On March 20, 2023 Athenex, Inc., (NASDAQ: ATNX), a global biopharmaceutical company dedicated to the discovery, development, and commercialization of novel therapies for the treatment of cancer and related conditions,reported a corporate and financial update for the fourth quarter and full year ended December 31, 2022 (Press release, Athenex, MAR 20, 2023, View Source [SID1234629040]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

"In 2022, we focused on executing our strategic vision to advance our differentiated NKT cell therapy platform and reported positive clinical data for our two lead investigational CAR-NKT cell therapy products in both neuroblastoma and non-Hodgkin lymphoma," said Dr. Johnson Lau, Chief Executive Officer of Athenex. "In addition, we made significant progress in monetizing company assets during the year, in line with our planned strategy. In 2023, we are pursuing a broader range of strategic alternatives while remaining focused on improving our balance sheet as we continue to advance our promising clinical development programs."

Fourth Quarter 2022 and Recent Business Highlights

Corporate Updates:

Closed the sale of China API business
Ended the manufacturing of 503B sterile compounded products and will exit the market in April 2023
Effected a 20:1 reverse stock split of Athenex common stock on February 15, 2023; the Company received notice on March 16, 2023 that it regained compliance with Nasdaq’s continued listing requirements
Clinical Development Programs:

NKT Cell Therapy Platform

KUR-501: Autologous GD2 CAR-NKT cell therapy for relapsed/refractory high-risk neuroblastoma (R/R HRNB)

Recent FDA-imposed clinical hold of the KUR-501 Investigational New Drug Application (IND) following the death of a young heavily pretreated male patient with R/R HRNB treated at the fifth dose level of 300 million cells/m2 approximately three weeks after CAR-NKT cell therapy product administration. Baylor College of Medicine (BCM), the IND holder, continues to investigate the etiology and pathogenesis of this event
Subject was found to have human metapneumovirus infection, then Grade 1 cytokine release syndrome (CRS) that was treated with immunosuppressants
Subject later developed polyclonal hyperleukocytosis complicated by multiorgan dysfunction without evidence of sepsis
BCM is devising a safety risk mitigation plan to reopen the clinical trial, one that could include excluding patients with concomitant viral infections, but can provide no assurances that the clinical hold will be lifted or when it will be lifted. The Company is working closely with BCM to help address the FDA’s questions and remains committed to the continued safe clinical development of what it believes is a promising new CAR-NKT cell therapy product for a high unmet medical need in a pediatric orphan indication.

Anticipated Upcoming Milestones

Targeting Phase 1 GINAKIT2 study of KUR-501 reopening mid-2023, pending FDA potentially lifting clinical hold
Phase 1 GINAKIT2 dose escalation study safety and preliminary efficacy data update anticipated in 2H 2023
KUR-502: Allogeneic CD19 CAR-NKT cell therapy for relapsed/refractory B-cell malignancies

Ongoing multicenter expansion of Phase 1 dose-escalation study (ANCHOR2) initiated in Q4 2022
Anticipated Upcoming Milestones

Next clinical trial data update from the ongoing ANCHOR and ANCHOR2 studies anticipated in 2H 2023
KUR-503: Allogeneic GPC3 CAR-NKT cell therapy for previously treated advanced GPC3-expressing hepatocellular carcinoma

Anticipated Upcoming Milestones

IND application filing for the investigational treatment of adults with previously treated advanced GPC3-expressing hepatocellular carcinoma planned in 2024
Oral Paclitaxel and Encequidar

Graduation of Oral Paclitaxel combination regimen (encequidar, a PD-1 inhibitor, and carboplatin) in the neoadjuvant triple-negative breast cancer treatment subgroup of the I-SPY2 Phase 2 trial
Received marketing authorization denial from MHRA for the treatment of metastatic breast cancer based solely on chemistry, manufacturing and controls (CMC) issues
Anticipated Upcoming Milestones

Plan to discuss the I-SPY 2 Phase 2 trial data with the FDA in connection with the New Drug Application (NDA) of Oral Paclitaxel for metastatic breast cancer
Data update from I-SPY 2 Phase 2 trial for Oral Paclitaxel regimen in the neoadjuvant breast cancer treatment setting anticipated at upcoming national meetings in 2Q 2023 by Quantum Leap Healthcare Collaborative
Expecting independent panel review of MHRA decision
Specialty Pharmaceutical Business:

Athenex Pharmaceutical Division (APD) currently markets a total of 39 products with 74 SKUs
Fourth Quarter and Full Year 2022 Financial Highlights

Revenues from product sales from continuing operations increased to $21.8 million for the three months ended December 31, 2022, from $17.1 million for the three months ended December 31, 2021, an increase of $4.7 million or 27%. Product sales for the full year 2022 were $90.9 million, up from $68.5 million in 2021, which represents a 33% increase. This increase is attributed to the launch of two additional APD products, contributing $11.6 million in net product sales, and increased demand for three FDA shortage products, contributing $12.0 million in net product sales, during the full year 2022.

License fees and other revenue for the three months and year ended December 31, 2022 were $3.3 million and $11.9 million, respectively, compared to $0.8 million and $26.9 million, respectively, for the same periods in 2021.

Cost of sales for the three months ended December 31, 2022 totaled $18.2 million, an increase of $2.5 million, or 16%, as compared to $15.7 million for the three months ended December 31, 2021. Cost of sales totaled $76.1 million for the full year in 2022, an increase of 21% as compared to $62.9 million for the full year in 2021. The increase in our cost of specialty product sales was a result of the increase in sales volumes.

R&D expenses totaled $16.4 million for the three months ended December 31, 2022, down $2.0 million, or 11%, from $18.4 million for the three months ended December 31, 2021. R&D expenses totaled $51.8 million for the full year in 2022, a decrease of 33% as compared to $77.7 million for the full year in 2021. This decrease is primarily due to a decrease in costs related to Oral Paclitaxel, clinical operations, and drug licensing costs.

SG&A expenses totaled $7.2 million for the three months ended December 31, 2022, a decrease of 33% as compared to $10.8 million for the three months ended December 31, 2021. SG&A expenses totaled $44.9 million for the full year in 2022, a decrease of 30%, as compared to $64.2 million for the full year in 2021. This decrease was primarily due to a $11.5 million decrease of Oral Paclitaxel pre-launch expenses, and a decrease from the change in fair value of contingent consideration related to the Kuur Therapeutics acquisition.

The Company recorded impairment of $0.1 million related to the balance of a subsidiary’s in-process research and development during the year ended December 31, 2022, and goodwill impairment of $41.0 million during the three months and year ended December 31, 2021, based on the results of a quantitative goodwill impairment test for our reporting units.

Interest expense totaled $10.8 million and $5.0 million for the three months ended December 31, 2022 and 2021, respectively. Interest expense for the year ended December 31, 2022 totaled $25.8 million, an increase of $5.2 million, as compared to $20.7 million for the year ended December 31, 2021, primarily due to interest recognized on the royalty financing liability, partially offset by decreased borrowings on the Senior Credit Agreement with Oaktree.

Loss on extinguishment of debt amounted to $1.7 million and $3.1 million for the three months and year ended December 31, 2022, respectively. This loss was related to the prepayments we made to Oaktree on the Senior Credit Agreement during 2022.

Income tax (expense) benefit for the three months ended December 31, 2022 amounted to $0.3 million, compared to income tax expense of ($16.0) thousand for the same period in 2021. Income tax expense totaled ($0.3) million and income tax benefit totaled $10.6 million for the full year in 2022 and 2021, respectively. The income tax expense for the full year 2022 is related to foreign income tax withholdings and the income tax benefit for the full year 2021 was primarily the result of deferred taxes related to the acquisition of Kuur’s in-process research and development.

Net losses attributable to Athenex for the three months and year ended December 31, 2022 were $34.2 million and $103.4 million, respectively, or ($4.28) and ($15.81) per diluted share, respectively, as compared to a net loss of $104.4 million and $199.8 million, or ($19.08) and ($38.44) per diluted share, for the same periods in 2021. On February 15, 2023, the Company effected a 20:1 reverse stock split, and all share and per share amounts, and exercise prices of stock options, warrants, and pre-funded warrants, if applicable, in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split.

Revenue from product sales from continuing and discontinued operations were $115.6 million and $92.3 million for 2022 and 2021, respectively, an increase of $23.3 million, or 25%. These amounts include revenues from the 503B business of $23.3 million and $19.8 million in 2022 and 2021, respectively, and revenues from the China API business of $1.4 million and $4.0 million in 2022 and 2021, respectively. The 503B business and China API business are now categorized as discontinued operations.

For further details on the Company’s financial results, including the results for the full year ended December 31, 2022, refer to the Form 10-K filed with the SEC.

Liquidity and Capital Resources Update

As of December 31, 2022, the Company had cash and cash equivalents, restricted cash, and short-term investments of $36.7 million. The Company is implementing cost savings programs and plans to monetize assets and raise capital in order to extend cash runway in 2023.

On March 7 and March 13, 2023, the Company received notices of certain alleged defaults and reservations of rights from Oaktree relating to the Senior Credit Agreement. The alleged defaults relate to (i) the Company exceeding the $10.0 million threshold for incurring additional indebtedness by having accounts payable owed to counterparties overdue by more than 90 days, (ii) the Company’s obligation to provide notice to Oaktree related to the foregoing, and (iii) the Company’s obligation to provide notice to Oaktree regarding the recent reverse stock split. Upon the occurrence of an Event of Default, Oaktree has the right to accelerate all amounts outstanding under the Senior Credit Agreement, in addition to other remedies available to it as a secured creditor of ours. If Oaktree accelerates the maturity of the indebtedness under the Senior Credit Agreement, we do not have sufficient capital available to pay the amounts due on a timely basis, if at all, and there is no guarantee that we would be able to repay, refinance or restructure the payments due under the Senior Credit Agreement. The Company responded to Oaktree, which included grounds upon which the Company disputes each of the alleged defaults. The Company has not reached a mutual agreement with Oaktree on this matter.

Athenex management will not host a conference call to accompany this release but intends to provide material updates when appropriate.