Fennec Pharmaceuticals Inc. — Q1 2017 Form 10-Q
Business and period: Unaudited quarter ended March 31, 2017; amounts below are in U.S. dollars, in thousands, except per-share data. Fennec is a development-stage biopharmaceutical company focused on sodium thiosulfate (STS) to prevent cisplatin-related hearing loss in children. It reported no product revenue.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparator |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $225 | $47 |
| General and administrative expense | $546 | $407 |
| Operating loss | $(771) | $(454) |
| Net loss | $(806) | $(420) |
| Basic and diluted loss per share | $(0.06) | $(0.04) |
| Cash used in operating activities | $(675) | $(499) |
| Cash and cash equivalents, quarter-end | $3,251 | $3,926 at Dec. 31, 2016 |
At March 31, 2017, total assets were $3,288, total liabilities $427, and stockholders’ equity $2,861. Current liabilities included $224 of accounts payable, $132 of accrued liabilities, and $71 of derivative liabilities. The filing presents no borrowings or debt balance. Reported working capital was $2,932, calculated excluding derivative liabilities. No investing cash flow or financing proceeds were reported for the quarter. The company had 13.643 million shares outstanding at quarter-end.
No operating margins are meaningful because the company had no revenue. The net loss widened by $386 year over year as operating expenses rose by $317 and derivative remeasurement shifted from a $43 gain to a $37 loss. R&D expense increased primarily for drug manufacturing and preparation of registration batches ahead of anticipated SIOPEL 6 results. G&A increased with compensation, travel, regulatory consulting, and non-cash equity compensation.
Development, outlook, and risks
- STS is the company’s lead clinical-stage candidate. Enrollment was complete in the Phase III SIOPEL 6 and COG ACCL0431 studies. Fennec said the SIOPEL 6 hearing-outcome readout was expected in Q4 2017.
- Company-reported COG ACCL0431 results showed hearing loss in 28.6% of STS-treated evaluable patients versus 56.4% of controls (p=0.00022). In all 126 enrolled eligible patients, reported event-free survival was 54% versus 64% and overall survival was 70% versus 87%; the filing reports p=0.36 and p=0.07, respectively. A post hoc disseminated-disease subgroup showed lower reported survival with STS; this is an important potential safety and efficacy concern to assess alongside the full evidence.
- Interim SIOPEL 6 results were described as showing no evidence of tumor protection and encouraging hearing results among the first 68 patients with qualifying audiometry. Final efficacy results remained pending.
- Management said additional funding would be required through equity, debt, collaborations, licensing, or other sources, and it continued to pursue strategic alternatives. The company warned that insufficient financing could force it to delay, reduce, or stop development or cease operations. It disclosed substantial doubt about its ability to continue as a going concern.
- The company reported no revenue from product sales and no expectation of significant revenue before regulatory approval or a funded collaboration. STS still requires further regulatory review; timing and costs to complete development and potential commercialization were not estimable.
- Disclosure controls were deemed ineffective because of two material weaknesses: inadequate segregation of duties and control monitoring, and insufficient technical accounting expertise for unusual transactions. Management said these weaknesses had not caused a material misstatement of the reported financial statements.
- Other disclosed items include $97 of Q1 stock-option expense and a $71 derivative liability for contractor options priced in Canadian dollars. The OHSU STS license and executive severance arrangements are also described as commitments or contingencies.
Investor verification priorities
- Review the complete SIOPEL 6 readout and its hearing, survival, and safety results when available; compare these with the COG findings, particularly the disseminated-disease subgroup.
- Confirm the company’s financing position, funding needs, and ability to continue operations, given the going-concern warning and quarterly operating cash outflow.
- Assess regulatory requirements, manufacturing readiness, and the resources needed for further trials and commercialization.
- Track remediation of the two internal-control material weaknesses and any subsequent reporting implications.
- Verify derivative valuations, share dilution potential from outstanding options and warrants, and relevant OHSU license obligations.