Fennec Pharmaceuticals Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. Amounts are in U.S. dollars unless noted. This annual filing includes fourth-quarter results; it is not a standalone quarterly filing.
Business context and reporting period
Fennec is a commercial-stage biopharmaceutical company whose sole product is PEDMARK (sodium thiosulfate injection). The FDA approved it on September 20, 2022, to reduce cisplatin-associated hearing-loss risk in qualifying pediatric patients with localized, non-metastatic solid tumors. U.S. commercial availability began October 17, 2022. The company markets through its own commercial team and specialty distributors and offers patient access support through Fennec HEARS.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net product sales | $1.535 million | None |
| Cost of product sales | $0.086 million | None |
| Gross profit and gross margin | $1.449 million; approximately 94% | None |
| Research and development | $3.531 million | $4.981 million |
| Selling and marketing | $2.785 million | None |
| General and administrative | $17.722 million | $12.242 million |
| Operating loss | $22.589 million | $17.223 million |
| Net loss | $23.714 million; $0.90 per share | $17.346 million; $0.67 per share |
| Cash used in operating activities | $18.058 million | $14.222 million |
| Cash and cash equivalents at year-end | $23.774 million | $21.100 million |
| Working capital at year-end | $22.120 million | $20.733 million |
| Term debt, principal | $25.0 million | $5.0 million |
All reported FY2022 product sales arose after the U.S. launch in the fourth quarter; fourth-quarter net loss was $6.857 million versus $4.427 million in fourth-quarter 2021. The company reported an accumulated deficit of $203.2 million and shareholders’ deficit of $2.569 million at year-end. Current liabilities were $4.609 million, while total liabilities were $29.508 million. The $25 million of notes are due in 2027; the year-end carrying value of long-term debt, including accrued PIK interest and net of discount, was $24.899 million.
Material changes versus the prior comparable period
- Revenue began with the PEDMARK U.S. launch: net sales were $1.535 million, compared with zero in 2021. Gross-to-net discounts and allowances were $0.234 million.
- Operating expenses rose to $24.038 million from $17.223 million. R&D fell by $1.450 million as activity shifted toward commercialization; selling and marketing added $2.785 million of launch-related spending; G&A increased by $5.480 million, including higher payroll, legal and pre-commercialization costs.
- Net loss increased by $6.368 million. Higher interest expense ($0.978 million versus $0.126 million) reflected the larger debt balance; amortization and unrealized securities losses also rose.
- Operating cash use increased by $3.836 million. Financing provided $20.732 million, principally from the Petrichor notes, partly offset by repayment of the prior $5 million bank loan. Cash increased by $2.674 million year over year.
- Term debt increased from $5 million to $25 million of principal, and year-end shareholders’ equity moved from positive $15.772 million to a deficit of $2.569 million.
Outlook, commentary, risks and contingencies
- Liquidity outlook: Management said available resources—including year-end cash, product-sale proceeds, receivables and up to $20 million of additional Petrichor financing subject to mutual agreement—were expected to fund operations for at least 12 months from the filing. The company expects continuing losses and may need additional capital; no specific revenue, earnings or profitability guidance is provided.
- Debt terms: The secured convertible-note facility is for up to $45 million. $25 million had been funded by year-end, with up to $20 million more available in $10 million tranches by mutual agreement. Cash interest was prime plus 4.5% (11% at December 31, 2022); PIK interest accrues at 3.5%. Notes are secured by company assets and are convertible at stated prices. Further issuance or conversion could dilute shareholders.
- Commercial execution: The company is dependent on one product and a small target population. Sales depend on identifying eligible patients, physician and payer acceptance, coverage and reimbursement, and reliable supply. FY2022 sales were concentrated: Cardinal Health Specialty represented 72% and ASD 16% of product revenue.
- Regulatory and supply risks: The European marketing authorization application remained under EMA review; approval was not assured. Fennec relies on contract manufacturers and has no in-house manufacturing capacity. The filing notes two earlier FDA complete response letters, in 2020 and 2021, related to deficiencies at a third-party manufacturing facility before the eventual 2022 approval.
- Patent and generic matters: PEDMARK received seven-year U.S. orphan-drug exclusivity effective from its September 20, 2022 approval, through September 20, 2029. CIPLA filed an ANDA with Paragraph IV certifications; Fennec sued in January 2023, and the case was ongoing. Hope Medical’s challenges to certain patents were also pending, with decisions expected in May 2023. Outcomes could affect protection against generic competition.
- Other risks and unusual items: Compounded sodium thiosulfate may compete at a lower price. Payor pricing pressure, continuing regulatory obligations, litigation costs, and dependence on external suppliers pose risks. The two securities class actions described in the filing were dismissed with prejudice, with a post-judgment motion in one denied in March 2023; no related liability was recorded at year-end. The auditor issued an unqualified opinion on the financial statements; management assessed internal control over financial reporting as effective, and the auditor was not required to attest to that assessment.
Important facts for investors to verify
- Subsequent-quarter PEDMARK sales, patient uptake, gross-to-net deductions, distributor concentration and product margins.
- Actual cash burn and runway, including whether the remaining Petrichor financing is drawn and the effects of its interest, security and conversion terms.
- EMA review progress and any European approval, launch costs, reimbursement terms or PUMA-related developments.
- Updates and rulings in the CIPLA ANDA litigation and Hope patent challenges, and the continued status and scope of PEDMARK’s patent and exclusivity protection.
- Contract-manufacturer capacity and compliance, inventory needs, and any changes in product supply or quality.
- Potential dilution from convertible notes, outstanding options and warrants; common shares outstanding were 26.361 million at December 31, 2022 and 26.412 million as of March 27, 2023.