is here to help us grow meaningfully. So that's always our goal.

Yes, I wouldn't have come if that wasn't the case. So that's our plan.

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

Hi, good morning. And yes, Jeff, congratulations on the new role. Rosty will be missed. So I guess my first question is sort of following up on one of Chase's questions, which is on the AYA opportunity. I believe on the last call, there were plans to conduct pilot studies in the community setting. Could you sort of comment on what's happening there or the progress there?

Yes, Naureen, thank you for the question and always the interest. Yes, you're correct, we've been able to make progress and traction and that goes to our commentary with some of these new institutions. And the good news is that we are seeing reimbursement from these institutions, and that eventually will come with follow-through. So the answer to your question is, yes, we've had success there, and we hope to continue to build off that here in Q3 and beyond.

Okay. Got it. And then can you just sort of comment a bit more on the compounding issue? I mean, how prevalent is it now still?

I mean, that's part of what we're going to evaluate on the pediatric side. We clearly know the value of PEDMARK, all the clinical studies that we've done there and the benefit to the patients. And so is that one of the challenges within the pediatric side? Yes. But we feel with execution and the proper approach, and maybe Jeff can add a little bit to this, that we can continue to grow that side of the business as well.

Yes, Naureen, I believe there is an opportunity there. It's about whether the message is being heard, how it is being delivered, and the execution of that delivery. These are areas where I will focus my efforts early on to understand what execution looks like, and I look forward to sharing more once I start to explore that approach.

Okay. And just one more from me. Are you planning to backfill the COO role now or...

I'm looking at where we need to put our talent and the folks that I need to potentially bring in. So I can let you know. I haven't thought that through of what positions and the gaps I need to fill just yet. I'm evaluating that. My plan is I'm meeting with everybody in the organization. We're all doing one-on-ones throughout these next week or so, and then I can assess gaps going forward and what needs to be filled and where and with who.

Thank you. That's all from me.

Thanks, Naureen.

One moment for our next question. Next question comes from Raghuram Selvaraju with H.C. Wainwright. Your line is open.

Hi. Thanks so much for taking my questions. Can you hear me?

Yes, Ram. How are you?

Very good. Jeff, congratulations on your new role, very exciting. So I wanted to ask about specifically the context with respect to the next milestone from Norgine. And if you could maybe give us a little bit more color on how that's likely to be earned and how you would recognize it if and when it is earned?

Yes. As mentioned, the plan is to launch PEDMARQSI in the fourth quarter. The first market for this launch with Norgine will be Germany. The initial milestone is tied to securing a specific price for the product in Germany, which we are excited about and optimistic regarding. If we achieve that by late fourth quarter or early first quarter, we would recognize €10 million for Fennec, bringing cash into the company. Additionally, there is a royalty based on net sales to Fennec, starting in the mid-teens and increasing as revenues reach certain thresholds, resulting in higher percentages from the mid-teens.

Okay. Great. I wanted to also see if Jeff would be prepared at this point to comment on kind of historical experiences that he's had specifically with regard to a situation that might be analogous to this one where there is a clear difference in safety profile and overall risk profile between a branded agent and a compounded agent or a generically available agent? And if there are any specific aspects with regard to his past history with commercialization of products and the specialty oncology arena that could inform strategies that might be implemented here to speed up the uptake of PEDMARK?

Yes, thank you, Ram, for the great question. I have had two specific experiences that closely relate to this, and they are part of the reason I was excited to join. One was at Baxalta when we transitioned a product into the AYA market, where we had to be cautious about a product that raised concerns about potential infertility. We faced no such issues with the current product we introduced in that market, which is very similar to what we are seeing now. I recognize the necessary steps to ensure customers are aware of this. The second instance was at EUSA Pharma when we launched a product that needed to compete with a current option that had a black box warning and stricter safety standards. In both cases, we had safer products that were underutilized, and we needed to focus our messaging to convey that effectively. We achieved this through building relationships with key opinion leaders, executing strategies with our commercial team, and ensuring clarity in our messaging, which allowed us to communicate effectively. These experiences are directly applicable here, and I believe they can support our efforts.

Great. My last question is about your strategic outlook. Can you share how you are approaching business development opportunities, specifically regarding the expansion of your specialty oncology portfolio? Are you considering ways to create synergies that would enhance the promotion of PEDMARK in the U.S.? Additionally, what factors might lead you to decide to add another product or two to your lineup?

Well, I can let Robert jump in on some of the things that he's done in the past here, but we've got to create a success story here for PEDMARK, no doubt in the U.S. And that's priority number one for me. Once we do that and we drive that potential to where we think it can be, yes, I think those are all things that we need to consider. And I don't know, Robert, if you want to comment on it?

No. Similarly, Ram, our approach has always been to take one step at a time. We are very excited about our partnership in Europe with PEDMARQSI, and we believe we're in a strong position there. In the U.S., with Jeff joining us, we'll be bringing in that expertise to fill some gaps, and we are waiting for the right moment. The opportunity with PEDMARK in the U.S. is significant, so our focus is there. Additionally, we have global opportunities for PEDMARK, with some very appealing markets where we can expand with just our main product. We will explore all possibilities, but we are confident in our current position to build upon.

Great. And then very quickly, I think this is one for you, Robert. What do you expect to be the key factors that would influence putting you folks in a position to start to offer a more formal revenue guidance framework for us going forward? And what do you expect the potential timing of that to be? At this juncture, looking at everything that's in front of you folks, would you anticipate that that could start to occur by the end of this year or is that more likely to occur in 2025? Thanks.

Yes. No problem. No, this is something that I'm committed to and Jeff and I have spoken with in the first week. We, as you know, have really two buckets here in the U.S. that are going to drive this growth, both with the traditional pediatric, the COG centers and with the AYA. So I would anticipate, as we move forward, that you will be getting more guardrails around what our expectations are for the company. But no, this is something that we are focused on and feel it's appropriate to present to both analysts and investors.

Thank you.

Thanks, Ram.

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

Well, thank you, everybody. I appreciate you joining the call today and all of your continued support. I look forward to updating all of you in the future on our ongoing commercial progress and success and the corporate milestones on future quarterly calls. So I want to thank you and appreciate and hope you guys all have a great day.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.