Fennec Pharmaceuticals Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Amounts are in U.S. dollars; financial statement amounts are generally in thousands, except per-share data. Fennec is a clinical-stage biopharmaceutical company developing PEDMARK, a sodium thiosulfate formulation intended to prevent cisplatin-related hearing loss in children. The company reported no revenue.
Financial results and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $689 | $225 |
| General and administrative expense | $1,102 | $546 |
| Operating loss | $(1,791) | $(771) |
| Net loss | $(1,568) | $(806) |
| Basic and diluted loss per share | $(0.09) | $(0.06) |
| Net cash used in operating activities | $(1,727) | $(675) |
| Cash and cash equivalents, at period end | $26,719 | $28,260 at Dec. 31, 2017 |
| Working capital | $25,663 | $26,924 at Dec. 31, 2017 |
| Total liabilities | $1,173 | $1,644 at Dec. 31, 2017 |
There was no reported debt balance. Operating expenses increased by $1.02 million year over year, reflecting PEDMARK manufacturing and registration preparation, along with higher stock-based compensation, professional and consulting costs, personnel, advocacy and investor-relations expenses. Net loss included a noncash derivative gain of $167, compared with a noncash loss of $37 in Q1 2017. The derivative instruments were fully extinguished by March 31, 2018. No revenue means profit margins are not meaningful.
Cash declined by $1.541 million during the quarter. Financing activities provided $186 from option and warrant exercises; there were no investing cash flows. Management estimated that period-end cash would fund planned activities for the next 12 to 15 months, while noting capital needs beyond that period are uncertain.
Business developments, outlook and risks
- Management said it planned to pursue regulatory approval for PEDMARK in 2018, using SIOPEL 6 results together with COG ACCL0431 data. In March 2018, PEDMARK received FDA Breakthrough Therapy and Fast Track designations; it also had U.S. Orphan Drug Designation.
- In SIOPEL 6, the filing reports hearing loss in 37% of patients receiving cisplatin plus STS versus 67% receiving cisplatin alone among the first 99 evaluable patients (p=0.0033). Reported three-year overall survival was 98.2% versus 92.3%, respectively; the filing states there was no evidence of tumor protection.
- For COG ACCL0431, reported hearing-loss rates were 28.6% with STS versus 56.4% in controls (p=0.004). These are reported study results, not an indication of regulatory approval or commercial success.
- Fennec had no product revenue and stated that it did not expect significant revenue before regulatory approval or funding-generating collaborations. It may need additional financing; management cautioned that capital may not be available on acceptable terms. Insufficient funding could require delaying, reducing or ending development activities.
- Development, manufacturing, regulatory review and commercialization remain uncertain. The company cited risks including clinical or regulatory setbacks, safety or efficacy concerns, manufacturing and market-acceptance challenges, competition and intellectual-property issues. It reported no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements.
- The filing disclosed two material weaknesses in internal control over financial reporting: inadequate control environment/segregation and monitoring, and insufficient technical accounting expertise for unusual transactions. Management said these weaknesses had not caused material misstatements, but could allow a material misstatement to go undetected. Disclosure controls were deemed not effective.
- The OHSU license entails potential milestone payments and royalties on product sales and sublicensing. Executive severance obligations were disclosed; no legal proceedings were reported.
Most important facts to verify
- Whether PEDMARK regulatory submissions were made as planned, and the subsequent FDA review outcome, timing and requirements.
- Whether available cash and spending supported the stated 12–15-month runway, and the company’s financing plans and terms.
- The underlying clinical-trial data and regulatory relevance of the reported hearing-loss and survival results.
- Progress in remediating the two material weaknesses and whether later filings report effective controls.
- The prior-period net-loss figure: the primary statements and MD&A report Q1 2017 net loss of $806, while the EPS note contains an apparent “$5,806” typographical inconsistency.