Filing summary
Entity and period: The request identifies Fennec Pharmaceuticals Inc., but the supplied Form 10-Q is for Adherex Technologies Inc. (a development-stage biopharmaceutical company). It covers the quarter and nine months ended September 30, 2012, and was signed November 12, 2012. The financial statements are unaudited and presented in U.S. dollars; amounts below are in thousands unless stated otherwise.
Business context and financial results
Adherex was developing cancer therapeutics, principally Eniluracil and sodium thiosulfate (STS). It reported no revenue and had no products for sale.
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $357 | $1,514 | $439 / $988 |
| General and administrative expense | $273 | $983 | $505 / $1,548 |
| Total operating expense | $630 | $2,497 | $944 / $2,536 |
| Net income (loss) | $(764) | $1,348 | $(3,144) / $1,176 |
| Operating cash flow | Not separately presented for the quarter | $(2,437) | $(2,459) for nine months |
The nine-month 2012 net income included a $3,832 noncash unrealized gain on derivative liabilities; it did not indicate operating profitability. Q3’s net loss included a $139 unrealized derivative loss. The filing does not present a meaningful operating margin because the company had no revenue.
Liquidity, liabilities, and capital
- Cash and cash equivalents were $2,860 at September 30, 2012, down from $5,297 at December 31, 2011. Cash used in operations during the first nine months was $2,437; there were no financing or investing cash flows in that period.
- Current assets were $2,930 and current liabilities $1,646, including a $1,244 derivative liability. Working capital excluding derivative liabilities was $2,528, versus $4,957 at year-end 2011.
- Total liabilities were $1,646; the balance sheet shows no long-term liabilities or conventional debt at period end. Stockholders’ equity was $1,284, compared with a $120 deficiency at year-end 2011.
- Accumulated development-stage deficit was $104,031. The company stated that it would need additional financing through equity, debt, collaborations, licensing, or other sources, and that failure to obtain sufficient capital could force it to curtail operations.
- Contractual commitments disclosed totaled $942: $442 under a clinical-services agreement and up to $500 potentially payable to Oregon Health & Science University upon specified trial milestones. These amounts are contingent or milestone-related as described in the filing.
Material changes, outlook, and risks
- Compared with the first nine months of 2011, R&D expense increased $526, attributed to greater enrollment and activity in the Eniluracil Phase II trial. G&A expense decreased $565, mainly because 2011 included rights-offering costs. Total operating expense was nearly unchanged.
- Management reported 149 Eniluracil Phase II patients enrolled as of November 10, 2012, with enrollment expected to finish in Q4 2012. The trial had enrolled 16 patients during Q3, versus 25 in Q3 2011. Management expected trial results to inform whether further development was warranted.
- The COG STS Phase III trial completed enrollment in Q2 2012; the SIOPEL trial had enrolled 62 patients as of November 10, 2012. These trials were managed by the collaborating organizations, which bore trial costs; Adherex supplied drug, distribution, and safety monitoring.
- The filing states that substantial doubt existed about the company’s ability to continue as a going concern. It had generated negative operating cash flows since inception and warned that insufficient funding could require delays, reductions, or cessation of activities. Management did not provide a clear quantified cash-runway estimate.
- The TSX began a delisting review on September 18, 2012, citing public-shareholder market value below its CAD$2.0 million threshold for 30 consecutive trading days. The company had up to 120 days to regain compliance; reported public-shareholder market value was approximately CAD$2.3 million at September 30. Continued listing was not assured.
- Disclosure controls were deemed ineffective due to two material weaknesses: insufficient segregation of accounting duties and insufficient technical accounting personnel. The filing said remediation depended in part on obtaining additional financial resources.
- Derivative warrant liabilities were remeasured using a Black-Scholes model and are sensitive to assumptions including share-price volatility and currency. The $3,832 nine-month gain was noncash; the company reported no cash-flow effect until warrant exercise.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for Adherex Technologies Inc., not Fennec Pharmaceuticals Inc.
- Review subsequent financing, liquidity, and going-concern developments; the filing does not establish a precise runway.
- Check subsequent enrollment, trial results, and development decisions for Eniluracil and STS, including collaborator commitments.
- Verify the outcome of the TSX delisting review and any change in listing or trading liquidity.
- Assess the status of the two internal-control material weaknesses and the contingent clinical and licensing obligations.