Fennec Pharmaceuticals Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial amounts below are in U.S. dollars, in thousands, except per-share data. The filing was signed August 5, 2020.
Business context and reporting period
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 revenue in Q2 or the first half of 2020.
The FDA accepted PEDMARK’s NDA for Priority Review and set an August 10, 2020 target action date. Fennec was targeting a U.S. launch in the second half of 2020, subject to approval. It also submitted a European marketing authorization application in February 2020. The filing describes positive results from two Phase 3 studies, including reduced hearing loss in treated patients.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1,121 | $1,969 | $2,514 | $3,640 |
| General and administrative | $3,724 | $2,844 | $6,166 | $3,853 |
| Operating loss | $(4,845) | $(4,813) | $(8,680) | $(7,493) |
| Net loss | $(4,845) | $(4,730) | $(8,671) | $(7,356) |
| Basic and diluted loss per share | $(0.21) | $(0.24) | $(0.40) | $(0.37) |
| Cash used in operating activities | $(3,116) | $(2,756) | $(6,865) | $(5,235) |
Margins are not meaningful because the company had no revenue. At June 30, cash and cash equivalents were $38,729, versus $13,650 at December 31, 2019; working capital was $35,709, versus $11,613. Current liabilities were $3,190, and stockholders’ equity was $36,126. The accumulated deficit was $152,702. The filing reports no funded debt balance on the balance sheet.
Financing activities provided $31,944 in the first half, principally from a May public offering that raised approximately $34,100 gross and $31,967 net of issuance costs. The offering included 5.46 million shares, increasing shares outstanding from 19.896 million at year-end to 25.356 million at June 30. The company had 3.563 million options and 39 thousand warrants outstanding at period-end.
Changes versus prior comparable periods
- Q2 operating loss increased $32 year over year; six-month operating loss increased $1,187. Six-month net loss increased $1,315.
- R&D expense fell $848 in Q2 and $1,126 for the first half as activity shifted toward pre-commercialization and launch preparation.
- G&A expense rose $880 in Q2 and $2,313 for the first half, reflecting commercialization preparation, sales and marketing activity, and added headcount. Management reported a $3.1 million increase in sales and marketing costs for the first half.
- Operating cash use increased $360 in Q2 and $1,630 for the first half. The filing attributes higher outlays to PEDMARK pre-commercialization and regulatory submission activity.
- Cash increased substantially from year-end following the share offering; the increase was partly offset by operating expenditures.
Outlook, risks, and contingencies
- Management said cash on hand plus the Bridge Bank facility was expected to fund planned activities for at least 20 months, including NDA approval and the anticipated U.S. launch. It cautioned that capital needs are uncertain and additional funding may be required.
- The amended Bridge Bank facility provides for up to $18 million in conditional term loans: $12.5 million upon U.S. NDA approval and $5.5 million upon a revenue event in 2021. The interest-only period may extend from 18 to 24 months if specified conditions are met. These proceeds were not reported as cash or debt on the June 30 balance sheet.
- COVID-19 had not materially affected operations to date, according to the company, but could disrupt product launch, staffing, supplies, regulatory work, third parties, and access to capital.
- The OHSU license involves milestone payments and royalties on product sales and sublicensing; the filing does not quantify future amounts due. Executive severance obligations and operating lease commitments are also disclosed.
- Fennec reported no legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2020.
Most important facts for investors to verify
- Whether the FDA acted by the August 10, 2020 PDUFA target date, and the resulting approval status and launch timing.
- Whether the conditional Bridge Bank loan tranches become available, and the associated fees, warrants, interest, and repayment terms.
- Whether cash use, pre-commercialization costs, and hiring remain consistent with management’s stated runway estimate.
- Potential dilution from the May share issuance and outstanding options, as well as any future equity financing.
- Regulatory progress in Europe and any COVID-19-related effects on commercialization, supply, or regulatory timelines.