Fennec Pharmaceuticals Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Financial amounts below are in U.S. dollars; unless stated otherwise, dollar figures are in thousands. The filing was signed March 28, 2016.
Business context and reporting period
Fennec is a clinical-stage biopharmaceutical company focused on cancer therapeutics. Its lead candidate, sodium thiosulfate (STS), is being developed to reduce cisplatin-related hearing loss in children. The company reported no product revenue and had three employees at year-end.
Enrollment was complete in two Phase III trials. Fennec supplied study drug and safety monitoring; external cooperative groups conducted and funded the clinical activities. In 2015, the company also amended its OHSU license to include N-acetylcysteine, alone or with STS, for preventing chemotherapy-related ototoxicity.
Financial results and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $256 | $357 |
| General and administrative expense | $1,634 | $2,520 |
| Operating loss | $(1,890) | $(2,877) |
| Net loss | $(659) | $(2,176) |
| Operating cash used | $(1,862) | $(1,699) |
| Cash from financing | $497 | $2,343 |
Net loss per share was $0.06 in 2015 versus $0.22 in 2014. The 2015 result included a $1,237 non-cash gain on derivatives; therefore, net loss was substantially lower than the operating loss and does not represent operating profitability. The 2014 result included a $355 unrealized derivative gain and a $349 gain on derivative settlement.
At December 31, 2015, cash and equivalents were $942, down from $2,307 a year earlier. Total assets were $1,019, total current liabilities $471, and stockholders’ equity $548; accumulated deficit was $111,533. The filing reports no borrowings or contractual obligations. Its selected-data table reports working capital of $630 after excluding derivative liabilities; using total current assets less total current liabilities gives $548.
Material changes versus 2014
- Operating expenses declined $987, mainly from lower general and administrative expense, including substantially lower equity-based compensation, and reduced trial costs as SIOPEL 6 enrollment concluded.
- Net loss narrowed by $1,517, but the improvement reflected a larger non-cash derivative gain as well as lower operating expenses.
- Operating cash use increased by $163, while financing cash inflows fell from $2,343 to $497. The 2014 figure included proceeds from a $2.2 million private placement; 2015 financing proceeds were from option and warrant exercises.
- Derivative warrant liabilities fell to $82 from $1,319, principally reflecting fair-value changes and warrants expiring unexercised.
Outlook, clinical developments and key risks
- Funding and going concern: Management said additional capital was needed in the very near term. The company stated there was substantial doubt about its ability to continue as a going concern. The auditor’s report also highlighted substantial doubt; the statements were prepared on a going-concern basis and include no adjustments that might result if that assumption were inappropriate. Management warned that failure to raise funds could force delays, reductions, or termination of development activities, a business combination, or a shutdown.
- Clinical evidence is not conclusive: In COG ACCL0431, hearing loss was reported in 28.6% of STS-treated evaluable patients versus 56.4% of controls (p=0.004). However, overall survival was lower in the STS arm, particularly in a post hoc disseminated-disease subgroup (55.9% versus 88.1%; p=0.011). The filing says this raises concern that STS could protect tumors when given on that dose and schedule. Results were preliminary.
- SIOPEL 6 milestones: The independent monitoring committee recommended continuing the trial after its final safety review. The filing anticipated assessment of the prespecified hearing endpoint in the first half of 2016, with a final data readout in 2017 if the interim threshold was not met. No definitive hearing-outcome result was reported.
- Development, regulatory and commercial risks: STS still required regulatory review; approval, timing, efficacy, safety, manufacturing, reimbursement and commercial acceptance were uncertain. Fennec relied on OHSU and external study groups, had limited patent protection described primarily as method-of-use patents, and lacked in-house manufacturing and marketing capacity.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing two material weaknesses: insufficient segregation of accounting duties and insufficient technical U.S. GAAP expertise among personnel. The company said limited finances constrained remediation.
- Other investor risks: The stock traded OTCQB in the U.S. and TSX in Canada, was subject to penny-stock rules, and had low liquidity and substantial price volatility. Ownership was concentrated; Southpoint Capital was reported to hold approximately 36.5%.
Important facts for investors to verify
- Cash available after year-end, financing raised, and management’s updated operating runway and going-concern assessment.
- Final COG ACCL0431 survival and hearing-loss analyses, including results by disease extent, and the SIOPEL 6 hearing endpoint and final readout.
- Regulatory plans, expected approval pathway and timing, and any subsequent discussions with regulators or clinical investigators.
- OHSU license terms, patent status and remaining protection, including any milestone, royalty or sublicensing obligations.
- Progress addressing the two material weaknesses and whether any new financing causes significant dilution.