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 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..

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..

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?.

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..

Thank you. [Operator Instructions] 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 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?.

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

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..

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..

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. 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..

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?.

Okay. So, [to your first question] (ph), Europe pricing, yes, based on where we are with Germany, significantly more than 50% -- sorry, closer to 100% of the U.S. price will be the initial price in Germany, and then we subject to negotiation. What I expect to see in Europe is a request for some kind of pricing cap.

So, what came out of the discussions with the -- while we were negotiating the net price in Germany was the high cost of a 17-year-old testicular cancer patient, where they said it will be close to €1 million. So, we can expect that they won't be covering €1 million, so we'll have to have some kind of cap.

And I think most European health authorities will expect that. But I think in terms of pricing, we're looking at something around 70% of the U.S. price, if I'm to look at an average.

With the focus of -- turning the focus to the AYA population, if you just look at the patient numbers, we talk about in the U.S., a 3,500 pediatric population, that's patients who have localized disease that are now treated with cisplatin.

If you look at the patient numbers in the AYA population, just taking one cancer, there are 3,500 testicular cancer patients in the 15- to 39-year age group in the U.S. And if you add all the other tumor types that are likely to be treated with cisplatin, you're talking about 30,000 patients.

So, a ten-fold increase in the number of potential patients. And of course, most of these patients are treated in the community, and it's ASP-plus. So, as I said, we have just started our sales team focusing on this population and early results have been very encouraging.

The sales force are reporting that this is a significant unmet medical need and there's positive reaction 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 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, maybe I can start it and send it over to Robert and Adrian as well. In general, what we're looking for, obviously, our number one priority is to get the business to breakeven. So, we're almost there from that perspective.

In terms of -- on the sales side, we absolutely have specific -- based on the population discussed both in the pediatric and AYA setting going forward, the sales force would be very well incentivized to perform in those populations. And obviously, we're looking really to brand the business going forward.

I don't know, Robert or Adrian, if you'd like to add anything else?.

Yeah, we have a number of metrics. We have formulary committees, one. We have repeat -- orders and repeat orders from those centers. We are -- and ultimately, obviously, it's vials sold and revenue..

Got it. Thank you. And then....

And they're based -- sorry, let me just add. And they're based on the individual performing in their territory and not 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?.

Yeah. So, we are -- we've kept the sales force consistent. We are -- we have 12 salespeople in the field right now based on the territories that we've discussed in some of our earlier calls to target this 80% of cisplatin use.

And yes, the focus, as you can imagine, there is also some natural turnover in the sales force team, and we were able to -- we're looking now to pick up some really talented individuals that sold in the community center and can really expand the push for -- to use the NCCN guidelines for AYA for the use of PEDMARK in this population.

So, we think just the timing worked out very well..

Okay..

And if I could just add there, I think there are three key things you need to have -- or four, actually. First of all, the NCCN guidelines with the Category 2A. Secondly, you need to have the agreements in place, an endorsement from the GPO organizations.

You need a specialty pharmacy that can supply direct to the community, direct to the hospitals, direct to the patients' home. And then, you need an experienced sales force that is used to selling in this environment. And we now have all of that in place.

So, a major focus now is the AYA population in addition to chipping away at the pediatric oncology centers..

Terrific. So, just one more from me. You did, Adrian, mention in your prepared remarks about partnering with spec pharma and the home admin angle, 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 in -- 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..

Right. Okay. Thank you. That's helpful....

And just to add one more, the ability for us to provide vials into the home setting of a patient, we -- up to this point, we did not have this capability, and we're having this capability now. So that's certainly very encouraging in addition to the skill set required to sell into the community oncology, as Adrian mentioned earlier.

So, we have the full suite of products and the sales force to execute on this plan..

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..

Hey, good morning, Rosty and team. Congrats on a good quarter, and thanks for taking our questions. I had just a couple of them.

First of all, if you fast forward a year from now, would you anticipate the majority of your vial use to come from pediatric younger patients, call it, centers for excellence -- treated in centers for excellence, or would it be perhaps more from the AYA patient population, given that they're generally larger folks, et cetera? And so, what is the goal over the course of the next 12 months beyond just, call it, revenue that you would like to achieve? Thanks..

Yeah. Hi, Charles, very good question. I think the goal is -- I mean, it's really since Adrian has been here, we really have been focusing on two additional opportunities. One is the AYA, and the second one is international, in addition to all the work that we have done with a large pediatric hospital center.

So, I think all of these three things in place a year from now, I would imagine that we could speak to all three of them contributing substantial amounts.

And of course, the AYA, as you mentioned, very well by the nature of the tumor types treated there and the nature of the cisplatin therapies treated there, would require significantly more -- in the larger size of the patients, of course, would require significantly more vials of PEDMARK.

So yes, I would say that's probably -- given that it's starting at almost zero right now, would be probably the largest. But don't underestimate, both the pediatric hospital -- I mean, the pediatric hospital, we made substantial progress. There's still good amount of activity, and P&T wins under our belt, as well as newer ones that we're expecting.

So yeah, we could also pleasantly be surprised there as well. On the international side, of course, what really is going to drive revenues there is the -- is particularly Germany and the UK, right, and France. So, certainly very encouraged by what Adrian has been able to do in Germany..

Yeah. And that's a great segue to my next question. I was a little bit confused on 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..

Yeah. I would answer the latter one, and I'll send it over to Adrian.

So, yeah, so our goal would be sometimes between now and middle of next year to have that answer on the -- on what we plan on doing, either keeping the major five to ourselves and partnering the rest, or selling the European business to someone else, right? So that all will depend on several factors, importantly, what is the cash upfront? So -- and maybe, Adrian, over to you in terms of the value proposition of European health dossiers for the health economics of PEDMARK to their health care 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 a 80-kilo testicular cancer patient. So, there's got to be some kind of cap..

That makes sense. And is there a recognition -- I think you mentioned depression as an example of the downstream cost of losing one's hearing and how that accrues cost to not only the patient but 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 there -- 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 you have written, for example, greater than one prescription, et cetera?.

Yes, you can -- that's a good question. As you could see, we started giving a little more granularity as the business started building up, in particularly, with the accounts where we have won P&T, right, and as well as the repeat orders from those places and the penetration within the physicians within those places.

So, I think as we -- as the business builds up, I think we will be more granular on that, absolutely. Keep in mind, what we don't know, of course, is that given our label that it covers many, many tumor types, we're -- best case, we're guessing what the tumor types that are 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, and 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?.

So I just -- from the previous question, yes, we expect to launch sometimes in the second quarter next year, probably May, June next year. It's our best guess at the moment. We are still going through a Type 2 variation where we're switching the manufacturer from the U.S. basically into Europe, our current manufacture of PEDMARK.

So, it's also manufacturing PEDMARQSI, and they will have to be approved in the Type 2 variation. So, I think as soon as we have that, and then we obviously ship and label product into the European market, then I think we'll be able to give you a little more granularity of what month the launch would be.

But Adrian is certainly working on that given all the preparation work he's doing on the 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 [indiscernible] company 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. It's pediatric tumors in general and AYA tumors in general are very receptive, 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..