Fennec Pharmaceuticals Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Unaudited financial statements are in U.S. dollars; financial amounts below are in thousands unless stated otherwise.
Business context
Fennec is a development-stage biopharmaceutical company with no product revenue. Its primary focus is sodium thiosulfate (STS), being studied to prevent cisplatin-related hearing loss in children. The company also has eniluracil, but reported that it was seeking a partner and had postponed or terminated several development programs because of limited resources.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $88 | $88 | $185 | $192 |
| General and administrative | $250 | $531 | $1,154 | $1,894 |
| Operating loss | ($338) | ($619) | ($1,339) | ($2,086) |
| Net income (loss) | ($123) | $380 | ($119) | ($3,564) |
| Net cash used in operations | ($509) | ($443) | ($1,438) | ($1,231) |
- Cash and cash equivalents were $1,366 at September 30, 2015, down from $2,307 at December 31, 2014. Nine-month financing cash flow was $497, primarily from warrant and option exercises; cash decreased by $941.
- At September 30, total assets were $1,450, total current liabilities were $431, and stockholders’ equity was $1,019. The filing reports no debt. Working capital was $1,112 when excluding derivative liabilities; including all current liabilities, the balance-sheet difference was $1,019.
- Net results were materially affected by noncash derivative remeasurement: a $1,226 gain for the first nine months of 2015 versus a $1,855 loss in 2014. The company reported a $93 derivative liability at quarter-end.
Changes versus the prior comparable periods
- Nine-month operating expenses fell $747, largely because general and administrative costs declined with lower stock-based compensation; R&D remained broadly similar.
- Nine-month net loss narrowed substantially, but this comparison largely reflects the reversal from a derivative loss in 2014 to a derivative gain in 2015. Operating losses remained, and operating cash use increased year over year.
- Shares outstanding increased from 10.593 million at year-end 2014 to 10.939 million at September 30, 2015. The filing also lists 2.594 million warrants and 2.359 million options outstanding at quarter-end.
Outlook, clinical developments and risks
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It needs additional funding through equity, debt, collaborations, licensing or other sources; failure to obtain capital could force it to delay, reduce or stop programs or operations. No specific funding guidance or cash runway estimate is provided.
- STS studies: Enrollment was complete in the SIOPEL 6 and COG ACCL0431 Phase III trials. SIOPEL 6 preliminary end-of-treatment results showed similar or higher tumor response in the STS arm, while hearing outcomes were still to be assessed as patients reached the required age. In COG ACCL0431, preliminary results showed less hearing loss with STS (28.6% versus 56.4%); however, the filing highlighted lower survival in the subgroup with disseminated disease and concern about a possible tumor-protective effect. These reported findings are preliminary and do not establish regulatory approval or commercial success.
- Other risks: The company said it lacks the financial and human resources to complete further Phase III trials independently and depends on collaborators or partners. Product candidates require further development and regulatory review and may not prove safe, effective or commercially viable. TSX listing standards and limited U.S. trading liquidity also present risks.
- Internal controls: Management concluded disclosure controls were not effective, citing two material weaknesses: insufficient segregation of accounting duties and insufficient technical U.S. GAAP accounting expertise. Management said financial constraints limit remediation.
- Other items: The company amended its OHSU license in May 2015 to broaden licensed uses of STS and adjust certain payment terms. Robert Andrade was appointed CFO effective November 12, 2015. No legal proceedings were reported.
Important facts for investors to verify
- Current cash, expected financing needs and whether management has secured funding sufficient to sustain operations.
- Final hearing, survival and safety results from the STS trials, especially findings for patients with disseminated disease, and the timing of data readouts.
- Whether a development or licensing partner is obtained for STS or eniluracil, and the financial terms of any agreement.
- Progress in remediating the two material weaknesses in financial reporting controls.
- Potential dilution from outstanding options and warrants and the company’s ability to maintain its TSX listing.