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 Q&A 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. 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 Raykov, 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 Fennec's website, www.fennecpharma.com, where it will be available for the next 30 days. With that, it is my pleasure to turn the call over to Rusty Raykov. Rusty.
Thank you, Robert. 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 PEDMARK 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. 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. PEDMARK 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 PEDMARK 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 PEDMARK 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 Fennec as a 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 Fennec HEARS, which is a comprehensive single source program designed to connect PEDMARK 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.
Fennec HEARS also provides access to care coordinators that can answer insurance questions about coverage for PEDMARK 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 PEDMARK with our original pediatric oncology specialist team that is highly focused on targeting the approximately 200 pediatric hospital and those centers include Children's Oncology Group, NCI, and NCCN institutions across the U.S. that drive 80% of the cisplatin use. It's a very concentrated effort. This team is also responsible for key partnering, awareness, and education initiatives. 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're 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, with particularly the hepatoblastomas, osteosarcomas, and germ cell tumors. Regarding reimbursement, PEDMARK 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 U.S. Centers for Medicare and Medicaid Services, or CMS, has issued a permanent J-Code for PEDMARK, which became effective on April first this year. This is great news and will help streamline the reimbursement process. We believe that this is also lead to additional patient access, as several key accounts were waiting until the J-Code became effective to use PEDMARK. Additionally, some of our largest academic institutions in the country are not yet prescribing PEDMARK, 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. We see PEDMARK accelerating in the second quarter and second half of the year as these larger centers gain formulary approval.
We feel as though the PEDMARK 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. Again, this is a product that would not just stay at a 1% market share, but would really target this 80% of cisplatin used to 100 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 PEDMARK.
Although we're very focused on the young children, this actually opens the opportunity for PEDMARK 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 PEDMARK 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 U.S. 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 PEDMARK, which will be marketed as PEDMARQSI in Europe. When formally approved by the European Commission, PEDMARQSI 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. 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 PEDMARQSI, of course, is approved. Whatever pathway we select, we see Europe as another significant opportunity to create additional shareholder value by making PEDMARQSI 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 PEDMARK 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 PEDMARK, 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 PEDMARK. The majority of traditional research and development expenses associated with PEDMARK 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.
Company recorded $2.5 million in selling and marketing expenses in the first quarter of 2023. Our GAAP net loss for the first quarter of 2023 was $6 million, or a loss of $0.23 per share, compared to a GAAP net loss of $3.7 million in 2022, or a loss of $0.14 per share for the first quarter of 2022. Finally, on to our cash position. We ended the first quarter with approximately $18.4 million in cash equivalents and investment securities, which includes $25 million of capital drawn down under our existing Petrichor convertible debt facility. We believe our available capital, when coupled with PEDMARK revenue assumptions, will be sufficient to fund our planned operations for at least the next 12 months. Operator, with that, we are ready for questions.
Thank you. Ladies and gentlemen, as a reminder, we are in the Q&A session. To ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw the question, simply press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Chase Knickerbocker with Craig-Hallum. Please proceed.
Good morning, guys. Thanks for taking our questions here and congrats on the progress thus far. Q4 was well ahead of expectations, Q1 here fairly in line. It was a modest sequential kinda increase in revenue, Q4 to Q1. Help investors understand the dynamics at play there. Was there a stocking dynamic 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 Knickerbocker. I'll take this one. If you look at Q4 versus Q1, what's interesting there, of course. 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, it treats a child from 1 month of age to really no age limit. That includes the various tumor types that I listed previously. Keep in mind that those children are treated with various cisplatin regimens, and they require six hours post each cisplatin dose, they require SDS for the ones treated. What's interesting there also is that those children are in various sizes.
SDS is administered based on body surface area. I think what you're, what you may be seeing, albeit on a relatively insignificant base, initially, is a bit of the patient mix. If we get a larger and older kid, an adolescent, you clearly get a higher vial usage. Alternatively, if you're getting a smaller 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. 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. 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? Where could we end the year, this year in those centers?
Yeah, let me just sort of take that as well. Maybe Robert can add. If you look at the landscape across these 200 centers, they are various sizes. We worked with roughly 40 of them in the COG study that took place. They are highly bureaucratic institutions. 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. We are quite actually excited to see this because we're 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, so with different tumor types. 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 these centers, we're also targeting key opinion leaders that are treating the various diseases, and in addition, establishing PEDMARK in the hospital protocol for each one of these tumors.
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 wanna be with most of these accounts. We're working towards that, and I am I'm pretty excited what I, what I've seen so far. I don't. Robert, if you wanna add anything else to that.
Yeah. Thanks, Chase Knickerbocker. How you doing? Just to add in, as you know, our teams have working really hard to gain formulary access, build the relationships with these larger centers. That takes time. Within those first six months, we started to really see that towards the latter part of it. Now that's translated, as Rusty Raykov mentioned, into the repeat orders, into the simplified ordering process, even within the centers. Then we've also seen some what we believe is some pickup just as well from the on the J-Code that we have officially issued for PEDMARK.
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 break-even quarter for you guys with your spend. Is that still a fair way to think about there being a quarter in 2023 where you can be break even at this point, positive earnings?
Yeah, Robert, I'll turn it over to you.
I'll take that one. Thanks for the question, Chase. Yeah, just to back up, we are running at roughly $2 million a month in cash operating expenses or roughly $25 million a year. Internally, we certainly have that as a major milestone for us to accomplish and certainly feasible for us to accomplish during 2023. To translate that would be, you know, a little bit north of $7 million in revenue, at a minimum to get to that break even. Given the opportunity, within the market for PEDMARK, 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. It comes from the line of Raghuram Selvaraju with H.C. 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. You know, 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, 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? Do you expect this situation where you're effectively not spending anything on R&D to persist beyond 2023?
Lastly, I was wondering if you could make some comments on G&A spending and whether you expect from a G&A 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. Thanks.
Yeah, I'll just take. Hi, Ram. I'll take the proportion piece of the large centers that we're working with. Yeah, so you can imagine those academic centers. It's interesting with them, right? They see a population that is per our label, but some of these centers also focus on the really tough cases, and those are obviously outside of our label. This is metastatic disease or second-line disease, relapsed patients, but they also see a good amount of the localized patients as well. In terms of the existing ones that we have won from a P&T process, they are different size.
That's very encouraging to see the repeat orders there. I think the important aspect with those in particular is to have additional physicians prescribe for additional tumor types. That's, that's in the process, and it's already happening. That's encouraging to see. We just have to open the rest coming up, and then we have to broaden it into the other tumor types. That's the opportunity, and the challenge in front of us. Robert, do you wanna take the R&D spending and G&A?
Yeah, it'd be my pleasure. Thanks, Graham, for the questions. Number two question for you, I believe, was on the R&D. Yes. 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 provide some support. Those opportunities will hopefully afford us label expansion further down the line. 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.
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 a people on the ground and our regional pediatric oncology specialist, to our market access team, to our quality team, et cetera. One of, one of the caveats, of course, is, Rusty mentioned to it, is the opportunity in Europe as we evaluate that. Certainly, from a U.S. perspective, we are, we feel we have a good fit here.
Lastly, with respect to European activities, do you anticipate that there might be a possibility that a potential marketing partner comes on board before PEDMARQSI is officially cleared for launch, 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'll be a period of time where we will have the opportunity, as we are 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.
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. Then, those are the things that obviously we're evaluating, or just stand alone ourselves, but that's, you know, for all the entire continent, but that's highly unlikely given the resources involved, and what it would take. 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 are, 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 Naureen 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? You know, can you comment on how many hospitals and prescriptions do the current numbers represent?
Let me take that. Yeah, so it's really interesting. Think of it this way. 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. Versus once it's gone through a P&T, once everything is established, then it becomes automatic. 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.
You can basically, again, simple math, you can, you can take, you know, the WAC price is available. You can, you can take the revenue, and you can, you can divide by that. They're not substantial discounts, so you can kinda 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. 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. In terms of number of patients and repeat orders, once it's through P&T, the repeat orders are absolutely there.
Got it. You know, you mentioned the commercial insurance versus government. You know, what percentage of the patients are actually covered? Have been covered so far?
Everyone's covered.
Okay.
We have in the U.S. a policy which is a great policy, you know, that does not leave a child behind. The question is how are they covered? Typically, for most states, whenever there's no private insurance, it's covered by the state Medicaid. Those state Medicaids, of course, they have various reimbursement rates, based on DRG, for at the hospital setting. Those are very.
Okay.
Different from region to region.
Okay. If I can sneak one more in. Rob mentioned the investigator-sponsored trials that are ongoing. How many of these are they, and in what settings are they, these potential label expansions for?
Very good question. We're working with Cincinnati on a second-line treatment. This is actually a very interesting study in hepatoblastoma. 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. What Dr. Geller there has discovered is that giving a very high dose of cisplatin in an HDAC seems to be very sensitive to the metastases of the tumors, including the ones that are in the new liver. He's able to shrink them very well
We basically have initiated that study with him, UCF, and MSK. If you think hepatoblastoma is rare, second-line hepatoblastoma with MET into the transplanted liver is even rarer. What's really interesting there, of course, is that we are, it's a small number of patients. It's roughly between 20-40 patients that hopefully they'll be able to accrue in the next three years to four years. The idea there, of course, is to see how they are 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. 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 question. It comes from the line of David Nierengarten with Wedbush Securities. 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, you know, how many of those, you know, 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, you know, how many of those have been signed up and are ready to prescribe? Thanks.
Yeah. David, I'll take that. The SIOPEL 6 study actually only had one account in the U.S., and that was Stanford.
Okay.
It's really the COG study. There are roughly.
All right. The COG study. Yep.
Yeah. There's roughly 42 of them. Out of those, the vast majority of them we're basically waiting through the P&T process at the moment.
Okay.
Working through it. I don't expect this to sort of stay kinda where we are at, like, 1% share, right? We've got these patients. We got, you know, at least 3,000-3,500 of these patients that are basically, vast majority of them are going to many of these places. Again, cisplatin is the go-to therapy there. Once they get through this burdensome P&T process, I would expect for them to for this to go into each disease protocol. Remember, we're doing the education with the KOL. We're working with the audiologists. We're working with the nurse. With the nurses there, we are working with in some cases, the advocacy groups. It's like it's a whole piece to come together.
Lots of education to make sure that it's included in as many disease protocols as possible in each hospital. But, you know, you wanna start with at least one, of course, and get through P&T, and then you can expand from there.
Yep. Got it. Thanks.
Thank you. With that, ladies and gentlemen, we conclude the Q&A session. I will turn the call back to Rusty Raykov for final comments.
Well, I would like to thank for everyone for their interest. We are very thrilled with, especially after April 1, how the uptick of or the uptake of the PEDMARK has dramatically increased. We look forward to discussing that during our next quarter. 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.