Filing summary
Entity and period: The supplied filing is Adherex Technologies Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013, not a filing under the requested company name, Fennec Pharmaceuticals Inc. The company describes itself as a development-stage biopharmaceutical company. Financial amounts below are in U.S. dollars, generally thousands, unless noted.
Business context and operating outlook
Adherex had no product revenue and was developing cancer-treatment candidates, principally sodium thiosulfate (STS) and eniluracil. The company’s near-term prospects depended heavily on Phase III STS trial results and obtaining financing or a strategic partner.
- Children’s Oncology Group (COG) Phase III STS trial enrollment was complete; management expected final efficacy and safety data in the third quarter of 2013. If results were convincing, Adherex planned to discuss a New Drug Application with the FDA.
- The SIOPEL STS trial had enrolled 78 patients as of August 10, 2013. The filing says the collaborating groups managed and funded the Phase III trials; Adherex supplied drug, distribution, and safety monitoring.
- Adherex completed enrollment in its Phase II eniluracil trial in December 2012. At a May 2013 FDA meeting, the FDA strongly recommended considering larger trial designs than the small pivotal study proposed by the company. Management intended to seek a partner and consider indications beyond metastatic breast cancer.
Financial performance and position
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $554 | $732 | $860; $1,157 |
| General and administrative expense | $373 | $732 | $390; $710 |
| Total operating expenses | $927 | $1,464 | $1,250; $1,867 |
| Operating loss | $(927) | $(1,464) | $(1,250); $(1,867) |
| Net income (loss) | $6,607 | $2,499 | $(602); $2,112 |
| Net income (loss) per share | $0.26 | $0.10 | $(0.02); $0.08 |
| Net cash used in operating activities | $(889) | $(1,296) | $(1,133); $(1,711) |
The reported profits were driven by unrealized, non-cash derivative gains: $7,535 in the quarter and $3,962 for the six months. Excluding those gains, the company continued to have operating losses; the filing does not present a separately defined adjusted earnings measure. Lower R&D spending reflected the wind-down of the eniluracil trial. No revenue or gross margin was reported.
- At June 30, 2013, cash and cash equivalents were $1,007, down from $2,303 at December 31, 2012. Current assets totaled $1,030; current liabilities totaled $3,459, including $2,678 of derivative liabilities. Working capital excluding derivative liabilities was $249, versus $1,683 at year-end 2012.
- Total liabilities were $3,459 and the balance sheet reported stockholders’ equity deficiency of $2,429. No long-term liabilities or conventional borrowings were reported on the balance sheet.
- Accounts payable was $716 and accrued liabilities were $65. On August 1, 2013, the company settled $490 of accounts payable for $230; this subsequent event was not reflected in the June 30 statements.
- Cash used in investing and financing activities was zero in the first half of 2013. The filing does not provide a formal cash-runway estimate.
Changes, risks, and unusual items
- Six-month operating expenses declined $403 year over year, with R&D down $425, primarily due to completion of eniluracil trial enrollment. The six-month net income increased by $387, while derivative gains were nearly unchanged year over year.
- Quarterly net income swung from a $602 loss in 2012 to $6,607 income in 2013, principally because the quarterly unrealized derivative gain rose to $7,535 from $645. The warrants are remeasured using a Black-Scholes model and changes in value do not affect cash unless exercised.
- Management stated that substantial doubt existed about the company’s ability to continue as a going concern. It expected to operate through final COG STS results, then anticipated in Q3 2013, and said additional funding would be needed through equity, debt, collaborations, licensing, or other sources. Failure to obtain funds could force delays, reductions, a wind-down, or closure.
- Material weakness in internal control over financial reporting remained: limited staffing prevented adequate segregation of accounting duties. Management said additional accounting expertise had helped but had not eliminated the deficiency. Disclosure controls were assessed as not effective.
- Other disclosed risks included uncertain clinical-trial outcomes and timing, reliance on collaborators, inability to secure a partner or acceptable financing, regulatory and commercialization risk, possible dilution, and potential loss of the TSX listing. The TSX had completed a delisting review in January 2013 and determined the company met continued-listing requirements at that time.
- The company reported no legal proceedings and no material commitments at June 30, 2013. The prior OHSU license was replaced in February 2013; under the new STS license, up to $100 may be payable upon first commercial sale, with royalties contingent on sales.
Most important facts for investors to verify
- Confirm the issuer identity: the provided filing names Adherex Technologies Inc., whereas the request identifies Fennec Pharmaceuticals Inc.
- Review final COG STS Phase III efficacy and safety results, and the status and enrollment of the SIOPEL trial.
- Assess available financing, subsequent cash use, and whether the company secured funding or a strategic partner; reported cash was $1,007 against first-half operating cash use of $1,296.
- Distinguish operating performance from non-cash derivative remeasurement gains, including the assumptions used to value the warrants.
- Confirm the accounting and cash impact of the August 1 payable settlement, and investigate the continuing material weakness and going-concern disclosure.
- Reconcile the balance sheet’s reported $2,429 stockholders’ equity deficiency with the MD&A table, which appears to show the amount without parentheses.