Fennec Pharmaceuticals Inc.

Good morning, ladies and gentlemen, and welcome to Fennec Pharmaceuticals' first 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. Instructions on how to participate will be given at that time. As a reminder, today's conference call is being recorded. Now, I would like to turn the conference over to Fennec's Chief Financial Officer, Robert Andrade. Please proceed.

Thank you, Operator, and good morning, everyone. We are delighted that you could join us today for Fennec Pharmaceuticals' first 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 Rusty Rykov, our Chief Executive 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 FENIC website, www.fenicpharma.com, where it will be available for the next 30 days. And with that, it is my pleasure to turn the call over to Rusty Rykoff. Rusty?

Thank you, Robert. And good morning, everyone. We appreciate this time you're giving us today. We'll be discussing the market opportunity ahead of us, our recent progress, as we have achieved many significant milestones over the past several months. The focus of today's call is to review updates on the recent launch efforts underway for Petmark in the U.S., as well as detail our first quarter 2023 financial results all of which were outlined in our earnings press release issued this morning prior to this call. First, I'd like to discuss the market opportunity ahead of us. Each year in the U.S., there are about 5,000 new cases of pediatric solid tumor cases who would be candidates for platinum-based therapy. About 70% of these patients, or roughly 3,500 of them, have localized non-metastatic disease. Cisplatin-based chemotherapy is the standard of care for the majority of these patients as their first therapeutic option. These localized tumors have generally very good prognosis with five-year survival rates of greater than 80%, further emphasizing the importance of quality of life after treatment is completed. Permanent hearing loss can be seen in roughly 60% of children treated with cisplatin, and can be as high as 90%, with many requiring lifelong hearing aids and technically difficult and suboptimal cochlear inner ear implants. Infants and young children at critical stages of development with even mild hearing loss lack speech, language, development, and literacy, while older children and adolescents lack social, emotional development, and educational achievement. The most common solid tumors indications include neuroblastoma, CNS tumors, including medulloblastoma and PNET, osteosarcoma, germ cell tumors, with some examples of less common tumors, which are retinoblastoma and hepatoblastoma. There are many others as well, but those are the main ones. PEDMARC 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. The availability of PEDMARC represents a critical breakthrough for the pediatric oncology community, which was enthusiastically awaiting a rigorously tested and FDA-approved option to safely increase the potential long-term quality of life for these young patients. To that end, our commercial strategy has been centered around a few critical components. Establishing FedMark as the necessary complement agent when prescribing cisplatin-based therapy for a child with localized non-metastatic solid tumor, minimizing the barriers to access, and ensuring rapid responses to product questions, and establishing FENIC as the premier partner of choice among the pediatric oncology community. To address these goals, we have established a best-in-class patient services and support offering called Panic Hears, which is a comprehensive single-source program designed to connect PEDMARC patients to both patient financial and product access support. The program offers assistance and resources, regardless of insurance type, that can address co-pays or lack of coverage when certain eligibility requirements are met. FANUC also provides access to care coordinators that can answer insurance questions about coverage for PEDMARC and provide tips and resources for managing treatment. In addition, we have built out a strong commercial team to execute U.S. marketing distribution and access and launch of PEDMARC with our regional pediatric oncology specialist team that is highly focused on targeting the approximately 200 pediatric hospitals, and those centers include children oncology group, NCI, and NCCN institutions across the U.S. that drive 80% of the cisplatin use. So it's a very concentrated effort. The team is also responsible for key partnering, awareness, and education initiatives, and we continue to have critical interactions with nursing and pharmacy organizations, audiologists, key opinion leaders, advocacy groups, but most importantly, the patient-parent community. With respect to the launch, we have said for some time that the profile of Pedmark has been well-received by healthcare providers, and we are pleased to see such enthusiasm carrying through to the commercial launch in the U.S. Early adoption has come from both major academic centers and regional practices. Geographically, all of our territories have seen HCPs prescribing Pedmark, and we have seen nice adoption within our target accounts and increasing with every month. In terms of patients, we have seen patient utilization across several tumor types, but particularly the hepatoblastomas, osteosarcomas, and germ cell tumors. Regarding reimbursement, Fedmark has secured both broad and favorable payer coverage. We anticipate that within the pediatric oncology patient community, approximately 50% of patients are commercially insured, with another 50% insured through government-sponsored programs. We also announced that the US Centers of Medicare and Medicaid Services, or CMS, has issued a permanent J-code for PEDMAR, which became effective on April 1st this year. This is great news and will help streamline the reimbursement process. We believe that this also leads to additional patient access as several key accounts were waiting until the J-code became effective to use PEDMARC. Additionally, some of our largest academic institutions in the country are not yet prescribing PEDMARC as they have formulary processes that can take up to a year and sometimes even more. We're actively working with these institutions on the necessary steps and processes to gain formulary access. Accordingly, we see Fedmark accelerating in the second quarter and second half of the year as these larger centers gain formulary approval. So we feel as though the Fedmark commercial launch is off to an overall solid start. We're continuing to execute against our strategic launch plans and are confident in our disciplined and targeted approach to building share within the U.S. market. And again, this is a product that would not just stay at a 1% market share, but would really target this 80% of cisplatin use 200 centers. We're confident we have the right team focused in the right places with a drug that we believe provides an attractive profile for physicians, patients, and payers. Earlier this year, the National Comprehensive Cancer Network updated its clinical practice guidelines for adolescent and young adult oncology to include PEDMARC. And although we're very focused on the young children, this actually opens the opportunity for PEDMARC to be treated with some of the adolescents and older kids, which is very important to me personally. In addition, the FDA granted orphan drug exclusivity for PEDMARC in January of this year. The FDA Orphan Drug Designation Program is designed to advance the development of drugs to treat a condition affecting 200,000 or fewer US patients annually. The seven-year market exclusivity for Pedmark began on September and the date of the FDA approval and continues until September, 2029. Additionally, the approved prescribing label, the FDA has explicitly directed that Pedmark is not substitutable with other sodium thiosulfate products. With regard to expanding in Europe, we announced on March 31st that the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a positive opinion and recommended granting a marketing authorization for PEDMARC, which will be marketed as PEDMARC-C in Europe. When formally approved by the European Commission, PEDMARC-C will be the first and only treatment approved in the European Union to address this area of significant unmet medical need. The CHMP recommendation is now under review by the European Commission and ratification of the CHMP recommendation is expected by early June. We continue to evaluate the best commercial pathway for the company in Europe and the rest of the world. Either go it alone, or in some of the larger countries, go it alone and partner the rest, or partner the entire European territory. As we seek to answer this question in the coming months to enable a European launch later this year, once PetMarket, of course, is approved. Whatever pathway we select, we see Europe as another significant opportunity to create additional shareholder value by making FedMarkC available internationally. With that, I will now turn the call over to Robert to review our financial results for the quarter. Robert, over to you.

Thank you, Rusty. Our press release contains details of our financial results for the first quarter of 2023, which can be viewed on the Investors and Media section of our website. rather than read through all those details my comments today will focus on some key financial results the company reported gross pet mark sales of 1.9 million translating into net product sales of 1.7 million in the first quarter of 2023 as rusty mentioned momentum is building in the second quarter as large centers gain formulary access and with the recent issuance of our J code helping to streamline the reimbursement process. General and administrative expenses for the first quarter of 2023 were $4.3 million, which compares with $2.1 million for the first quarter of 2022. The $2.2 million increase on a year-over-year basis is as a result of ongoing support for PEDMARC, as well as increased professional and legal expenses. R&D expense decreased by $1.4 million as compared to Q1 of 2022. The company reduced research and development costs when it received FDA approval of PEDMARC. The majority of traditional research and development expenses associated with PEDMARC are now recorded as general and administrative expenses or capitalized into inventory and eventually recorded to cost of product sales. The company recently began recording selling and marketing expenses when it expanded its payroll to include an internal sales force for the launch of Pedmark. Selling and marketing expenses include distribution costs, logistics, shipping and insurance, advertising, wages related to commissions, and out-of-pocket expenses. The company recorded $2.5 million in selling and marketing expenses in the first quarter of 2023. Our gap net loss for the first quarter of 23 was 6 million, or a loss of 23 cents per share, compared to a gap net loss of 3.7 million in 2022, or a loss of 14 cents per share for the first quarter of 2022. And finally, on to our cash position. We ended the first quarter with approximately 18.4 million in cash, cash equivalents, and investment securities, which includes 25 million of capital drawn down under our existing Petrocor convertible debt facility. We believe our available capital, when coupled with PEDMARC revenue assumptions, will be sufficient to fund our planned operations for at least the next 12 months. And operator, with that, we are ready for questions.

Thank you. And ladies and gentlemen, as a reminder, We are in the Q&A session, and to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw the question, simply press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from Chase Knickerbocker with Craig Hallam. Please proceed.

Good morning, guys. Thanks for taking our questions here, and congrats on the progress thus far. So Q4 was well ahead of expectations, Q1 here fairly in line. It was a modest sequential kind of increase in revenue, Q4 to Q1. Help investors understand the dynamics at play there. Was there a stocking dynamics in Q4 that pulled forward some demand, or with smaller customers as you await those P&T wins in the larger centers and children's hospitals? I guess just help us think about it.

Yeah, thank you, Chase. I'll take this one. So if you look at Q4 versus Q1, what's interesting there, of course, we're starting... So by the way, there were no stocking issues there at all, either in Q4 or Q1. What's really interesting is that our label specifically, it's quite broad. And so we treat the child from one month of age to really no age limit. And that includes the various tumor types that I listed previously. And so, keep in mind that those children are treated with various cisplatin regimens, and they require six hours post each cisplatin dose. They require STS for the ones treated. So, what's interesting there also is that those children are in various sizes. STS is administered based on body surface area. So I think what you may be seeing, albeit on a relatively insignificant base initially, is a bit of the patient mix. And so if we get a larger or an older kid or an adolescent, you clearly get a higher vial usage. And alternatively, if you're getting a small child or a toddler or a baby, you're getting significantly less vials. A patient is a patient to us, so we care deeply for both, but the vial usage varies. I hope that's helpful.

Yep, got it. And then, you know, I know we're not giving guidance here, but you mentioned in the press release in your prepared remarks that You've seen substantial commercial traction so far on Q2, and you mentioned this, but my inference there would certainly be those larger centers is where we're starting to win those P&T committees. What do you think your penetration rate is there at this point in Q2 in those 200 centers that you talk about dosing 80% of patients, and where could we end the year this year in those centers?

Yeah, let me just sort of take that as well, and maybe Robert can add. So if you look at the landscape across these 200 centers, they are of various sizes. We worked with roughly 40 of them in the COG study that took place. They are highly, highly bureaucratic institutions. So what I would say is they're primarily located on the East Coast and the West Coast. They see the high volume of patients. From those, they're early adopters, which is very good to see. They're also the ones that are basically taking the time to properly evaluate this and run through the hospital bureaucracy. In terms of market share, I would say, as you can see, the market share is relatively insignificant at the moment, but I don't expect that to stay for long this way. So we are quite actually excited to see this because for the ones that have already approved and have gone through P&T, we are seeing significant level of activity, repeat orders, and different patients as well with different tumor types. So that's really, really exciting because actually when you step back and you think through what our team is doing, We're just not only targeting dissenters, we're also targeting key opinion leaders that are treating the various diseases. And in addition, establishing Fedmark in the hospital protocol for each one of these tumors. So once all of that happens through a very burdensome and bureaucratic P&T process, then on the back end of that, of course, you have access to the product, which is the place where we want to be with most of these accounts. And we're working towards that, and I'm pretty excited what I've seen so far. Robert, if you want to add anything else to that?

Yeah, thanks, Chase. How are you doing? Just to add, as you know, our team's been working really hard to gain formulary access, build the relationships with these larger centers, and that takes time. Within those first six months, we started to really see that towards the latter part of it. And now that's translated, as Rusty mentioned, into the repeat orders, into the simplified ordering process, even within the centers. And then we've also seen some, what we believe is some pickup just as well on the J code that we have officially issued for Bedmark.

Yeah, thanks for the color there, guys. And maybe one last one, if I can sneak it in. You talked about 12 months. of funding. And, you know, you can make some pretty modest penetration assumptions and get to a breakeven quarter for you guys with your spend. Is that still a fair, is it a fair way to think about there being a quarter in 2023 where you can be breakeven at this point, positive earnings?

Yeah, Robert, I'll take that one. Thanks for the question, Chase. Yeah, and just to back up, we are running at roughly a $2 million a month in cash operating expenses or roughly $25 million a year. So internally, we certainly have that as a major milestone for us to accomplish and certainly feasible for us to accomplish during 2023. So to translate that, that would be, you know, a little bit north of $7 million in revenue. at a minimum to get to that breakeven. And given the opportunity within the market for PEDMARC, we, you know, that's certainly a goal for us.

Great. I'll jump back in the queue, guys. Thanks.

Thank you. One moment for our next question, please. And it comes from the line of Raghuram Selvaraju with HC Wainwright. Please proceed.

Thanks for taking my questions. Just three quick ones here. Firstly, I was wondering if we could drill down on the number of early adopters within those 200 centers that you mentioned, and if any of them are expected to effectively account for a substantially larger patient pool than others. If you expect any of the early adopter centers to account for proportionately larger patient pool, if you can give us any granularity on that. Secondly, I wanted to ask about the R&D spending that you expect going forward. Should the first quarter number, which was effectively negligible, de minimis, be regarded as the new normal for 2023? And do you expect this situation where you're effectively not spending anything on R&D to persist beyond 2023? And lastly, I was wondering if you could make some comments on GNA spending and whether you expect from a GNA perspective to be able to say that the organization is currently right-sized infrastructurally, or if you think that there might be some efficiencies there as you get through into the second half of this year.

Yeah, I'll just take, hi Ram, I'll take the proportion piece of the large centers that we're working with. Yes, so you can imagine those academic centers. So it's interesting with them, right, because they have a, they see a population that is per hour label. But some of these centers also focus on the really tough cases, and those are obviously outside of our label. So this is metastatic disease or second-line disease, relapse patients. But they also see a good amount of the localized patients as well. In terms of the existing ones that we have already won from a P&T process, they are a decent size. And so that's very encouraging to see the repeat orders there. And also, I think the important aspect with those in particular is to have additional physicians prescribe for additional tumor types. And that's in the process, and it's already happening. So that's encouraging to see. So we just have to open the rest coming up, and then we have to broaden it into the other tumor types. So that's the opportunity and the challenge in front of us. And Robert, do you want to take the R&D spending in G&A?

Yeah, it'd be my pleasure. Thanks, Ram, for the question. So number two question for you, I believe, was on the R&D. Yes, as you mentioned, the first quarter was de minimis or negligible. We do expect that to tick up just a tiny bit. There are some opportunities, principally with some investigator-initiated clinical trials where we would provide some support. And those opportunities would hopefully afford us label expansion further down the line. But as a whole, when I think of the $25 million of cash operating expenses, I do include the R&D in that. I wouldn't expect it to be more than 10% of that number if that's helpful. So it would pick up a little bit, but not to be more than 10% of that $25 million. I think your third question was on the G&A. We have a very efficient, streamlined organization. We have just a little over 30 employees. Again, that's principally or really 99% focused on the U.S. and on our launch of Pedmark. We think we have the right fit, the right team, both from people on the ground and our regional pediatric oncology specialists to our market access team, to our quality team, et cetera. One of the caveats, of course, and Rusty mentioned to it, is the opportunity in Europe as we evaluate that. But certainly from a U.S. perspective, we feel we have a good fit here.

And then lastly, with respect to European activities, do you anticipate that there might be a possibility that a potential marketing partner comes on board before FedMarx is officially cleared for or do you anticipate the actual formal regulatory clearance following the positive opinion you already received to be a gating item for a potential partnership in Europe?

Well, as you know, I'll take this one. As you know, this process is formal and it's very structured, and we obviously want to make sure that the European Commission ratifies and approves the CHMP opinion. Post that, there will be a period of time where we will have the opportunity, as we're doing now as well, to evaluate what is best for the European business. Either do it on a standalone with just a few countries that, of course, we work with those key opinion leaders and centers over the years there as well, so we know them well, or alternatively, and partner the rest of Europe with different companies. So sort of a puzzle piece, if you will. The second one, of course, is just do a one large partnership. And we can certainly do that. And then, so those are the things that obviously we're evaluating. Or just stand alone ourselves, but that's, you know, for the entire continent, that's highly unlikely given the resources involved. and what it would take. So what I would say is that there is a great amount of interest in the European rights for this, especially after the positive CHMP opinion. There's no shortage of suitors, and we obviously will do what's best for our shareholders, and we'll evaluate all proposals and make the best decision that makes the most sense.

Thank you.

Thank you. One moment for our next question, please. It comes from the line of Noreen Quibria with Capital One Securities. Please proceed.

Thank you. Hi. Good morning and congrats on all the progress. Just curious, you know, I know it's early days, but what are you seeing in terms of repeat customers or prescribers and you know, can you comment on how many hospitals and prescriptions do the current numbers represent?

Yeah, let me take that. So, yeah, so it's really interesting. So think of it this way. So when a physician has to write a script, they have to go typically against the bureaucracy in their hospital to get this product for the patient because typically if the patient is in the inpatient setting, this would come from the DRG code of the hospital. So versus once it's gone through a P&T, once everything's established, then it becomes automatic. So that's sort of the big difference between having to write a script out, you know, to be an early adopter and fight a hospital bureaucracy versus actually the whole process being synchronized and flowing. It's really, really critical. Now, in terms of the, so you can basically, again, simple math, you can take, you know, the WACC price is available. You can take the revenue and you can divide by that. They're not substantial discounts. So you can kind of roughly get an estimate for the number of vials that were basically sold during the first quarter, sorry, the fourth quarter and then the first quarter. So you can kind of judge that. And then the third aspect, which I touched on earlier, was the mix of patients, right? Because some patients require more vials and some patients require less vials. And when you're working with insignificant numbers, those tend to either stretch higher or lower. But in terms of number of patients and repeat orders, once it's through P&T, the repeat orders are absolutely there.

Got it. And then, so, you know, you mentioned the commercial insurance versus government. You know, what percentage of the patients are actually covered, have been covered so far?

So everyone's covered. So we have a, we have in the U.S. a policy, which is a great policy, you know, that does not leave a child behind. And so The question is, how are they covered? And typically, for most states, whenever there's no private insurance, it's covered by the state Medicaid. And those state Medicaid, of course, they have various reimbursement rates based on DRG at the hospital setting. And those are varied from region to region.

Okay. And if I can sneak one more in, Rob mentioned the investigator-sponsored trials. They're ongoing. So how many of these are they and in what settings are these potential label expansion for?

Yeah, so that's a very good question. So we're working with Cincinnati on a second line treatment. And this is actually a very interesting study in hepatoblastoma. And these are kids that basically have relapsed. They have had liver transplant. The tumor has come back in a metastatic way into the new liver as well. There's no treatment options for them. They've already been treated with cisplatin, and many of them have very difficult time hearing. And what Dr. Geller there has discovered is that giving a very high dose of cisplatin with an HDAC seems to be very sensitive to the metastases of the tumors, including the ones that are in the new liver. So he's able to shrink them very well. So we basically initiated that study with him, UCF, and MSK. And so it's ultra, ultra. So if you think hepatoblastoma is rare, second-line hepatoblastoma with meth into the transplanted liver is even rarer. What's really interesting there, of course, is that it's a small number of patients. It's roughly between 20 to 40 patients that hopefully they'll be able to accrue in the next three to four years. And the idea there, of course, is to see how are they responding to cisplatin and, of course, measure their hearing loss. As we expect, the cisplatin response to be strong given the intensity of the cisplatin therapy. That could be an interesting discussion to have with the FDA for second line and metastatic disease expansion. But again, we haven't had the discussion with the FDA. We need to see the results of the study before we decide to take this track.

Okay, great. Thank you. That's all for me.

Thank you. One moment for our next questions. And it comes from the line of David Merring-Garden with Web Security. Please proceed.

Hey, thanks for taking the question. I just had maybe one more on the mix of prescribing accounts or using accounts. Out of the accounts that were part of the Siopel study, how many of those, which I presume are kind of the low-hanging fruit or some of your first targets for commercialization, How many of those were waiting on the J-code, or how many of those have been signed up and are ready to prescribe? Thanks.

Yeah, so David, I'll take that. The CYFL-6 study actually only had one account in the U.S., and that was Stanford. Okay. It's really the COG study. All right, the COG study. Yeah, there's roughly 42 of them. And out of those... the vast majority of them, we're basically waiting through the P&T process at the moment. Okay. Looking through it. But I don't expect this to sort of stay kind of where we are at like 1% share, right? Because we've got these patients, so we've got at least 3,000, 3,500 of these patients that are basically, vast majority of them are going to many of these places. And again, cisplatin is the go-to therapy there. So once they get through this burdensome PNT process, I would expect for this to go into each disease protocol. So remember, we're doing the education with the KOL. We're working with the audiologist. We're working with the nurse. With the nurses there, we're working with, in some cases, the advocacy groups So it's like it's a whole piece to come together, lots of education to make sure that this is included in as many disease protocols as possible in each hospital. But, you know, you want to start with at least one, of course, and get through P&T, and then you can expand from there.

Got it. Thanks.

Thank you. And with that, ladies and gentlemen, we conclude the Q&A session. I will turn the call back to Roster Rykov for final comments.

Yeah, well, I would like to thank everyone for their interest, and we are very thrilled with, especially after April 1, how the uptake of the Fed mark has dramatically increased, and we look forward to discussing that during our next quarter. So thank you all for the time today and the questions.

Thank you ladies and gentlemen for participating in today's program. You may now disconnect.