Fennec Pharmaceuticals Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Dollar amounts are in U.S. dollars; financial-statement amounts are in thousands unless noted.
Business context
Fennec is a development-stage biopharmaceutical company focused on PEDMARK, a sodium thiosulfate formulation intended to prevent cisplatin-related hearing loss in pediatric cancer patients. The company reported no product revenue and was preparing for commercialization when the FDA issued a Complete Response Letter (CRL) on August 10, 2020. The cited issue concerned deficiencies identified during inspection of the third-party drug-product manufacturer, not clinical safety or efficacy; the FDA did not require additional clinical data.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.368m | $0.795m | $3.882m | $4.435m |
| General and administrative expense | $4.491m | $1.068m | $10.657m | $4.921m |
| Operating loss | $5.859m | $1.863m | $14.539m | $9.356m |
| Net loss | $6.200m | $1.809m | $14.871m | $9.165m |
| Basic and diluted loss per share | $0.24 | $0.09 | $0.64 | $0.46 |
| Cash used in operating activities | $5.446m | $2.235m | $12.311m | $7.470m |
At September 30, 2020, cash and cash equivalents were $33.166m, versus $13.650m at December 31, 2019. Current assets were $34.070m, current liabilities $2.885m, and working capital $31.185m. Total assets were $34.070m and stockholders’ equity was $31.185m. The balance sheet reported no funded debt. The contingent Bridge Bank facility had not been funded.
There was no gross profit or operating margin to report because the company had no revenue. The nine-month financing cash inflow was $31.827m; operating activities used $12.311m. No investing cash flows were reported. Common shares outstanding increased to 25.810m from 19.896m at year-end 2019.
Changes versus comparable periods
- Q3 net loss increased by $4.391m year over year; the nine-month net loss increased by $5.706m.
- Q3 general and administrative expense rose by $3.423m, which management attributed mainly to pre-commercialization work, non-cash equity compensation and added headcount. For the nine-month period, management cited approximately $4.6m higher sales and marketing expense, $0.6m higher salary and benefits, and $0.5m higher legal, consulting and investor-relations costs.
- Nine-month R&D expense declined by $0.553m as resources shifted toward pre-commercialization and launch preparation. Q3 R&D expense nevertheless increased by $0.573m year over year, reflecting increased activity related to the FDA CRL and regulatory work.
- Q3 included $0.355m of non-cash amortization expense, compared with $0.017m a year earlier. The company fully amortized the remaining deferred costs associated with the Bridge Bank facility after concluding the funding conditions were unlikely to be met on the expected schedule.
- Cash increased primarily because of the May 2020 share offering. The filing describes approximately $34.1m of gross proceeds and $31.967m net proceeds in MD&A, while one note reverses those labels; reported share-issuance proceeds in equity were $31.967m.
Outlook, risks and contingencies
- Management planned to work with the manufacturer and FDA to resolve the manufacturing deficiencies and resubmit the PEDMARK NDA as quickly as possible. The company did not expect FDA approval by December 31, 2020.
- The amended Bridge Bank facility totals up to $18m: $12.5m subject to U.S. NDA approval by the applicable deadline and $5.5m subject to a 2021 revenue event. Neither loan had been funded; Fennec was negotiating extensions and believed the delay could prevent access to both tranches.
- Management said the September 30 cash balance was expected to fund planned activities for at least the next 12 months. It also warned that additional capital might be needed thereafter and could be unavailable or available only on unfavorable terms, potentially requiring delays, reductions or cessation of activities.
- On October 30, the company entered into an at-the-market sales agreement and filed a shelf registration allowing offerings of up to $90m; the registration became effective November 10. No ATM sales had occurred as of the filing.
- A putative securities class action filed September 2 alleges misleading statements or omissions before the CRL. The company said it considers the suit without merit and intends to defend it; no liability was recorded because a loss was not considered probable or reasonably estimable at the time.
- Other material risks include dependence on a single lead candidate and third-party manufacturing, regulatory and commercialization uncertainty, potential litigation costs, and possible COVID-19 disruptions. The company reported no material COVID-19 operational effect to date.
Key facts for investors to verify
- Progress and timing of corrective actions at the manufacturing facility, FDA re-inspection and NDA resubmission.
- Whether Bridge Bank extends the facility and whether either contingent loan becomes available.
- Cash use, updated runway assumptions and any ATM or other financing activity.
- The offering-proceeds discrepancy in the filing’s narrative and the status and potential cost of the securities litigation.
- Commercialization costs and execution plans if PEDMARK receives regulatory approval, including European regulatory progress.