Fennec Pharmaceuticals Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts are in U.S. dollars and, unless stated otherwise, in thousands. Fennec is a clinical-stage biopharmaceutical company developing PEDMARK, a sodium thiosulfate formulation intended to prevent platinum-induced hearing loss in pediatric cancer patients. It had no revenue in the quarter.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $1,437 | $2,416 | Down $979 |
| General and administrative expense | $2,109 | $2,507 | Down $398 |
| Operating loss | $(3,546) | $(4,923) | Improved $1,377 |
| Net loss | $(3,696) | $(4,733) | Improved $1,037 |
| Basic and diluted loss per share | $(0.14) | $(0.18) | Improved $0.04 |
| Cash used in operating activities | $(2,856) | $(3,593) | Use decreased $737 |
Margins are not meaningful because the company reported no revenue. The smaller operating loss reflected lower R&D spending as activity shifted toward pre-commercialization, and lower G&A expense as certain commercialization-related costs incurred in 2021 did not recur. Net loss also included a $91 unrealized loss on Processa shares, compared with a $182 unrealized gain in Q1 2021, and higher interest and amortization expense.
Cash and cash equivalents were $18,259 at March 31, 2022, down from $21,100 at December 31, 2021. Working capital was $16,992, compared with $20,733 at year-end. Total assets were $19,149 and stockholders’ equity was $12,524. Accumulated deficit was $183,182.
Term-loan debt was $5,000 gross: $500 was classified as current and $4,500 as long-term, with a $11 unamortized debt discount. The company had drawn the $5,000 Term Loan A. The facility also provides for a conditional $7,500 Term Loan B upon U.S. FDA approval and a conditional $7,500 Term Loan C upon achieving trailing six-month consolidated revenue of $11,000 by December 31, 2022.
Business developments, outlook and risks
- Fennec resubmitted the PEDMARK NDA on March 24, 2022; the FDA accepted the resubmission and set a September 23, 2022 PDUFA action date, announced April 27. The filing states that the prior CRLs concerned deficiencies at the third-party manufacturing facility, not clinical safety or efficacy, and that no further clinical data were required. Approval remains uncertain.
- The European Medicines Agency continued its review of Fennec’s marketing authorization application. Management said current cash and the Bridge Bank facility were expected to fund planned activities for at least the next 12 months, including potential U.S. approval and initial launch preparations. The company expects cash outflows to rise with pre-commercialization and commercialization activity. It cautioned that additional capital may be needed and may not be available on acceptable terms.
- The loan agreement requires cash of at least three times monthly cash burn; failure to meet the requirement may allow the bank to call the outstanding loan. Failure to achieve the specified Approval Event by September 30, 2022 is also listed as an event of default.
- Hope Medical’s IPR petition against the ’190 patent was instituted by the PTAB on May 9, 2022; a decision is expected in May 2023. The PTAB was also considering whether to institute a separate challenge to the ’363 patent. Fennec said invalidation could impair its ability to protect PEDMARK. Two additional formulation patents had received Notices of Allowance, with issuance expected in mid-2022.
- Two securities class actions relate to alleged disclosures about the PEDMARK manufacturing facility. The earlier Chapman complaint was dismissed with prejudice on March 2, 2022, but the plaintiff sought post-judgment relief. The Fisher action was filed in February 2022. Fennec disputes the claims; it recorded no liability for Chapman because a loss was not considered probable or reasonably estimable. Outcomes and potential exposure are uncertain.
- Management reported no material COVID-19 operational impact to date, but noted possible future disruption to launch activity, staffing, supplies and asset values. Money-market holdings exceeded FDIC-insured limits, and the company had foreign-currency exposure without derivative hedges.
- No quantified revenue or earnings guidance was provided. The company reported no material changes to previously disclosed risk factors and said disclosure controls and procedures were effective at the reasonable assurance level.
Key facts for investors to verify
- FDA review progress and the September 23, 2022 PDUFA date, including resolution of manufacturing-facility issues.
- Cash burn, the asserted 12-month funding runway, access conditions for undrawn loan tranches and compliance with the cash covenant.
- Whether the company achieves the revenue condition for Term Loan C by December 31, 2022.
- Developments in the Chapman and Fisher litigation and the PTAB proceedings concerning the ’190 and ’363 patents.
- Timing and cost of potential U.S. commercialization and the status of the European marketing authorization review.