Fennec Pharmaceuticals Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Figures are in U.S. dollars, thousands, except per-share amounts. Fennec is a commercial-stage pharmaceutical company with PEDMARK as its sole commercial product, launched in the U.S. in October 2022 to reduce cisplatin-associated hearing-loss risk in certain pediatric patients.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net PEDMARK sales | $3,325 | $0 | $5,002 | $0 |
| Cost of product sales | $148 | $0 | $243 | $0 |
| Gross profit / gross margin | $3,177 / 95.5% | — | $4,759 / 95.1% | — |
| Operating expenses | $7,843 | $5,009 | $14,695 | $8,555 |
| Operating loss | $(4,666) | $(5,009) | $(9,936) | $(8,555) |
| Net loss | $(5,444) | $(5,072) | $(11,496) | $(8,768) |
| Basic and diluted loss per share | $(0.21) | $(0.19) | $(0.43) | $(0.34) |
Q2 selling and marketing expense was $2,340; six-month expense was $4,871, reflecting commercialization activity. R&D expense fell to $8 in Q2 and $12 for the six months, versus $1,131 and $2,568, respectively, in 2022; the filing attributes much of the comparison to pre-approval manufacturing costs previously expensed as R&D. G&A increased to $5,495 in Q2 and $9,812 for the six months, driven by items including higher stock-based compensation, legal expenses, and increased headcount and wages.
- Cash flow: Six-month operating cash outflow was $9,523, versus $6,246 in 2022. Financing provided $707, mainly from option exercises; net cash decreased $8,816.
- Cash and working capital: Cash and equivalents were $14,958 at June 30, down from $23,774 at December 31, 2022. Working capital was $15,553, down from $22,120.
- Debt: The company had $25,000 of secured convertible notes, plus $707 of accrued PIK interest and $321 of unamortized debt discount; net carrying value was $25,386. Notes mature in August 2027. Cash interest was prime plus 4.5% (12.75% at June 30); PIK interest accrues at 3.5%.
- Equity: Stockholders’ deficit was $9,727 at June 30, compared with $2,569 at year-end 2022. Shares outstanding were 26.509 million at June 30.
Material changes versus prior period
- PEDMARK generated $5,002 of net sales in the first half of 2023; there were no sales in the comparable 2022 period.
- First-half operating expenses rose $6,140, primarily due to selling and marketing costs following launch and higher G&A; lower R&D partly offset the increases. First-half net loss increased by $2,728.
- Interest expense rose $1,508 in the first half, reflecting the larger Petrichor financing and a higher interest-rate environment.
- Cash declined $8,816 during the first half as operating outflows exceeded product-sales and financing inflows.
Outlook, risks and notable items
- Management said cash on hand, product-sale receipts and the possibility of drawing up to a further $20 million under the Petrichor agreement, subject to mutual agreement, were expected to fund planned activities for at least 12 months. The additional financing is not assured; management noted substantial uncertainty in capital needs and that further funding may be required.
- No specific revenue, earnings or other quantitative operating guidance was provided. The company is pursuing collaborations and preparing for commercialization outside the U.S.
- The European Commission authorized PEDMARQSI in June 2023. The filing states it was granted 10 years of European market exclusivity under PUMA. In the U.S., PEDMARK has seven years of orphan-drug exclusivity from September 2022.
- Patent protection is a significant risk: the PTAB’s decision invalidating the sole claim of the OHSU-licensed ’190 patent became effective in June 2023, and the company requested its removal from the FDA Orange Book. An IPR concerning the ’363 patent remained pending, with a decision expected by November 2023. The company reports other listed formulation patents and pending applications.
- CIPLA’s generic-drug patent litigation was ongoing; the company amended its complaint in July 2023 to include the ’793 patent. The two disclosed securities class actions were closed after dismissal, with no appeals filed.
- The company reported an accumulated deficit of $214,696 and negative operating cash flow. It also disclosed that $11,457 of cash was held in money-market investments and that deposits exceeded FDIC-insured limits. Disclosure controls were assessed as effective; no material change in internal control was reported.
- Subsequent to quarter-end, Fennec announced Adrian Haigh’s appointment as COO on August 3, 2023; he stepped down from the board.
Key facts for investors to verify
- Subsequent PEDMARK sales, customer demand, gross margins and the timing and terms of any additional Petrichor financing.
- Cash use and runway relative to management’s at-least-12-month estimate, including the availability of alternative funding if needed.
- Outcomes of CIPLA litigation and the pending ’363 patent IPR, and the scope and enforceability of remaining patent protection.
- European commercialization plans and the practical timing and costs of market entry.
- Product-sales estimates and allowance balances: net sales depend on rebates, chargebacks, discounts and other variable-consideration estimates.