Fennec Pharmaceuticals Inc. (FENC) Earnings Call Transcript & Summary

Hi, everyone. My name is Mitchell Kapoor. I'm a senior biotech analyst with H.C. Wainwright. It's my pleasure today to welcome you all to the next H.C. Wainwright @Home Series. Today, we have Fennec Pharma with us. And from the company, we have CEO, Jeff Hackman; and CFO, Robert Andrade. Gentlemen, thank you so much for joining us.

Thanks for having us.

Great to be here, Mitchell.

Great. Yes. So to kick everything off, we want to make sure everything is level set. So I'll turn it to you all to kind of give a brief introduction of Fennec Pharma and head mark and just level set with everyone before we dive into Q&A.

Perfect.

Thank you, Mitchell. I'll start, and then I'll hand over to Robert. My name is Jeff Hackman. Nice to meet you all here virtually. I'm the Chief Executive Officer & Director of Fennec Pharmaceuticals. Thanks for joining today. We're delighted to talk a little bit about Fennec and our company and our products and our exciting future. And some of you may already be familiar with Fennec and have been investors with the company for a while. But I know there are some new folks here as well. So maybe there's a chance for me to kind of level set. Fennec Pharmaceuticals is a commercial stage company, and we're dedicated to improving lives of patients with cancer through the availability of our product called PEDMARK. I recently joined Fennec as the CEO and Director of back earlier this past year in August, and I'm incredibly excited to lead the next chapter of growth of Fennec's evolution. I give you a little bit of background about me. I've been in the pharma biotech industry for over 30 years, and my tenure in oncology spans really the last 12 years across companies like Sigma Tau, Baxalta, Shire, EUSA Pharma. At these companies, I was responsible for U.S. commercial organizations there, managing companies, the full -- in some cases, the full product portfolio through multiple franchises. I've generated billions of revenue over those years. I've got significant experience commercializing products, especially similar to the markets that we're in with PEDMARK. Since joining Fennec, I also wanted to come in and strengthen the executive leadership team here. And I've been able to do that over the last couple of months. I've announced some appointments here of 3 folks to add to both Robert and I running the company. Dr. Pierre Sayad, who is now our Chief Medical Officer; Terry Evans, who's our Chief Commercial Officer; and Christiana Cioffi, who is our Chief Strategy Officer. All of these folks are members of the executive leadership team here, and we are so excited about what they're bringing here. They bring a significant and deep background around cross-function alignment, operational efficiencies, executional excellence. They're going to create high-performing teams, and I've known these folks and I can't wait to build the culture of the organization around them. Let me tell you a few moments -- a little bit of background around PEDMARK, our only commercial product. It's the first and only product approved in the U.S. and in Europe for the risk of ototoxicity or permanent hearing loss associated with cisplatin treatment. PEDMARK is a really, really unique formulation of sodium thiosulfate, and it's administered as an intravenous dose. PEDMARK is the only therapeutic agent with proven efficacy and safety with an established dosing regimen. We had 2 open-label randomized Phase III trials studied with PEDMARK, which we demonstrated a reduced risk of developing hearing loss associated with cisplatin, both in children and in young adults. PEDMARK was approved by the FDA in September 2022, and Fennec launched right after in the U.S. in October 2022. PEDMARQSI, which is the European name for PEDMARK is -- was approved in Europe by the EMA in June of 2023, and in the U.K. by the MHRA in October 2023. In March of 2024, just recently this year, we entered into an exclusive licensing agreement with Norgine to commercialize PEDMARQSI in Europe, Australia and New Zealand. Just in case you guys haven't heard of Norgine, we're excited around this partnership. Norgine is a leading European specialist pharmaceutical company with really significant investors, including Goldman Sachs and has over $500 million in revenue generated just last year alone. Norgine has a direct presence in 18 European countries right now as well as Australia and New Zealand and has a really strong global network of partnerships. Our licensing agreement is substantial for us. We received $43 million upfront initially from Norgine as well as an additional $230 million in milestone payments. These milestone payments also come with tiered royalties up to the mid-20s. Our partnership with Norgine is an important step for Fennec to expand PEDMARQSI to patients in Europe. We're excited about this partnership and can't wait to see the results here as they come, and they're coming soon. PEDMARQSI is expected to launch in Germany and in the U.K. in the coming months. We're going to give you more updates. But this will be a significant revenue source for Fennec in 2025. We look forward to providing updates as these launches come on. Another area that is a compelling market for Fennec is Japan. You may have heard that we recently -- there was an investigator-initiated trial, STS-J01, which was evaluating PEDMARK. That was fully enrolled as of October 2024 in Japan. It was evaluating the efficacy and safety of PEDMARK and reducing ototoxicity induced by cisplatin in children and AYAs with local solid tumors. Results of the trial will probably come out in the second half of 2025 with the potential evaluation of both the registration and then the partnering or licensing of PEDMARK in Japan thereafter. Japan is -- could be a significant partnership for us as well going forward. From a PEDMARK-IP perspective, or as you guys may or may not know, Orange Book patents provide protection for PEDMARK until 2039, and 7 years U.S. market exclusivity through an orphan drug designation. We have 10 years EU exclusivity with pediatric use marketing authorization, or PUMA, in Europe. Throughout today, we'll provide more details on a lot that I just spoke about, about PEDMARK, both in the pediatric and our AYA populations. What I thought it would be good for us to do is kind of pivot over to Robert. He'll introduce himself, but then give a little brief financial overview of Fennec as well. So Robert, let me hand it over to you.

Thank you, Jeff. Hello. My name is Robert Andrade. I'm the CFO of Fennec. I've been working with Fennec since its transformation in 2009. Before I begin, though, and Jeff begins with some Q&A as well. I'd like to remind you that during this webcast, the company will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ from any results discussed in these statements. Reference to these risks and uncertainties are disclosed in details in the company's periodic and current event filings with the U.S. SEC. In addition, any forward-looking statements made on this call may 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 obligations to update or revise any forward-looking statements. And with that fun stuff, let me get into a brief intro and overview of our most recently announced financial results. For those new to Fennec, just to add on to Jeff, it took more than 11 years to complete our 2 Phase III trials, which occurred both in the U.S. and globally. Prior to these Phase III trials, there was more than 15 years of preclinical and early clinical studies studying PEDMARK and its potential benefits to patients. We have had an incredibly supportive group of investors as we have raised over $100 million in the pursuit of getting PEDMARK approved and now commercialized. Now to the financial overview. In November, just recently, Fennec reported third quarter 2024 financial results for the period ending September 30, 2024. And here are some key highlights. For the first 9 months of 2024, Fennec reported approximately $22 million in net product sales, which is more than all of 2023 net product sales of $21 million and we still have 1 more quarter to go. Specifically, the company recorded net product sales of approximately $7 million for the third quarter of 2024 compared to $6.5 million for the third quarter of 2023. Regarding our cash position, we ended the third quarter with approximately $40 million in cash. We had a cash burn of roughly $3 million for the quarter. And if you excluded a onetime severance, it would have been a cash burn of approximately $2 million for the quarter. Again, with net product sales of $7 million in that quarter. The strength and sustainability of our operating model was evident in the third quarter, as this was the smallest operating cash decrease for the company since launch and speaks to the operational efficiency and potential cash contribution from a growing sustainable revenue base in the future. We anticipate that our cash and cash equivalents as of September 30, 2024, will be sufficient to fund our operations until at least, and I repeat, at least 2026. With that, let's dive into some Q&A, Mitchell. Thank you.

Great. That was a wonderful overview. I would love to just start off talking about the commercial market opportunity for PEDMARK. And if you could just kind of break out PEDMARK's opportunity in pediatric population as well as the adult -- young adult -- excuse me, adolescent and young adult population, AYA population, and tell us how those 2 populations define the market opportunity?

Got it. Yes, it's a good question, Mitchell. And let me take this one. PEDMARK's got a unique position right now in the marketplace. We're the first and only FDA-approved therapy to reduce cisplatin-induced toxicity. You'll hear me refer to it as kind of CIO of this toxicity, CIO in pediatrics as well as older patients is very similar. Let me talk a little bit about it. Pediatric oncologists who have adopted PEDMARK in major institutions feel it's an important role in addressing a significant need. Not only is it an important role, but the NCCN or the National Comprehensive Cancer Network recently just updated guidelines earlier this year to remove the word pediatric from their guidelines to allow preventative -- this preventative treatment in the AYA population, which is exciting for us. And that's defined as 15 to 39 years of age at the time of their cancer diagnosis. This is called a Category 2A recommendation for PEDMARK. Our studies have shown up to 90% of patients regardless of age treated with cisplatin could develop hearing loss. The opportunity in the AYA segment versus the pediatric is significant, with at least 10,000 patients treated annually with cisplatin, including primary tumors such as germ cell tumors and thyroid tumors. This is much bigger than the pediatric market. And one of the things that we also are seeing in early use of our product in the third quarter and now into the fourth quarter is we're surpassing greater than 90% reimbursement for PEDMARK in the AYA patients that have been administered, and it gives us really, really exciting confidence going forward as we explore this new customer base.

Great. And thinking about how PEDMARK is positioned, could you just talk about the advantages versus compound versions, compounded versions of STS? And then if you could just talk about like the barriers to competitive entry in this market?

Yes. Yes. I mentioned earlier and we say it a lot because we really are still the first and only approved product for the risk of ototoxicity in cisplatin-treated patients. And so -- and these are with localized non-metastatic solid tumors. So we say that because we're the only therapeutic agent. We have -- and the only one that has proven efficacy and safety that we've established a significant dosing paradigm across 3 clinical studies. We've demonstrated reduced risk for developing hearing loss in those studies with cisplatin, both in use in children and young adults, both all with localized non-metastatic solid tumors. PEDMARK is designed to be safe at higher doses required for [indiscernible] protection. Important, PEDMARK does not contain potassium chloride and has low levels of boron in its formulation. Additionally, the approved prescribing label the FDA has explicitly directed that PEDMARK is not substitutable, and this is really important, and they came out with a written confirmation of this earlier in the year. It is not substitutable with other sodium thiosulphate products.

Great. Could you discuss your partnership with the specialty pharmacy, Orsini, and how this facilitates efficient distribution of PEDMARK in the U.S. market?

Yes. We're seeing a partnership has been really, really exciting for us, and it will be going forward in the future. It enables us for home administration, what we call it white bag delivery to the hospital, with direct billing to the insurance provider or to Medicaid. We're pleased with the success so far of this, and we've had some patients already start to get home administration of PEDMARK with our partnership through utilizing the Orsini Specialty Pharmacy group. And this is an exciting partnership for us because it allows us to penetrate deeper into the AYA patients which, in a lot of cases, aren't getting administered this product within the institutions, but out into the community. And so we'll continue to update you on more impact with the Orsini partnership.

Okay. Great. And could you talk about how academic centers are driving adoption of PEDMARK? And what might be the trajectory and time line of future uptake going forward and how academic adoption could drive?

Yes, we continue and Robert announced some of the numbers that we announced back in the -- our Q3 earnings. We see new and continued adoption of PEDMARK in major academic centers across the country. As a reminder, there was a safety warning issued by the FDA, as I mentioned earlier, which highlights and reminds providers of the potential serious health risks to patients from using PEDMARK substitutions or compounding products. A recent anecdotal example that I can share with you today is there was an academic -- large academic center over the past month or so, really high-profile academic institution on the East Coast. They recently initiated use of PEDMARK going forward. We're very pleased with that. This is one of many that we believe will start to move towards stopping substitutions and administering PEDMARK directly. Academic institutions are really critical for us. It's a -- so as we transition our endorsement from these institutions, they give us a broader market acceptance into the AYA space. So we're very excited about what we're seeing, and we're going to continue to see that positioning in the future as we expand.

Great. Okay. And can you comment on the pricing and reimbursement dynamics for PEDMARK and perspectives on the gross to net?

Yes, I'll let Robert do that.

So just to step back, the cost of PEDMARK varies patient by patient. And the reason for that, it includes a variety of factors, but some of those include the size or the weight of the patient, it's weight-based dosing. Vial utilization, duration of treatment. So depending on tumor types, there's different amounts of cisplatin administered and even different amount of cycles of cisplatin, and as well as the cost per regimen across different sites of care. The number of vials of PEDMARK we've talked about varies again. But by example, for a young patient, you can get as little as 6 vials of PEDMARK across all cycles of cisplatinum and some of the older patients get up to 40 vials of PEDMARK. As we mentioned before and kind of highlighted in a couple of the other statements from Jeff, we have broad and favorable payer coverage across both commercial and government payers and across inpatient and outpatient settings. In fact, then we'll repeat it again, in Q3 of 2024, we surpassed greater than 90% reimbursement for PEDMARK specifically in the AYA population. And that AYA population is largely the outpatient population. When it comes to gross to net, it varies quarter-by-quarter. A midpoint is approximately a 20% step down from our gross sales to our net sales. Or in other words, we record approximately 80% of our gross revenues as net product revenues. Some of these discounts or rebates are the traditional ones, which you would expect, which include government, 340B rebates and discounts. And again, it varies quarter-to-quarter, but assume that roughly 15% to 20% step down from gross to net.

Okay. Great. And could you talk a little bit about the most interesting geographic regions for PEDMARK in the U.S.?

Sure. Yes, I can do that. Cisplatin is -- just to lay that out, it's really the gold standard and backbone of some significant chemotherapy treatments, right, for pediatric in AYA solid tumors, both in the U.S. and really across Europe. That's why PEDMARK is so important for these patients. It's used across the U.S. in all of our territories here in states with focus probably on the largest demographic regions as you can imagine, because that's where most of the use of cisplatin is and where we see the more -- the higher cancer rates. The most exciting development, in addition to the pediatric market, is the proof of concept that we're now developing, and we see it emerging in the AYA segment. Opportunity in the AYA segment is significant, like I had mentioned earlier, with over 10,000 patients treated annually with cisplatin, including primary tumors and focused in the germ cell tumors as well as thyroid tumors. So the market is big. It's big in the AYA -- pediatric and AYA markets here in the U.S. And because we have favorable reimbursement, we see a significant future going forward with PEDMARK.

Okay. And can you give us a sense of the size of your field sales force? And do you have a need to expand it? And if so, when -- what do those plans look like?

Yes, it's a good question. We currently have about 20 customer-facing employees, both commercial and medical in the organization. In near term, we don't really see any significant investment in new hires needed. I've been able to build some oncology organizations in the past in these specific markets. And we're about rightsized as we work really though to strengthen our culture and values of the company, really from the top down and bottom up. We really want to kind of see what other needs and talents are here and our -- obviously, our folks that we just brought on board will do that. But if there are some new roles identified, we'll bring in top performers and top talent if -- when needed. But right now, we believe we're closely rightsized with the 20 customer-facing employees.

Okay. Great. And in terms of the marketing and promotional activities that you have planned, do you think that you need to kind of invest in that space a bit and how capital intensive would it be to do so?

Yes, we don't believe it's capital-intensive at all. As you saw in phase -- in our earnings release with our numbers for Q3, we haven't had to utilize a lot of cash to do this. We really -- maybe I could take a step back and talk about, Mitchell, the 5 pillars, which we laid out a little bit of what we're trying to focus on, which are really important to drive our brand and drive PEDMARK going forward. Our first imperative here is really increasing awareness around the unmet need for these patients, especially driving oncologists to recognize the importance of CIO. The second imperative that we're trying to really cement here is to develop PEDMARK as the standard of care for all CIO prevention. With our indication for pediatric patients and also the NCCN guidelines that I talked about earlier for AYA patients, PEDMARK is really well positioned to continue to change the treatment paradigm to prevent hearing loss in these patients. The third pillar of the 5 is our adoption into HCPs. Beyond just the oncologist, we've got to gain confidence and really with positive experience with PEDMARK with everyone in the office. This comes from our field activities as we expand and provide more clinical education to nurses to advance practitioners in these roles. This plays an important role in our patient journey. The fourth is really having payers and advocacy and providers and have all this seamless as we try to move reimbursement activities forward. We mentioned that we have seen significant reimbursement for the product. But we want to make that continuing to receive that support. And we also think that moving into home infusion and offering that as a back office opportunity is really important. And the last and equally important to all of them is patients and caregivers. Through disease education with PEDMARK, recognizing the importance of CIO and really making sure that patients understand the impact of PEDMARK, and what it can have for either their children or themselves. So these are really the 5 focused areas that we're building here across the company.

Okay. Great. And you briefly touched on it in the introduction, but can you talk a little bit more about how the recent additions to the team, including yourself, are going to help support and drive PEDMARK adoption?

Yes. One of the things I realized when I first came here was -- is that the company has a significant opportunity and what is it that I can do to help. And as the CEO, I learned in the past and multiple times, a lot of this is about execution, right? The studies are there, the data, the opportunity, but really, we've got to execute better. And one of the things I realized was let's bring in some leaders that I've been able to execute with in the past. People like Pierre Sayad as our Chief Medical Officer. Dr. Sayad has significant experience in medical affairs, medical education, KOL engagement. He's -- and regulatory, and he's got -- he's bringing great experience here in building medical organizations. Terry Evans, our Chief Commercial Officer, also brings significant sales management experience, managing much larger organizations than this one. He's got sales training, experience operations. But is trained in GPO and field reimbursement experience is second to none as well. And [ Christie ] Cioffi, who's our Chief Strategy Officer, Christie, will lead our strategy, marketing and business operations here. She also does a lot of corporate development and business development. And I'm going to have [ Christie ] also help us with alliance management with Norgine. So building on these talented leaders in this organization is really critical for us as we take on the next chapter here. These are all seasoned folks and I believe that they're going to bring significant value to Fennec.

Okay. Great. And another topic, Norgine, that you briefly touched on earlier. Would love to dive in a little bit more to the rollout of PEDMARQSI in Europe. And some of the particular topics of interest for us have been the countries that it will be launched first in. I think you briefly touched upon that, too. The pricing and market access dynamics, and then how European purchasers feel about PEDMARQSI versus compounded versions of STS.

Yes. Yes, Robert, do you want to tell us a little bit about Norgine. Yes, you were here during that timeframe, too. And when we did -- when we put together this partnership, but it would be great for you if you could touch on a little bit.

Sure. Sure. Thanks for the question, Mitchell. Before I get into Norgine though, I would just like to echo -- I mean I've been here for a while, obviously, and really since the transformation. But the energy and the enthusiasm that the leadership team has brought with Jeff, with Terry, with Pierre and with Christie being a seasoned team and you can feel that. And so again, being one of the older people here, it's been well received, and I know the whole company is excited about it. But part of also our enthusiasm for 2025 along with the new leadership team is Norgine. It was a very competitive process to get them as a partner, which we signed them back in March of this year. It seems like a long time ago, but it was just March. We touched upon some of the specifics. Norgine, Goldman Sachs back over $500 million in revenue, across 18 European countries. Our agreement specifically is with the EU, Australia and New Zealand. Further, just to add, Norgine has another product in neuroblastoma, which is a pediatric population, which will be complementary once they get that through their approval process. But the specifics on PEDMARQSI, and we look forward to hearing more out of that here in the coming -- or in the near term, is that they will launch to start in the U.K. and in Germany. They have to go through pricing and reimbursement in the U.K. Once that is finalized, it will be launched again in early 2025. In Germany, we anticipate -- or they anticipate launching as well as an early 2025. There will be a period of pricing negotiation. But during that period, Norgine will be able to still collect sales and revenues. I think an important component that does get lost on this also is it's very centralized within Europe. As an example, in the U.K., there's really less than half a dozen centers there. And even to add to that, our Phase III trial in SIOPEL-6, the large component was in the U.K., and it was across all of Europe. So we have a lot of goodwill within the community and specifically within the pediatric oncology community and familiarity of PEDMARQSI itself, the product. Some financial details. We will -- we received an upfront payment of about USD 43 million, so that's cash reflected on our balance sheet today. There is a royalty stream, a royalty rate on all of net sales, starts in the mid-teens, goes into the mid-20s. And further to that, there is approximately $230 million, and that's greater than our market cap today, to be clear, $230 million of sales and regulatory milestones during the partnership. So with that, I mean we are absolutely thrilled. We think it's a part of -- that isn't fully recognized certainly in our valuation today. And we look forward to reporting more about it here in the very, very near future.

Okay. Great. And thinking about expanding in other market opportunities. Beyond the U.S. and beyond the Norgine territories, could you just walk us through how you're thinking about growth beyond that?

Yes. Sure. Yes. I mentioned Japan. Japan, as we know, is a significant market, and we believe the opportunity for PEDMARK in Japan gives us an opportunity to potentially look at doing a business development play for PEDMARK. And we can -- as you can imagine, there's a lot of options available to us. We're going to probably talk more about that later on in 2025 as we start to see the data from the study. But we believe the opportunity is significant. We also believe there's an opportunity once we build an excellence in oncology supportive care, is there opportunities to bring in more products for a high-performing team that we've built here. All of those things are in play as we start to move our success into 2025. So I couldn't be more excited about it. And we'll talk more about these opportunities as they come forward in the next year.

Speaking of oncology supportive care. How do you envision Fennec's evolution in that space? And what role does BD play and [ Infinite ] becoming a force in oncology support care?

Yes, that's why I brought Christie in to help with BD here. I think there are significant opportunities out there, both not only for PEDMARK and other territories than the ones that we currently have licenses and relationships in. So those are -- that opportunity is there. Like I said, and we believe that PEDMARK is a substantial opportunity, especially as we start to really see the growth in AYA in the U.S. So stay tuned on that, Mitchell, but that's something that you'll hear more from me as we enter into later into 2025.

Okay. Great. And one of the last topics I want to get to is if you could just describe the basis of any ongoing IP litigation, and what the expected timing of resolution that would be?

Sure, I'll let Robert do that.

Yes. Let me just give you a little bit of background on our patent portfolio specifically. It has strengthened quite a bit in the last 3, 4 years. To be specific, and Jeff talked about it earlier, we have 6 Orange Book patents here in the U.S. with expiration until July of 2039. Further, PEDMARK has been granted orphan drug exclusivity in the U.S., which goes 7 years from approval or until September 2029. And in Europe, we were granted Pediatric Use Marketing Authorization, or PUMA, which enables 8 years plus 2 years of data and market protection or a total of 10 years. Additionally, PEDMARK has an international patent portfolio, including both pending and issued patents with expiration until 2039. As it relates to ongoing IP litigation and potential timing, as one would imagine, we are vigorously defending our IP estate, which includes all that I just explained just a minute ago. We work closely with legal counsel, and we'll use all available means to defend and secure our IP against any parties. We are under a current litigation process, specifically with Cipla. That is ongoing. That commenced in January of '23. More will be communicated in the future as the case progresses. But lastly, an important state and as stated previously, the FDA has explicitly directed that PEDMARK is not substitutable with other sodium thiosulfate products.

Wonderful. Well, and to bring everything home, if you could just give us a look into the year ahead for Fennec, and then we'll close out.

Yes. We talked a lot today about not only the opportunity in our pediatric and especially in these institutions and academic centers here in the U.S. as we start to see more and more come on board with PEDMARK. But the AYA opportunity is huge. It's significant for us. It's one that now that we're starting to see movement around reimbursement around home use with Orsini. Stay tuned on where we can go with this, but we really see significant growth going forward in the future based on the life cycle move into the AYA population. So we're excited about it. We're excited about our Norgine partnership, about what's happening in Japan. And we appreciate everybody spending time with us today. As Robert said, we have -- we've got a lot of talent and a lot of things happening here at Fennec, and we're hoping that you'll begin to see all of that as we move forward into 2025. So we appreciate this today, Mitchell. Robert, anything from your side that you'd like to leave everybody with?

Yes. Just thank you to all the investors for their support over again, more than a decade. And through this transformation, we are, as Jeff mentioned, very excited about 2025 for a lot of the bullet points that we've hit. So stay tuned, and thank you again for your interest.

Thank you so much, Jeff. Thank you, Robert, and thank you to all of the investors that have joined us today on the call. Really appreciate your time.