Fennec Pharmaceuticals Inc. — Q1 2016 Form 10-Q
Business context and period: Unaudited quarter ended March 31, 2016; amounts are U.S. dollars in thousands unless stated otherwise. Fennec is a development-stage biopharmaceutical company focused primarily on sodium thiosulfate (STS) to prevent cisplatin-related hearing loss. It reported no revenue and no product sales.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $47 | $43 |
| General and administrative | $407 | $409 |
| Operating loss | $(454) | $(452) |
| Net loss / income | $(420) | $177 |
| Operating cash flow | $(499) | $(418) |
| Cash and cash equivalents | $545 at Mar. 31 | $942 at Dec. 31, 2015 |
| Total liabilities | $345 | $471 at Dec. 31, 2015 |
| Stockholders’ equity | $243 | $548 at Dec. 31, 2015 |
The 2016 net loss included a $43 non-cash unrealized derivative gain, versus a $625 gain in Q1 2015; the smaller gain was the main reason net results deteriorated year over year despite similar operating expenses. There was no investing cash flow. Financing provided $102 from warrant exercises, and cash declined by $397 during the quarter. The company reported working capital of $282 using its stated calculation, which excludes derivative liabilities; conventional current assets less current liabilities were $243. No debt balance is reported. Operating margins are not meaningful given zero revenue.
Changes, outlook, and material risks
- STS is the company’s lead clinical-stage candidate. Enrollment was complete in the SIOPEL 6 and COG ACCL0431 Phase III trials. SIOPEL 6’s primary hearing-endpoint assessment was expected in the first half of 2016, with final data anticipated in 2017 if the interim endpoint was not met.
- Management stated that the company had an accumulated deficit of $111.953 million and that its financial condition raised substantial doubt about its ability to continue as a going concern. It said additional equity, debt, collaboration, licensing, or other funding would be needed; failure to obtain sufficient capital could force delays, cutbacks, or cessation of operations.
- After quarter-end, Fennec announced a private placement with Sigma Tau for gross proceeds of $5.0 million, subject to closing steps. It also announced an agreement to transfer certain Eniluracil and Adh-1 assets to Elion Oncology for $40.0 million at closing plus a 5% revenue share. The sale remained subject to shareholder approval and other conditions and might not close.
- Clinical evidence presents a key risk: COG preliminary results showed less hearing loss with STS, but lower overall survival in patients with disseminated disease raised concern that STS might protect tumors from chemotherapy. The filing also describes significant development, regulatory, manufacturing, partner-funding, and commercialization uncertainties.
- Disclosure controls were deemed ineffective due to two material weaknesses: insufficient segregation of accounting duties and insufficient technical U.S. GAAP expertise among accounting personnel. Management linked remediation, including hiring, to obtaining additional financing.
- Other risks include potential TSX delisting, limited U.S. trading liquidity and penny-stock restrictions. The company reported no legal proceedings and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether and when the $5.0 million Sigma Tau placement closed, and the resulting share count, ownership, and cash balance.
- Whether the Elion asset sale received shareholder approval, satisfied closing conditions, and generated the stated proceeds and revenue-share rights.
- Updated SIOPEL 6 and COG trial results, particularly hearing outcomes and survival findings by disease extent.
- Cash runway, planned spending, and whether additional funding or partnerships were secured to address the going-concern uncertainty.
- Progress in remediating the two material weaknesses and maintaining TSX listing requirements.