Raghuram Selvaraju; Analyst; H.C. Wainwright & Co.
Good morning, ladies and gentlemen, and welcome to Fennec Pharmaceuticals second quarter 2024 earnings and corporate update conference call. (Operator Instructions) 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 5 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 market.
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 US 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'll 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 Rosti 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 Rosti's experience and knowledge as we enter into the next chapter.
Can we talk a little bit about me? My tenure in oncology spans the last 12 years or so with companies like Sigma-Tau, Baxalta, Shire and [use of pharma] where I was responsible for the US 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've 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 US 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 achieved -- 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 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 resolve this with CMS amending it to specified PEDMARK. Now that this change is affected, we are seeing uptake that we believe will continue to improve 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, replace [flatten] with platinum. We believe this allows PEDMARK to access a broader patient population within the autotoxicity 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 the first 18 months of the launch.
We're confidence -- 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 the 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, the 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 these territories and our targeted launch 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 net sales of PEDMARQSI in these license 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 license territories. The next major milestone will be evaluated after the launch of Germany in Q4 of 2024.
As we 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 provided us with many important benefits, including an upfront payment, further solidifying our balance sheet, attractive economic terms, providing a meaningful participation in the ex US success of PEDMARQSI and an experienced partner to successfully launch PEDMARQSI in these license 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.
Robert Andrade
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 and 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 renumeration 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, to our cash position. We ended the first quarter with approximately $43 million in cash and cash equivalent. The decrease in cash over the first quarter of 2024 with as 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, in which Fennec will have the opportunity to receive a EUR10 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 and the recently announced licensing agreement for Europe with Norgine will be sufficient to fund our planned operations for at least the next 12 months.
And 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 HC Wainwright and Cantor in September of 2024.
And operator, with that we are ready for questions.
Operator
(Operator Instructions) Chase Knickerbocker, Craig-Hallum.
Chase Knickerbocker
Good morning. Thanks for taking the questions. And Jeff, congrats on the new role. Maybe on that note, maybe speak to Jeff, maybe just speak a little bit more as to what you saw here at Fennec that really got you excited to join the team?
And then even more so what opportunities you saw with your skill set and experiences to come in here and kind of quickly create shareholder value Institute, maybe some things that you had at previous companies around commercial execution, commercial excellence, et cetera. But you think you can create shareholder value with your head at Fennec?
Jeff Hackman
Yeah. I think (inaudible) 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 world 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 have got experience in these markets, I have 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.
Chase Knickerbocker
Great. And then we spoke to AYA progress in the press release and also in 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 that we've 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 wording change? And then what are the gating factors still there in a way that need to be addressed, you mentioned the compendium. Just speak to how you kind of see Q3 developing from the AYA side.
Robert Andrade
Thanks, Chase, it's Robert. I'll take the bulk of that question. As you know, we've laid quite a bit of foundation work for the last several quarters in preparing for and hopefully manifesting this AYA opportunity. Part of that work included the updating of the NCCN guidelines, which we were pleased with and successful with.
But I think really early on in this quarter, what we're seeing are institutions becoming more aware of PEDMARK. And that's really a credit to our commercial team. As they become more aware, and they get reimbursed, we start to see some follow through.
And we're pleased with that again in July and going into August. And it's just -- it's really just the tip, but that's starting to come through and I think that's hopefully what is being messaged to you.
Chase Knickerbocker
And is it also being successful in getting the clinics to stay open later? Are we treating these patients through infusing them in the home setting? I mean, just walk through maybe that logistical challenge and how that's played out?
Robert Andrade
Yeah. It's a good question. It's a combination of both. What we also even alluded in our script and our commentary was the Orsini partnership that we have, which we 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 depended on the clinic, been able to get them to keep their hours open, et cetera. But I think it's really a combination of both, and we anticipate that going forward.
Chase Knickerbocker
Got it. And then just maybe how has the pediatric business -- how did that play out in Q2? I think it was kind of down -- it was obviously down modestly sequentially. Do you think that that business has found its footing now and you expect this to be the bottom there or walk through how we should think about the pediatric business from here?
Robert Andrade
Yeah. I'll take that as well. Starting -- I think maybe Jeff can add some of that experience on the pediatric side. But as you know, this is a very small population. We have some -- a great base of business there in terms of some centers and some hospitals and some KOLs that really understand the product and the benefits.
Do we think there's an opportunity to continue to grow? Yes. But again, we're really have that stable base with us. There's ebbs and flows in every quarter. I think part of what Jeff's doing here and what he's going to bring in here is bringing in a two prong focus so that we continue to make traction on that AYA while at the same time also evaluate that opportunity within the traditional pediatric.
Jeff Hackman
Yeah. 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.
Chase Knickerbocker
Got it. And then just last for me, guys, and sorry for all the questions. But just with kind of the combination of those two starting to see progress in AYA and pediatric seeming be a stable business, kind of put your commentary there and kind of potentially trying to return that to growth obviously.
Would you expect this business as a whole with those two parts to start to grow meaningfully sequentially again? And then again, I'll hop back in the queue, but grow meaningfully sequentially again from here. That's all I mean. Thanks.
Robert Andrade
I'll start with it. I mean, just on day seven, we are here to grow meaningfully, just here to grow meaningfully and to help us grow meaningfully. So that's always our goal.
Jeff Hackman
I wouldn't have come if that wasn't the case. So that's our plan.
Operator
Naureen Quibria, Capital One Securities.
Naureen Quibria
Hi, good morning and Jeff, congratulations on the new role. Rosti will be missed. But I guess my first question 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 comment on what was happening there or the progress there?
Robert Andrade
Yeah. 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.
Naureen Quibria
Okay. Got it. And then can you just comment a bit more on the compounding issue? I mean, how prevalent is it now still?
Robert Andrade
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 on that we can continue to grow that side of the business as well.
Jeff Hackman
Yeah, Naureen. I think there's -- I know there's opportunity there. It's about the message and if the message being heard, is being delivered and the execution of how it's being delivered. These are all areas where I'll be focusing my efforts here early on and quickly to understand what execution looks like there. And I look forward to sharing more once I start to kind of dive into that approach.
Naureen Quibria
And just one more from me. Are you planning to buy backfill the COO role now or --
Jeff Hackman
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 and what positions in 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.
Operator
Raghuram Selvaraju, H.C. Wainwright.
Raghuram Selvaraju
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 if and when it is heard?
Robert Andrade
Yes. As mentioned, the plan is to launch PEDMARQSI in Q4. The first market we will launch PEDMARQSI with Norgine will be in Germany. And the first milestone is related to achieving a certain price for the product in Germany.
We are excited about that opportunity. We are optimistic about it. And so, assuming we achieve that in the Q -- late Q4, early Q1 time period, then we would recognize that EUR10 million to Fennec and we would get the cash into the company.
And then secondly, you didn't specifically ask this, but there is also net royalty, a royalty on net sales to Fennec, and that will start in the [mid-teens] and grow as the revenues grow to certain thresholds. In other words, grow into higher percentages from the mid-teens.
Raghuram Selvaraju
Okay, great. I wanted to also see if Jeff would be prepared at this point to comment on 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 in overall risk profile between a branded agent and a compounded agent or a generically available agent.
And if there's 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?
Jeff Hackman
Yeah. That's a good -- it's question. Thank you. I've had two specific experiences that really -- very closely to this, and that's one of the reasons why I got excited about coming here. One was in the while my -- I was at Baxalta and as we were moving a product from COG usage into AYA market.
And in that market, there was a product that was used that potentially could have some side effects in the AYA population looking at infertility. And so, we had to -- when we did not have that issue with the current product that we moved into that market. So very, very similar to what we're seeing here, and I understand the levers that need to be pulled to make sure that customers understand that.
And then the other was that while we were a use of pharma and we were launching a product in the market there. And there was a current product that was used that had a black box warning and had a higher safety threshold that they had to overcome in the usage of that.
So in both instances, we had products that were safer but weren't being used and we had to focus our messages to make sure that we got that across. We did it through relationships with KOLs. We did it execution in our commercial team and we really did it and making sure that the message was clear, and the companies and my teams were able to get across that message effectively. And those are the things that I'm going to jump in too quickly here, very similar. So that's why I think my experience can help.
Raghuram Selvaraju
Great. And then the last question from me, as you know, from a strategic perspective, looking further down the road, maybe you can give us a sense of how you folks are thinking about BD opportunities, the possibility of broadening the portfolio within specialty oncology going forward, possibly in some kind of synergistic manner that would make it even more efficient to promote, continue to promote PEDMARK in the US and what might be some of the triggers that would influence when you might take a decision to bring on another product or two?
Jeff Hackman
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 US and that's priority number one for me. Once we do that and we drive that potential to where we think it can be, yeah, I think those are all things that we need to consider. And I don't know, Robert, if you want to comment on it.
Robert Andrade
No, similarly, Ram, you know, in our history is we take one step at a time. We are very excited about our partnership in Europe that PEDMARQSI. So I think we believe we're in really good shape there. And in the US with bringing Jeff on, we're going to bring that expertise. And as you mentioned, fill some gaps so that there will be a right time. But the opportunity is so great here with PEDMARK in the US that we're focused on that.
And then lastly, obviously, we have global for PEDMARK. And so, and in particular, there are some very attractive markets for us to grow there along just with our sole product. So we'll look at everything and anything. But the reality is we feel really good about what we have here today to grow off that.
Raghuram Selvaraju
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.
Robert Andrade
Yeah, no problem. No, this is something that I'm committed to. And Jeff and I have spoken in the first week. We, as you know, have really two buckets here in the US 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 with and until it is appropriate to present to both analysts and investors.
Operator
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.
Jeff Hackman
Well, thank you, everybody. I appreciate you joining the call today and all of your continued support. I look forward 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.
Operator
Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
