Fennec Pharmaceuticals Inc. — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. Unless noted, financial amounts are U.S. dollars in millions. The filing is an annual report, not a quarterly filing; selected fourth-quarter results are also summarized below.
Business context
Fennec is a pre-commercial biopharmaceutical company focused on PEDMARK, its formulation of sodium thiosulfate (STS), to prevent cisplatin-related hearing loss in children receiving cancer treatment. PEDMARK was the company’s only clinical-stage product candidate. The company reported no product revenue and relied on external financing to fund development.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.936 | $0.472 |
| General and administrative expense | $5.015 | $2.399 |
| Operating loss | $(6.951) | $(2.871) |
| Net loss | $(7.046) | $(2.789) |
| Basic and diluted loss per share | $(0.47) | $(0.22) |
| Cash used in operating activities | $(3.641) | $(2.124) |
Cash and cash equivalents were $28.260 million at year-end, compared with $3.926 million in 2016. Current assets were $28.401 million and current liabilities were $1.644 million; working capital was reported as $26.924 million using current liabilities excluding the derivative liability. Total liabilities consisted of current liabilities; the filing reports no debt. Stockholders’ equity was $26.757 million, and accumulated deficit was $121.368 million. Margins are not meaningful because the company had no revenue.
Net cash from financing activities was $27.975 million. Fennec raised gross proceeds of approximately $7.6 million in a June private placement and $21.2 million in a December underwritten offering; financing cash flows also included option and warrant exercises. The company said these financings were expected to fund planned activities for the next 12 to 18 months.
Changes versus the prior period
- Net loss widened by $4.257 million, from $2.789 million to $7.046 million. Operating expenses rose $4.080 million.
- R&D expense increased $1.464 million, primarily for manufacturing registration batches in preparation for regulatory submissions.
- G&A increased $2.616 million, largely reflecting compensation and non-cash equity-based compensation; management cited a 368% rise in the share price during 2017 as a driver of equity compensation expense.
- Operating cash use increased by $1.517 million. Year-end cash rose substantially following the two equity financings.
- Shares outstanding increased from 13.643 million at year-end 2016 to 18.411 million at year-end 2017.
For the quarter ended December 31, 2017, net loss was $2.290 million, versus $1.143 million in the comparable 2016 quarter. Quarterly R&D expense was $0.886 million and G&A was $1.629 million.
Clinical progress, outlook, risks and unusual items
- Clinical results: In SIOPEL 6, a study of 109 evaluable children with standard-risk hepatoblastoma, hearing loss occurred in 37.0% of patients receiving cisplatin plus STS versus 67.0% receiving cisplatin alone among the first 99 evaluable patients (relative risk 0.56; p=0.0033). Reported three-year event-free survival was 82.1% with STS and 78.8% with cisplatin alone; overall survival was 98.2% and 92.3%, respectively. The filing says there was no evidence of tumor protection in this study.
- Additional study: In COG ACCL0431, hearing loss was reported in 28.6% of STS-treated patients versus 56.4% of controls (p=0.004); in the predefined under-five subgroup, the rates were 21.4% and 73.3% (p=0.005).
- Management outlook: Fennec planned to pursue regulatory approval in 2018, relying on pivotal SIOPEL 6 data and supporting COG ACCL0431 data. It also planned to seek European pediatric-use market exclusivity. Approval, launch timing, and commercial outcomes were not assured.
- Funding and execution risks: The company anticipated substantial further losses and cash outflows for regulatory work, manufacturing, launch preparation, and operations. It may need additional capital; financing may dilute shareholders or be unavailable on acceptable terms. Management noted that inadequate funding could force delays, reductions, or cessation of activities.
- Intellectual property and manufacturing: Fennec licensed STS-related rights from OHSU. The filing describes method-of-use patents, with licensed patents expiring in Europe in 2021 and U.S. patent applications pending. The company depended on contract manufacturers and collaborators and had no independent manufacturing capability.
- Accounting and governance: Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end because of two material weaknesses: insufficient segregation and monitoring of controls, and insufficient technical accounting expertise for unusual transactions. Management said the weaknesses had not caused material misstatements and that remediation work had begun.
- Other items: A non-cash derivative loss of $0.134 million was recorded in 2017, versus a $0.048 million gain in 2016. The 2016 comparative results included $0.040 million from the sale of Eniluracil-related assets. The financial statement audit opinion was unqualified; the auditor did not audit or express an opinion on internal-control effectiveness. No legal proceedings or material off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Regulatory submission status, agency feedback, and whether the two clinical studies support the proposed pediatric indication and benefit-risk profile.
- Actual cash burn, remaining funding runway, and any new financing or partnering needs beyond management’s 12-to-18-month estimate.
- Manufacturing readiness, registration-batch completion, and the cost and timing of regulatory and commercial supply.
- OHSU license milestones, royalties, patent coverage and duration, and the status of pending U.S. patent applications.
- Progress in remediating the disclosed material weaknesses and any resulting changes to financial reporting controls.