Fennec Pharmaceuticals Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; the filing also reports fourth-quarter results. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context
Fennec is a development-stage biopharmaceutical company focused on PEDMARK (sodium thiosulfate), its only clinical-stage product candidate. PEDMARK is being developed to prevent cisplatin-induced hearing loss in children with cancer. The company had no product sales and reported no revenue in 2021.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $170,000 |
| Research and development expense | $4.981 million | $5.105 million |
| General and administrative expense | $12.242 million | $12.950 million |
| Operating loss | $17.223 million | $17.885 million |
| Net loss | $17.346 million | $18.109 million |
| Basic and diluted loss per share | $0.67 | $0.76 |
| Net cash used in operating activities | $14.222 million | $15.595 million |
- Cash and cash equivalents were $21.1 million at year-end, down from $30.344 million. Working capital was $20.733 million, versus $29.070 million.
- Cash flow from financing was $4.978 million, primarily the $5.0 million Bridge Bank term loan draw. Investing cash flow was zero. Net cash decreased $9.244 million.
- Year-end total liabilities were $6.642 million, including $4.988 million of long-term debt net of discount and $1.654 million of current liabilities. The Bridge Bank facility is secured by company assets; interest is prime plus 1%.
- Management stated available resources were expected to fund operations for at least 12 months, while also warning that further financing may be needed. There were no product margins to assess because commercial sales had not begun.
Material changes versus FY2020
- Revenue fell from $170,000 to zero; FY2020 revenue related to the Elion/Processa transaction.
- Net loss narrowed by $763,000, reflecting lower operating expenses and amortization, partly offset by higher interest and other losses.
- Annual R&D expense declined $124,000. G&A fell $708,000 overall, although it included higher legal costs, payroll and non-cash equity compensation.
- Fourth-quarter net loss increased to $4.427 million from $3.238 million. G&A rose $1.391 million year over year, including non-cash equity awards and pre-commercialization activity; R&D fell $700,000.
- Stock-based compensation was approximately $4.0 million in 2021, compared with $2.9 million in 2020. Outstanding options increased to 4.259 million from 2.952 million.
Outlook, commentary and significant risks
- The FDA issued a second Complete Response Letter on November 29, 2021, citing deficiencies at PEDMARK’s third-party manufacturing facility. The filing says no clinical safety or efficacy issue and no additional clinical data requirement were identified in the earlier review; the second CRL likewise concerned manufacturing deficiencies.
- Management planned to resubmit the NDA in the first quarter of 2022. A January 2022 loan amendment extended the NDA approval deadline under the Bridge Bank agreement to September 30, 2022. Failure to obtain approval by then may permit the lender to accelerate the funded balance; the filing also describes NDA resubmission timing as a loan-related default trigger.
- The $20 million facility comprises $5 million funded and two conditional $7.5 million tranches: one tied to FDA approval and one tied to revenue milestones. The conditional amounts were not funded at year-end.
- Two completed Phase 3 studies reported reduced hearing loss with sodium thiosulfate. In SIOPEL 6, hearing loss was 32.7% with cisplatin plus STS versus 63.0% with cisplatin alone among the reported evaluable patients; three-year event-free survival was 82.1% versus 78.8%, and overall survival was 98.2% versus 92.3%. COG ACCL0431 reported hearing loss of 28.6% with STS versus 56.4% in controls. These trial results do not guarantee regulatory approval.
- The company submitted a European marketing authorization application in February 2020; the filing text does not provide a clear status or outcome for that application.
- Key risks include further manufacturing or regulatory delays, dependence on contract manufacturers and single-source materials, limited cash runway and financing needs, and reliance on PEDMARK as the sole product candidate.
- Hope Medical Enterprises sought review of two U.S. patents covering PEDMARK-related rights. The USPTO ordered an ex parte reexamination of one claim in January 2022; outcomes were uncertain. Two securities class actions were disclosed, including a new action filed in February 2022. The company stated it would defend the cases; it recorded no liability for the earlier suit because loss was not considered probable or reasonably estimable.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued an unqualified opinion on the financial statements but was not required to attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the company resubmitted the NDA as planned, resolved the manufacturing deficiencies, and obtained FDA approval by the amended deadline.
- Current cash, operating burn, financing needs, and compliance with Bridge Bank covenants and repayment terms.
- Current status and potential impact of the two patent challenges and the reexamination, as well as the securities litigation.
- Current European application status, commercialization readiness, and any subsequent revenue or reimbursement developments.
- Potential dilution from outstanding options and future financing; year-end options totaled 4.259 million and 26.014 million common shares were outstanding.