Fennec Pharmaceuticals Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited U.S. GAAP financial statements; dollar amounts below are U.S. dollars in thousands unless otherwise noted. Fennec is a development-stage biopharmaceutical company focused on PEDMARK, a sodium thiosulfate formulation intended to prevent cisplatin-related hearing loss in pediatric cancer patients.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1,242 | $1,368 | $4,458 | $3,882 |
| General and administrative expense | $2,931 | $4,491 | $8,558 | $10,657 |
| Operating loss | $(4,173) | $(5,859) | $(13,016) | $(14,539) |
| Net loss | $(4,185) | $(6,200) | $(12,919) | $(14,871) |
| Basic and diluted loss per share | $(0.16) | $(0.24) | $(0.50) | $(0.64) |
| Cash used in operating activities | $(2,958) | $(5,446) | $(10,977) | $(12,311) |
With no reported revenue, profit margins are not meaningful. The nine-month net loss improved by $1,952 year over year; operating expenses fell by $1,523, as lower G&A more than offset higher R&D. Q3 net loss improved by $2,015, primarily reflecting lower G&A and lower amortization expense. The company recorded a $137 unrealized gain on Processa shares for the nine months, including $39 in Q3.
At September 30, 2021, cash and cash equivalents were $24,335, down from $30,344 at December 31, 2020. Working capital was $23,965, versus $29,070 at year-end 2020. Total assets were $26,014; total liabilities were $7,001, including a $5,000 term loan (net carrying amount $4,987). Shareholders’ equity was $19,013. No material investing cash flows were reported.
Material developments and outlook
- In June 2021, Fennec drew $5,000 under an amended Bridge Bank facility of up to $20,000. A further $7,500 is available upon U.S. NDA approval and another $7,500 upon achieving $11 million in consolidated trailing six-month revenue by December 31, 2022. Term Loan A matures July 1, 2025, bears interest at 1% above prime, and requires a minimum cash balance of at least three times monthly cash burn. The facility is secured by company assets.
- The FDA accepted Fennec’s PEDMARK NDA resubmission and set a November 27, 2021 PDUFA target action date. The original 2020 Complete Response Letter cited deficiencies at the third-party manufacturing facility; the company reported that no clinical safety or efficacy issues were identified and no additional clinical data were required.
- Management stated that cash and the Bridge Bank facility were expected to fund planned activities for at least the next 12 months, including anticipated NDA approval and, if approved, initial U.S. commercialization. Management also warned that capital needs thereafter are uncertain and that additional funding may be required. No quantified revenue or earnings guidance was provided.
- Management expected cash outflows to increase with pre-commercialization and commercialization activities. It cited potential future financing needs and the possibility that inadequate funding could delay, reduce, or end development or other operations.
Risks, contingencies, and unusual items
- A securities class action related to disclosures about PEDMARK’s manufacturing facility and the 2020 FDA CRL remained pending. Defendants moved to dismiss; the company said it intended to defend the suit and had not accrued a liability because loss was not probable or reasonably estimable.
- Hope Medical Enterprises filed petitions for inter partes review in October 2021 challenging two PEDMARK-related U.S. patents. Fennec said it planned to defend its intellectual property; the outcome and potential effect are uncertain.
- The company reported an accumulated deficit of $175,059 and continuing operating losses and negative operating cash flows. Its going-concern assessment nevertheless stated that available funding was expected to cover at least the next 12 months.
- COVID-19 had not materially affected operations to date, but management identified potential risks to product launch, staffing, supply availability, and asset values.
- Most cash was held in money-market investments and savings accounts; balances substantially exceeded FDIC-insured limits and could lose value. The company also reported exposure to foreign-currency movements and no use of derivative instruments.
Most important facts for investors to verify
- FDA action and any follow-up on the November 27, 2021 PEDMARK PDUFA date, including resolution of the manufacturing deficiencies.
- Availability and conditions for the remaining $15 million of Bridge Bank borrowing, the cash-balance covenant, interest terms, and repayment schedule.
- Cash burn, commercialization spending, and whether management’s stated 12-month funding runway remains supportable.
- Developments in the securities class action and patent-review petitions, including any material financial or commercial consequences.
- Progress on the European marketing authorization application and potential timing or costs of commercialization.