Fennec Pharmaceuticals Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise. Fennec is a clinical-stage biopharmaceutical company focused on PEDMARK, a sodium thiosulfate formulation intended to prevent cisplatin-induced hearing loss in pediatric cancer patients. The company reported no revenue for the periods presented.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $800 | $1,121 | $3,216 | $2,514 |
| General and administrative expense | $3,120 | $3,724 | $5,627 | $6,166 |
| Operating loss | $(3,920) | $(4,845) | $(8,843) | $(8,680) |
| Net loss | $(4,001) | $(4,845) | $(8,734) | $(8,671) |
| Basic and diluted loss per share | $(0.15) | $(0.21) | $(0.34) | $(0.40) |
| Cash used in operating activities | $(4,426) | $(3,116) | $(8,019) | $(6,865) |
At June 30, 2021, cash and cash equivalents were $27.293 million, down from $30.344 million at December 31, 2020. Working capital was $27.226 million, compared with $29.070 million at year-end. Total assets were $28.115 million, total liabilities $5.834 million, and shareholders’ equity $22.281 million. There is no meaningful operating margin to report because the company had no revenue.
The company drew $5.0 million under a new Bridge Bank term facility in June, leaving $4.986 million of long-term debt net of discount at quarter-end. Term Loan A bears interest at 1 percentage point above prime, has interest-only payments through February 2023, and matures July 1, 2025. The company must maintain cash of at least three times its monthly cash burn, as calculated under the agreement. Cash flow from financing activities was $4.968 million for the quarter and six-month period.
Material changes versus comparable periods
- Q2 net loss narrowed by $844,000 year over year, mainly as operating expenses fell by $925,000. R&D expense declined $321,000 and G&A declined $604,000.
- For the first six months, net loss increased by $63,000 year over year. R&D expense rose $702,000 as the company prepared its NDA resubmission, while G&A expense fell $539,000.
- Six-month operating cash use increased by $1.154 million year over year. Management attributed the period’s cash decline primarily to operating expenditures, partly offset by the $5.0 million loan draw.
- Employee stock-based compensation was $1.913 million for the first six months, versus $913,000 in the prior-year period. Common shares outstanding increased slightly to 26.007 million; options outstanding rose to 3.653 million from 2.952 million at year-end.
Outlook, risks, and unusual items
- PEDMARK regulatory status: FDA issued a Complete Response Letter in August 2020 identifying deficiencies at the third-party manufacturing facility; the company said no clinical safety or efficacy issues were identified and no further clinical data were required. Fennec resubmitted the NDA in May 2021; FDA accepted it for filing in June and set a November 27, 2021 PDUFA target action date.
- Funding outlook: Management believes existing cash and the Bridge Bank facility are sufficient for planned activities for at least the next 12 months, including anticipated NDA approval and a potential initial U.S. launch. This is an estimate, not a guarantee; management expects higher cash outflows for pre-commercialization and launch activities and says additional capital may be needed thereafter.
- Conditional borrowing: The $20 million facility consists of $5.0 million funded at closing, $7.5 million available upon U.S. NDA approval, and $7.5 million contingent on achieving $11 million of consolidated trailing six-month revenue on or before December 31, 2022. The latter tranches are not committed cash on hand.
- Contingencies: A securities class action related to allegations about PEDMARK’s manufacturing-facility status is pending. The company is seeking dismissal, says it intends to defend the case, and has not accrued a loss because one was not considered probable or reasonably estimable. The outcome cannot be predicted.
- Other items and risks: The company recorded an $84,000 Q2 unrealized loss on Processa shares, but a $98,000 unrealized gain for the six-month period. It cited COVID-19 as a potential source of operational and launch disruption, though it reported no material effect to date. Money market holdings exceed the FDIC-insured amount and may lose value. The company disclosed no material changes to previously reported risk factors.
- Going concern and controls: Fennec reported recurring losses and negative operating cash flows but stated that funding was expected to cover at least the next 12 months. Management concluded disclosure controls were effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
The filing provides no quantified revenue or earnings guidance. Management’s outlook is conditional on regulatory approval, financing availability, and commercialization progress.
Most important facts for investors to verify
- Whether the FDA meets the November 27, 2021 target date and whether any further manufacturing or regulatory issues arise.
- Actual cash burn and runway as pre-commercialization spending increases, including compliance with the bank’s minimum-cash covenant.
- Availability and terms of the conditional $7.5 million loan tranches, and the revenue threshold and deadline attached to Term Loan C.
- Progress, potential costs, and outcome of the securities class action.
- Potential dilution from outstanding options and other equity awards, as well as the impact of future financing needs.