Fennec Pharmaceuticals Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unless otherwise noted, figures are in U.S. dollars and millions. Fennec is a commercial-stage specialty pharmaceutical company whose sole product is PEDMARK, approved in the U.S. for reducing cisplatin-associated hearing damage in certain pediatric patients. U.S. commercial sales began in October 2022; the European Commission authorized PEDMARQSI in June 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net product revenue | $6.515 | — | $11.517 | — |
| Gross profit / margin | $6.184 / 94.9% | — | $10.943 / 95.0% | — |
| Operating expenses | $7.201 | $7.899 | $21.896 | $16.454 |
| Operating loss | $(1.017) | $(7.899) | $(10.953) | $(16.454) |
| Net loss | $(1.867) | $(8.089) | $(13.363) | $(16.857) |
| Basic and diluted loss per share | $(0.07) | $(0.31) | $(0.50) | $(0.65) |
For the first nine months, selling and marketing expense was $8.255 million, general and administrative expense $13.617 million, and research and development expense $0.024 million. Cost of products sold was $0.574 million and includes production, distribution and a 1% royalty on net sales.
Liquidity, cash flow and debt
- Cash and cash equivalents were $12.399 million at September 30, 2023, down from $23.774 million at year-end 2022. Working capital was $15.033 million, versus $22.120 million.
- Operating cash use was $12.283 million for the nine months, compared with $11.256 million in 2022. Financing provided $0.908 million; cash decreased by $11.375 million overall. Product sales generated $11.517 million in the period.
- Term debt principal was $25.0 million, with $0.937 million of accrued payment-in-kind interest and a net carrying amount of approximately $25.639 million. The secured convertible notes mature in August 2027, bear cash interest at prime plus 4.5% (12.75% at quarter-end) and PIK interest at 3.5%. The notes are secured by company and subsidiary assets.
- The company may draw up to an additional $20 million under its financing agreement before December 31, 2023, in tranches subject to mutual agreement with the investor. Total liabilities were $29.559 million; stockholders’ deficit was $10.531 million.
Changes, outlook and key risks
- Revenue reflects the first full year-to-date period of commercial sales; there was no comparable product revenue in 2022. Q3 revenue was $6.515 million. Management attributed the lower year-to-date operating loss versus 2022 mainly to product gross profit and reduced R&D expense, partly offset by launch-related selling and marketing costs and higher G&A.
- Interest expense rose to $2.479 million for the nine months from $0.234 million, reflecting the larger Petrichor debt facility and higher rates. G&A increased $0.577 million year over year, while selling and marketing expense was $8.255 million after launch.
- Management believes cash, product-sale proceeds and the potential additional financing will fund planned activities for at least 12 months. The additional financing is conditional, and management cautions that capital needs are uncertain; further funding may be required.
- The company is preparing for a European launch in 2024. No specific revenue or earnings guidance is provided. Management cites potential collaborations and other strategic financing or licensing options.
- Patent challenges remain material: the PTAB invalidated the sole claim of the OHSU-licensed ’190 patent, while it upheld an amended manufacturing claim in the ’363 patent, subject to possible further challenge. CIPLA’s generic-drug patent litigation is ongoing. The company says loss of patent protection could adversely affect its ability to protect PEDMARK beyond regulatory exclusivity.
- The company reports seven years of U.S. orphan-drug exclusivity from September 2022 and up to 10 years of European market protection under PUMA. A prior securities class action is closed; the filing reports no material changes to previously disclosed risk factors.
- Cash holdings include $10.392 million in money market investments; amounts held at financial institutions exceed FDIC-insured limits and could lose value. Revenue estimates depend on discounts, rebates and other allowances, which may require adjustment as commercial experience develops.
Most important facts for investors to verify
- Quarterly and year-to-date PEDMARK sales trends, customer mix, and the durability of the reported gross margin.
- Cash burn and runway, including whether the conditional $20 million financing becomes available and whether additional capital is needed.
- Debt interest burden, PIK accruals, conversion terms, collateral and 2027 maturity obligations.
- Progress and costs of the planned 2024 European launch, and the pace of U.S. commercial adoption.
- Outcomes of the CIPLA litigation and any further action affecting the company’s patent portfolio or market exclusivity.