Fennec Pharmaceuticals Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unless otherwise noted, financial amounts are in U.S. dollars, thousands. Fennec is a clinical-stage biopharmaceutical company developing PEDMARK, a sodium thiosulfate formulation intended to prevent cisplatin-related hearing loss in children.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $492 | $112 | $1,050 | $298 |
| General and administrative expense | $1,694 | $452 | $3,386 | $1,427 |
| Operating loss | $(2,186) | $(564) | $(4,436) | $(1,725) |
| Net loss | $(2,352) | $(502) | $(4,756) | $(1,646) |
| Operating cash used | $(958) | $(544) | $(2,321) | $(1,513) |
- At September 30, cash and cash equivalents were $9,688, total assets $9,888, total liabilities $1,030, and stockholders’ equity $8,858. The filing reports no debt.
- Cash increased $5,762 in the first nine months, primarily reflecting $7,571 net proceeds from a May equity financing and $512 from option and warrant exercises, partly offset by operating cash use. Investing cash flows were zero.
- Current liabilities included $373 of derivative liabilities. Working capital was $9,231 using management’s measure, which excludes derivative liabilities; standard current assets less total current liabilities equals $8,858.
- No meaningful revenue margins are available because the company had no revenue. Stock-based compensation increased materially and was a substantial noncash component of expenses.
Changes and notable items
- Compared with the prior-year periods, Q3 operating expenses rose $1,622 and nine-month expenses rose $2,711. Management attributed the increases mainly to PEDMARK manufacturing and registration-batch preparation, and higher equity compensation in general and administrative expense.
- Net loss widened to $2,352 in Q3 from $502 and to $4,756 for nine months from $1,646. Derivative remeasurement produced noncash losses of $183 in Q3 and $340 for nine months, versus gains in the comparable 2016 periods.
- Shares outstanding rose to 15.857 million from 13.643 million at year-end 2016, reflecting the financing and exercises. The company began trading on Nasdaq under FENC on September 13, 2017.
- The statement of operations displays nine-month 2017 loss per share as positive $0.32, inconsistent with net loss and other filing tables. The notes and quarterly data report a loss per share of $(0.32); investors should verify the reported figure.
Business outlook, risks, and contingencies
- Management said available cash should meet requirements through and beyond the current fiscal year, but the filing states that substantial doubt exists about the company’s ability to continue as a going concern and that additional funding will be required. Failure to obtain financing could force delays, reductions, or termination of development activity, a business combination, or a shutdown.
- Management planned to pursue regulatory approval for PEDMARK in 2018, drawing on SIOPEL 6 results and COG ACCL0431 data. SIOPEL 6 reported hearing loss in 37% of patients receiving cisplatin plus STS versus 67% with cisplatin alone; three-year event-free survival was 82.1% versus 78.8%, and overall survival was 98.2% versus 92.3%. COG ACCL0431 reported hearing loss of 28.6% with STS versus 56.4% in controls. These are trial findings, not evidence of regulatory approval or commercial revenue.
- The company reported two material weaknesses in internal control over financial reporting: inadequate segregation and monitoring of controls, and insufficient technical accounting expertise for complex transactions. Management said these had not caused a material misstatement, but disclosure controls were deemed ineffective.
- Risk factors include clinical and regulatory uncertainty, manufacturing and commercialization risks, and dependence on future financing. No material change to previously disclosed risk factors was identified. The filing reported no legal proceedings.
- After quarter-end, the company registered an at-the-market offering program of up to $90 million and stated that no shares had been sold under it as of the filing date. The filing’s stated effective date for that registration appears inconsistent with its described October 2017 filing; verify the registration record.
Key facts for investors to verify
- Current cash runway assumptions, expected spending, and timing and terms of additional financing.
- Regulatory plans, trial data, and the path and timing to a PEDMARK approval decision.
- The inconsistent nine-month 2017 loss-per-share presentation.
- Status and remediation of the two material weaknesses, and the ATM registration’s effective date and any subsequent sales.