Fennec Pharmaceuticals Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars and, unless stated otherwise, in thousands. Fennec is a development-stage biopharmaceutical company focused on PEDMARK, a sodium thiosulfate formulation intended to prevent platinum-related hearing loss in pediatric cancer patients.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1,131 | $800 | $2,568 | $3,216 |
| General and administrative expense | $3,878 | $3,120 | $5,987 | $5,627 |
| Operating loss | $(5,009) | $(3,920) | $(8,555) | $(8,843) |
| Net loss | $(5,072) | $(4,001) | $(8,768) | $(8,734) |
| Net loss per share | $(0.19) | $(0.15) | $(0.34) | $(0.34) |
| Cash used in operating activities | $(3,390) | $(4,426) | $(6,246) | $(8,019) |
With no revenue, gross margin is not applicable. At June 30, cash and cash equivalents were $14,915, down from $21,100 at year-end 2021. Working capital was $12,517, versus $20,733 at December 31, 2021. Total liabilities were $7,027; debt was approximately $5,000 principal, with $1,000 classified as current and $3,990 reported as long-term debt net of discount. The Bridge Bank loan bears interest at prime plus 1% (5.75% at June 30, 2022). Stockholders’ equity was $8,541, and accumulated deficit was $188,254.
Changes versus comparable periods
- Q2 net loss widened by $1,071 year over year, primarily as operating expenses increased $1,089. R&D rose $331 amid regulatory and development work; G&A rose $758, including higher legal and pre-commercialization sales and marketing costs.
- For the first half, operating loss improved by $288, but net loss increased by $34. R&D declined $648, mainly from lower manufacturing and regulatory expenses; G&A increased $360, primarily due to legal expenses.
- Six-month operating cash use improved by $1,773 year over year. Cash nevertheless declined by $6,185 during the first half of 2022; financing provided only $61, mainly from option exercises, compared with $4,968 in the prior-year period.
- Interest expense increased to $115 for the first half from $9, reflecting the Bridge Bank facility. The Processa share investment recorded a $99 unrealized loss in the first half, compared with a $98 gain in 2021.
Outlook, risks and unusual items
- The FDA accepted Fennec’s latest PEDMARK NDA resubmission for review and set a September 23, 2022 target action date. Earlier FDA complete response letters cited deficiencies at the third-party manufacturing facility; the company reported no clinical safety or efficacy issue and no requirement for further clinical data. The European Medicines Agency continued its review of the marketing application.
- Management said existing cash together with funding from the Bridge Bank facility or the August 1, 2022 Petrichor agreement was expected to fund planned activities for at least 12 months, including potential approval and launch preparations. This outlook is dependent on financing availability and regulatory progress; the company expects cash outflows to rise with pre-commercialization and commercialization activity.
- The Bridge Bank facility provides up to $20 million in three conditional term loans: $5 million funded, $7.5 million contingent on U.S. approval, and $7.5 million contingent on reaching $11 million in trailing six-month revenue by December 31, 2022. Failure to achieve the approval event by September 30, 2022 is listed as an event of default. The loan also requires cash of at least three times monthly cash burn.
- Subsequent to quarter-end, Fennec entered into a Petrichor agreement for up to $45 million of secured convertible notes, subject to closing conditions and milestone triggers. The initial $5 million tranche was intended to repay the outstanding Bridge Bank balance; additional funding is contingent on FDA approval and other conditions. The notes are convertible and carry a 2% commitment fee, with warrants also contemplated.
- Two securities class actions concern statements about the manufacturing facility and regulatory status. The Chapman amended complaint was dismissed with prejudice, but the plaintiff sought post-judgment relief. The Fisher action remained ongoing; defendants filed a motion to dismiss in August 2022. Fennec recorded no liability for the Chapman matter, stating a potential loss was not probable or reasonably estimable.
- Hope Medical’s petitions for patent review were instituted for two PEDMARK-related patents, with decisions expected in 2023. The company warned that invalidation could impair its ability to protect the product. Two additional U.S. formulation patents had received notices of allowance, with issuance then expected in the second half of 2022.
- Management identified potential COVID-19 disruption risks but reported no material operational effect to date. Cash held in money-market accounts exceeded FDIC insurance limits and could lose value. Disclosure controls were assessed as effective at the reasonable-assurance level.
Investor verification points
- Verify the FDA’s decision on PEDMARK and the timing and outcome of the European review.
- Confirm whether the Petrichor financing closed, how much was funded, and the resulting conversion, warrant and repayment terms.
- Monitor cash burn, the Bridge Bank cash covenant, debt repayment obligations and the revenue condition for the additional loan tranche.
- Track developments in the Fisher and Chapman litigation and the two patent reviews, including any impact on PEDMARK’s protection.
- Assess whether planned commercialization spending and launch readiness are consistent with available funding and management’s stated liquidity outlook.