Filing Summary
Entity discrepancy: The request identifies Fennec Pharmaceuticals Inc., but the supplied Form 10-Q is for Adherex Technologies Inc. This summary covers the filing as provided, not a Fennec filing.
Business Context and Reporting Period
Unaudited Form 10-Q for the three months ended March 31, 2014. Adherex describes itself as a development-stage biopharmaceutical company developing cancer treatments, principally sodium thiosulfate (STS) and Eniluracil. The company had no product revenue.
Financial Results and Liquidity
Amounts below are in thousands of U.S. dollars, except per-share data.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $32 | $178 |
| General and administrative expense | $505 | $359 |
| Operating loss | $(537) | $(537) |
| Unrealized derivative loss | $(2,655) | $(3,573) |
| Net loss | $(3,194) | $(4,108) |
| Basic and diluted loss per share | $(0.11) | $(0.16) |
| Net cash used in operating activities | $(378) | $(407) |
At March 31, cash and cash equivalents were $1,338, down from $1,663 at year-end 2013. Total assets were $1,395; current liabilities were $5,729, including $5,518 of derivative liabilities, and stockholders’ equity was negative $4,334. The MD&A reports working capital of $1,183 when derivative warrant liabilities are excluded; including those liabilities, current assets are below current liabilities. The company reported no long-term liabilities or capital assets. No conventional interest-bearing debt balance is reported.
There is no meaningful operating margin to assess because the company had no revenue. The filing reports an accumulated development-stage deficit of $111,892 and cumulative net cash used in operations of $87,625.
Material Changes Versus the Prior Comparable Period
- Net loss narrowed by $914, primarily because the non-cash derivative loss was lower by $918.
- Operating loss was unchanged at $537. R&D expense fell by $146 as the Phase II Eniluracil trial wound down; G&A rose by $146.
- Operating cash use decreased by $29. Cash declined by $325 during the quarter, while $53 of financing cash came from stock-option exercises.
- Derivative liabilities rose to about $5.5 million from $2.9 million at December 31, 2013, reflecting fair-value remeasurement rather than cash spending.
Outlook, Commentary, Risks, and Unusual Items
- Going concern: Management says substantial doubt exists about the company’s ability to continue as a going concern. It needs additional financing through equity, debt, collaboration, licensing, or other sources; failure to obtain sufficient funds could force it to delay, reduce, or discontinue development or operations.
- Pipeline: Enrollment was complete in the Children’s Oncology Group Phase III STS trial, with final results expected in Q2 2014. The SIOPEL STS trial had enrolled 103 patients by March 14, 2014; interim safety data were expected in Q2 2014. The collaborating groups manage and bear trial costs, while Adherex supplies drug and related support.
- Eniluracil: After FDA feedback in 2013, the company said it would seek a partner and consider indications beyond metastatic breast cancer. The filing provides no formal financial guidance or quantified operating forecast.
- Derivative accounting: Canadian-dollar warrants and contractor options are recorded as liabilities and remeasured using Black-Scholes, creating potentially large non-cash earnings swings. Exercise or expiry is required for any associated cash impact; exercise could bring in proceeds.
- Other risks and commitments: Development and regulatory outcomes are uncertain, trial progress depends on collaborators, and further funding may dilute shareholders. The company reported $67 of contractual commitments due within one year, plus potential OHSU royalties and milestone payments. No legal proceedings were reported.
- Controls: Management concluded disclosure controls were ineffective due to a material weakness in segregation of accounting duties, citing one full-time person performing accounting and financial reporting duties. No material change in internal control was identified during the quarter.
- Subsequent event: On April 25, 2014, the company elected two directors and granted a total of 825,974 options to directors, including grants subject to vesting conditions tied to EU orphan-drug approval for STS.
Most Important Facts to Verify
- Confirm the issuer: the supplied filing is Adherex Technologies Inc., despite the request naming Fennec Pharmaceuticals Inc.
- Review subsequent STS trial results, regulatory developments, and whether the expected Q2 2014 updates occurred.
- Verify available financing, cash runway, and any later financing or partnering arrangements.
- Reconcile derivative-liability figures: the balance sheet reports $5,518 while other disclosures report $5,517, apparently a rounding or presentation difference.
- Assess the effect of the accounting-control material weakness and whether it was remediated.