Fennec Pharmaceuticals Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; comparisons are with fiscal 2017. The filing was signed March 15, 2019. Fennec is a development-stage biopharmaceutical company focused on PEDMARK, a sodium thiosulfate formulation intended to prevent platinum-related hearing loss in children with cancer.
Financial results and liquidity
| Metric (US$ millions, except per-share data) | 2018 | 2017 |
|---|---|---|
| Revenue | 0 | 0 |
| Research and development expense | 5.008 | 1.936 |
| General and administrative expense | 5.401 | 5.015 |
| Total operating expenses | 10.409 | 6.951 |
| Net loss | 9.888 | 7.046 |
| Basic and diluted loss per share | 0.52 | 0.47 |
| Net cash used in operating activities | 7.826 | 3.641 |
| Cash and cash equivalents at year-end | 22.781 | 28.260 |
| Working capital | 21.313 | 26.924 |
| Total liabilities at year-end | 1.637 | 1.644 |
Gross margin and operating margin are not meaningful because the company had no revenue. No funded debt was reported at December 31, 2018. Accumulated deficit was $131.256 million, and stockholders’ equity was $21.313 million.
Changes versus the prior period
- Net loss widened by $2.842 million, while operating expenses rose by $3.458 million. R&D expense increased by $3.072 million, principally for drug manufacturing, registration batches, and regulatory preparation; G&A increased by $0.386 million.
- Operating cash use increased by $4.185 million. Cash declined by $5.479 million, partly offset by $2.347 million of financing cash inflows, primarily from warrant and option exercises. The 2017 financing comparison included $27.381 million net proceeds from share issuance.
- The 2018 net loss included a $0.167 million non-cash gain from derivative instruments; the comparable 2017 period had a $0.134 million non-cash loss. Derivative liabilities were zero at year-end 2018.
- Fourth-quarter 2018 net loss was $2.984 million versus $2.290 million in fourth-quarter 2017, as quarterly R&D expense increased to $1.723 million from $0.886 million.
Development, outlook, and risks
- Two Phase 3 studies reported reduced cisplatin-associated hearing loss. In SIOPEL 6, hearing loss was reported in 63.0% of cisplatin-only patients versus 32.7% with cisplatin plus STS; three-year event-free survival was 78.8% versus 82.1%, and overall survival was 92.3% versus 98.2%, respectively. The company reported no evidence of tumor protection in that study.
- In COG ACCL0431, hearing loss was 56.4% in the control group versus 28.6% with STS. The filing describes this as a heterogeneous group of pediatric cancers; results from that study and their applicability across tumor types remain relevant to assess.
- Fennec began a rolling U.S. NDA in December 2018 for pediatric patients aged 1 month to under 18 years with localized, non-metastatic solid tumors. It targeted completing the filing in late 2019 to early 2020 and a potential launch in the second half of 2020. These are management targets, not assured outcomes.
- The FDA granted PEDMARK Breakthrough Therapy and Fast Track designations in March 2018, and the product has U.S. Orphan Drug Designation. In August 2018, the EMA’s Pediatric Committee accepted a pediatric investigation plan targeting standard-risk hepatoblastoma; Fennec also reported eligibility to seek a pediatric-use marketing authorization.
- On February 1, 2019, after year-end, Fennec secured a conditional $12.5 million loan facility, available upon NDA approval by September 30, 2020. It bears interest at prime plus 1%, has 18 months of interest-only payments after funding, and matures October 1, 2023. The financing is not cash on hand at the reporting date and depends on approval.
- Management said existing resources were expected to fund planned operations for at least 12 months; elsewhere the filing describes the cash and facility as supporting operations toward NDA approval and commencement of commercialization. It also warns that further financing may be needed and that failure to obtain it could force delays, reductions, or termination of activities.
- Key risks include regulatory review or additional data requirements, manufacturing readiness and reliance on contract manufacturers, commercialization and reimbursement uncertainty, dependence on the OHSU license, and patent protection. Licensed method-of-use patents expire in 2021, and the filing notes such patents may provide less protection than composition-of-matter patents.
- The company had three employees at year-end and relied on contractors. Management reported that previously identified internal-control material weaknesses were remediated in the fourth quarter of 2018; management and the auditor concluded controls were effective at year-end. The auditor issued unqualified opinions on the financial statements and internal control.
Most important facts for investors to verify
- Current FDA review status, NDA filing completeness, approval timing, and whether additional studies or manufacturing information are required.
- Clinical evidence on hearing-loss benefit and survival, including the interpretation and applicability of results across cancer types.
- Cash runway, spending rate, and the exact conditions and availability of the $12.5 million loan facility.
- Commercial manufacturing capacity, launch readiness, addressable patient population, pricing, reimbursement, and commercialization arrangements.
- OHSU license obligations and the scope, enforceability, and duration of patent and regulatory exclusivity protections.