Fennec Pharmaceuticals Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed February 14, 2020. Unless stated otherwise, financial amounts below are in U.S. dollars.
Business context
Fennec is a clinical-stage biopharmaceutical company focused on PEDMARK (sodium thiosulfate injection), its sole clinical-stage product candidate, intended to prevent cisplatin-induced hearing loss in pediatric cancer patients. The company had no product sales or revenue in 2019 or 2018 and relied on cash and financing capacity to fund development and launch preparation.
Both Phase 3 studies were complete. In SIOPEL 6, hearing loss occurred in 32.7% of patients receiving sodium thiosulfate versus 63.0% receiving cisplatin alone; three-year event-free survival was 82.1% versus 78.8%, and overall survival was 98.2% versus 92.3%, respectively. In COG ACCL0431, hearing loss was 28.6% with sodium thiosulfate versus 56.4% in the control group. These are reported trial results, not proof of regulatory approval or commercial performance.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $5.607 million | $5.008 million |
| General and administrative expense | $7.402 million | $5.401 million |
| Total operating expense | $13.009 million | $10.409 million |
| Net loss | $12.775 million | $9.888 million |
| Basic and diluted loss per share | $0.64 | $0.52 |
| Net cash used in operating activities | $9.060 million | $7.826 million |
Revenue-based margins are not meaningful because the company had no revenue. The annual net loss widened by $2.887 million. Operating expenses rose $2.6 million; G&A increased $2.0 million, including approximately $1.3 million of non-cash expense from extending option terms. R&D rose $0.6 million, primarily for registration-batch manufacturing and regulatory preparation. Stock-based compensation totaled approximately $3.1 million in 2019 versus $2.1 million in 2018.
At December 31, 2019, cash and cash equivalents were $13.650 million, down from $22.781 million a year earlier. Current liabilities were $2.271 million, working capital was $11.613 million, and shareholders’ equity was $11.875 million. The balance sheet reported no funded debt; the $12.5 million Bridge Bank facility was contingent on FDA approval and had not been drawn. The facility bears interest at prime plus 1% if funded, with interest-only payments for the first 18 months and maturity on October 1, 2023. Fennec must obtain NDA approval by September 30, 2020 to access it. The facility includes a warrant for up to 39,130 shares at $6.80 per share.
Management stated that available resources were expected to fund operations for at least 12 months; the financial-statement note described funding for planned activities over 15 to 18 months. The filing also says the company expected cash and the conditional facility to support NDA approval and commencement of commercialization efforts, subject to approval. These estimates depend on spending, timing and financing assumptions.
Material changes and notable items
- Operating cash use increased by $1.234 million year over year, and cash declined by $9.131 million during 2019.
- Quarterly net loss was $3.610 million in Q4 2019 versus $2.984 million in Q4 2018. Q4 2019 R&D expense declined to $1.172 million from $1.723 million, while G&A rose to $2.481 million from $1.382 million, reflecting commercialization preparation and hiring.
- Weighted-average shares were 19.896 million in 2019 versus 18.942 million in 2018. At year-end, 3.088 million options and 39,130 warrants were outstanding; these were excluded from diluted loss per share as anti-dilutive.
- There was no material off-balance-sheet arrangement, no contractual obligation reported in the MD&A, and no legal proceeding disclosed. The filing separately describes milestone and royalty obligations under the OHSU license.
Outlook, risks and contingencies
After year-end, Fennec reported completing its rolling U.S. NDA submission and submitting a European Marketing Authorization Application in February 2020. It targeted a potential U.S. launch in the second half of 2020 and an EU launch in the first half of 2021, each only if approved. These are management targets, not assurances. PEDMARK had FDA Breakthrough Therapy, Fast Track and U.S. Orphan Drug designations; the European pediatric plan had been accepted, but neither designation nor plan guarantees approval.
Key risks include regulatory review or requests for additional data; manufacturing and inspection readiness; dependence on contract manufacturers, collaborators and the OHSU license; limited patent protection, with licensed patents generally expiring in 2021; the need to build commercial capabilities; uncertain market uptake, reimbursement and pricing; and the possibility that cash needs exceed available resources. The company reported an accumulated deficit of $144.031 million and expected continued losses. Any future equity financing could dilute shareholders; the conditional debt facility may not be available if approval is delayed past its deadline.
The independent auditor gave an unmodified opinion that the financial statements fairly present the company’s position and results under U.S. GAAP. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2019; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Current FDA and EMA review status, any review deadlines or information requests, and whether the proposed indication and label match management’s launch assumptions.
- Whether the $12.5 million loan facility was ultimately drawn before its September 30, 2020 approval deadline, and the resulting interest, repayment and security terms.
- Actual cash burn and runway against the filing’s differing 12-month and 15-to-18-month estimates, including post-2019 commercial and manufacturing costs.
- Commercial manufacturing capacity, regulatory inspection readiness, launch spending, reimbursement arrangements and market-access assumptions.
- Patent and exclusivity coverage after 2021, OHSU royalties and milestones, and the potential dilution from outstanding options, warrants or future financing.