Filing summary
Entity and period: The supplied filing is Adherex Technologies Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 31, 2014. This does not match the request metadata naming Fennec Pharmaceuticals Inc.; verify the issuer and filing before relying on this summary. Financial amounts below are in U.S. dollars unless indicated otherwise, and financial-statement figures are generally in thousands.
Business context and development
Adherex was a development-stage biopharmaceutical company focused on cancer therapeutics, with no product-sales revenue. Its lead candidates were sodium thiosulfate (STS), being studied to prevent cisplatin-related hearing loss in children, and eniluracil, studied with 5-FU/leucovorin for metastatic breast cancer.
- The Children’s Oncology Group STS Phase III trial completed enrollment of 135 patients in 2012; final efficacy and safety results were expected in the second quarter of 2014.
- The SIOPEL STS Phase III study had enrolled 95 patients; preliminary safety data were expected in the second quarter of 2014.
- Eniluracil Phase II enrollment was completed in 2012. The FDA advised that confirming crossover-arm results would require a much larger study than the company’s proposed small pivotal trial. Adherex said it lacked resources to advance the program and was seeking a partner.
- As of year-end, the company had one full-time employee. Its stated development focus was STS.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $0.597 million | $2.075 million |
| General and administrative expense | $1.334 million | $1.545 million |
| Operating loss | $1.931 million | $3.620 million |
| Net income (loss) | $1.845 million | ($5.163 million) |
| Net cash used in operating activities | $2.210 million | $2.994 million |
- 2013 net income included a $3.777 million non-cash gain on derivative warrants; excluding this gain, the company reported an operating loss of $1.931 million and had no product revenue. The derivative remeasurement does not itself generate cash.
- Cash and cash equivalents were $1.663 million at December 31, 2013, down from $2.303 million a year earlier. The company reported $1.6 million in money-market accounts.
- Current assets were $1.752 million and current liabilities were $3.207 million, including $2.863 million of derivative liabilities. Working capital was negative $1.455 million on the balance-sheet totals; excluding derivative liabilities, the filing reports working capital of $1.408 million.
- There was no long-term debt reported. Stockholders’ deficit was $1.455 million; accumulated deficit was $108.698 million.
- Cash used in operations was partly offset by $1.570 million of net financing cash flow from a November 2013 private placement. The placement issued 4.0 million units for $1.6 million gross proceeds; each unit included one share and one warrant exercisable at $0.50.
- No meaningful operating margin comparison is available because the company had no revenue. Operating expenses fell $1.689 million year over year, primarily due to lower R&D spending as the Eniluracil trial concluded and lower payroll.
Changes, outlook, risks and unusual items
- The 2013 net result improved by $7.008 million from the 2012 net loss, primarily because derivative warrant remeasurement changed from a $1.563 million loss to a $3.777 million gain, alongside reduced operating expenses.
- Management stated that further development of STS or Eniluracil required additional capital, and that the company would pursue financing and strategic alternatives, including collaborations. It warned that without adequate funding it could delay, reduce, or eliminate development programs, pursue a business combination, or shut down some or all operations.
- The independent auditor highlighted substantial doubt about Adherex’s ability to continue as a going concern. The statements were prepared on a going-concern basis and do not include adjustments that might be required if that assumption were inappropriate.
- The company had a material weakness in internal control over financial reporting: inadequate segregation of accounting duties because one full-time individual performed accounting and financial reporting functions. Management also concluded disclosure controls were not effective.
- STS was licensed from OHSU under a new 2013 agreement, with milestone payments, a 2.5% royalty on net sales (reducible to 1.0% under the stated buy-down provision), and a 5% royalty on sublicensing consideration. Eniluracil could trigger substantial GSK milestones and low-double-digit royalties if developed and commercialized.
- Key risks included dependence on external financing and collaborators, clinical and regulatory uncertainty, limited patent protection (method-of-use rather than composition-of-matter patents), competition, potential dilution, and low-liquidity OTC trading. The company reported no material legal proceedings or material off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: the filing identifies Adherex Technologies Inc., not Fennec Pharmaceuticals Inc.
- Review the full audited financial statements and going-concern disclosures, especially cash availability, liabilities, and the timing of required financing.
- Check subsequent clinical-trial results for both STS studies and any later regulatory or partnering developments for eniluracil.
- Assess the non-cash derivative gain and warrant liability separately from operating performance and cash flow.
- Verify the status and terms of the November 2013 financing, outstanding warrants and options, and any proposed warrant exchange, share consolidation, or governance changes.
- Review remediation of the material weakness and whether financial-reporting controls improved after the filing.