Fennec Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited and presented in U.S. dollars; amounts below are in thousands unless stated otherwise.
Business context
Fennec is a commercial-stage biopharmaceutical company whose lead and only commercial product is PEDMARK (sodium thiosulfate injection), FDA-approved to reduce cisplatin-associated hearing-loss risk in certain pediatric patients. U.S. commercial availability began October 17, 2022. The company is launching the product while pursuing European authorization and relies on a limited number of products and revenue sources.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net PEDMARK sales | $1,677 | $0 |
| Cost of products sold | $95 | $0 |
| Gross profit / gross margin | $1,582 / approximately 94% | $0 |
| Research and development | $4 | $1,437 |
| Selling and marketing | $2,531 | $0 |
| General and administrative | $4,317 | $2,109 |
| Operating loss | $(5,270) | $(3,546) |
| Net loss | $(6,052) | $(3,696) |
| Basic and diluted loss per share | $(0.23) | $(0.14) |
| Net cash used in operating activities | $(5,577) | $(2,856) |
Cash and cash equivalents were $18,390 at March 31, 2023, down from $23,774 at December 31, 2022. Working capital was $17,642, compared with $22,119 at year-end. Current assets were $21,662 and current liabilities $4,020. The company reported a $209,252 accumulated deficit and stockholders’ deficit of $7,339.
Long-term debt had a $25,000 principal balance, plus $481 of accrued payment-in-kind interest, less a $341 debt discount, for a carrying value of $25,140. The notes mature in 2027, bear cash interest at prime plus 4.5% (12.5% as of March 31, 2023), and accrue PIK interest at 3.5%. Up to a further $20,000 may be drawn in additional tranches subject to mutual agreement with the investor. The notes are secured by company assets and are convertible into common shares.
Changes versus prior period
- First-quarter net product sales were $1,677; there were no sales in the prior-year quarter. Gross profit was $1,582.
- Operating expenses rose $3,306 to $6,852. The increase reflected $2,531 of new selling and marketing costs and a $2,208 increase in general and administrative costs, partly offset by a $1,433 reduction in R&D. The filing attributes the R&D decrease in part to pre-approval manufacturing costs previously expensed as R&D.
- Net loss increased $2,356. Interest expense rose to $798, primarily due to additional funded debt and higher rates. Employee stock-based compensation increased to $1,089 from $399.
- Operating cash use increased to $5,577 from $2,856. Cash balances fell by $5,384 during the quarter; financing activities provided $193.
Outlook, risks and notable items
- Management believes cash, product-sale proceeds and the potential remaining $20,000 financing will fund planned activities for at least the next 12 months. The additional financing is not assured because it requires mutual agreement. Management cautions that capital needs are uncertain and additional financing may be needed.
- The European Medicines Agency’s CHMP issued a positive opinion in March 2023 recommending authorization of Pedmarqsi. European Commission review was pending; management expected a decision by early June 2023. The company is pursuing a pediatric-use authorization that could provide up to 10 years of European market protection if approved.
- The company received U.S. Orphan Drug Exclusivity in January 2023, providing seven years of exclusivity from the September 20, 2022 approval date, through September 20, 2029, subject to applicable conditions.
- Patent protection is a material risk. In an April 18, 2023 post-quarter event, the PTAB issued a decision against the sole claim of the in-licensed ’190 patent; reconsideration and appeal deadlines remained open as of the filing. A separate patent review remained pending, with a decision potentially by November 2023. The filing says invalidation of patents could adversely affect protection beyond orphan exclusivity.
- Cipla has challenged certain PEDMARK patents in connection with a generic-product application. Fennec filed an infringement suit in January 2023 and amended its complaint on April 20, 2023, narrowing the asserted patents; the suit was ongoing.
- Two securities class actions described in the filing were closed after dismissal. The filing reports no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
- Management identified no significant subsequent events requiring disclosure. Disclosure controls and procedures were concluded effective at the reasonable-assurance level.
Key facts for investors to verify
- Whether PEDMARK sales and collections grow sufficiently to offset commercialization costs and operating cash use.
- Cash runway assumptions, the availability and terms of any additional Petrichor financing, and the effect of cash interest and potential conversion-related dilution.
- Outcomes of the ’190 and ’363 patent proceedings, the Cipla litigation, and the status of the company’s remaining listed patents and exclusivity.
- European Commission authorization and the commercial and market-protection terms ultimately available in Europe.
- The filing’s cash-flow discussion contains an inconsistency: the cash-flow statement reports operating cash use of $5,577, while an MD&A passage refers to $5,799 for the quarter. The statement reports the clearer financial-statement value; investors should confirm the intended figure.