Fennec Pharmaceuticals Inc. — Form 10-Q summary
Reporting period: Quarter and six months ended June 30, 2016. Unless stated otherwise, financial amounts are in U.S. dollars, thousands. Fennec is a clinical-stage biopharmaceutical company developing sodium thiosulfate (STS) to prevent cisplatin-related hearing loss in children; it reported no revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $139 | $186 | $54 and $97, respectively |
| General and administrative expense | $568 | $975 | $495 and $904, respectively |
| Operating loss | $(707) | $(1,161) | $(549) and $(1,001), respectively |
| Net income (loss) | $(724) | $(1,144) | $(173) and $4, respectively |
| Net loss per share, basic and diluted | $(0.06) | $(0.10) | $(0.02) and $0.00, respectively |
- At June 30, cash and cash equivalents were $5,081, compared with $942 at December 31, 2015. Total assets were $5,104; total liabilities were $451, including $56 of derivative liabilities. The filing reports no debt balance.
- Operating cash use was $470 for the quarter and $969 for the half year, versus $511 and $929 in 2015. Financing provided $5,006 and $5,108, respectively, principally from a $5,000 equity financing. No investing cash flows were reported.
- The financing increased issued shares to 13.643 million at June 30 from 10.940 million at year-end. The filing reports 13,642,567 shares outstanding as of August 12, 2016.
- Accumulated deficit was $112,677 and stockholders’ equity was $4,653. No profit margin is meaningful given zero revenue.
Changes versus prior periods
- Six-month operating expenses rose $160 to $1,161: R&D increased $89 as STS development and preparation for a compassionate-use program advanced; G&A increased $71, primarily due to equity-based compensation.
- The six-month result shifted from $4 net income in 2015 to a $1,144 net loss in 2016. Prior-period results included a $1,010 non-cash derivative gain, compared with a $26 gain in 2016. For the second quarter, derivative remeasurement was a $17 loss versus a $385 gain in 2015.
- Cash rose by $4,139 during the first half, primarily because of the $5,000 equity financing and proceeds from warrant and option exercises, partly offset by operating cash use.
Business outlook, clinical developments and risks
- STS is the company’s lead clinical-stage candidate. Enrollment was complete in both Phase III studies, SIOPEL 6 and COG ACCL0431. The company reported that SIOPEL 6’s final audiology primary-endpoint readout was expected in 2017.
- Preliminary SIOPEL 6 results presented in 2016 were described as encouraging for hearing outcomes; reported tumor response and survival measures showed no evidence of tumor protection in that study’s interim results. The filing cautions that follow-up and final audiology results were pending.
- COG ACCL0431 showed less hearing loss with STS (28.6% versus 56.4% in the evaluable primary-endpoint population). However, the filing reports lower overall survival in the STS arm among patients with disseminated disease (55.9% versus 88.1%; p=0.011), raising concern about a possible tumor-protective effect in that subgroup. The localized-disease analysis did not show lower survival with STS. These findings are preliminary and require careful interpretation.
- Management said it is focused on STS, including manufacturing for a compassionate-use program, and is pursuing strategic alternatives such as partnerships. The filing gives no specific financial guidance or quantified runway estimate.
- Management and the auditors’ going-concern disclosures state that substantial doubt exists about the company’s ability to continue as a going concern. The company expects to need further financing; unavailable or unacceptable financing could force it to delay or reduce development, pursue a business combination, or cease operations.
- Management concluded disclosure controls were ineffective due to two material weaknesses: inadequate segregation of accounting duties and insufficient technical U.S. GAAP expertise among accounting personnel. It said limited financial resources constrain hiring.
- Other risks include dependence on collaborators for clinical development, additional regulatory review and trials, uncertain product commercialization, potential dilution from future financing, and possible loss of TSX listing. No legal proceedings were reported. The OHSU license and executive severance obligations are disclosed; the office lease is terminable on 30 days’ notice.
Important facts for investors to verify
- Timing and complete results of SIOPEL 6, particularly final hearing outcomes and survival follow-up.
- Clinical and regulatory interpretation of the COG ACCL0431 survival signal in patients with disseminated disease.
- Cash burn, financing needs, and the company’s ability to obtain capital or a development partner before funds are depleted.
- Progress and cost of the compassionate-use program and STS manufacturing plans.
- Remediation of the disclosed material weaknesses and any subsequent changes in financial reporting controls.
- Share and warrant dilution, and the status of exchange-listing requirements.